Investigation priorities of HMRC vary across different regions, according to new research findings

In a move to combat tax evasion and fraud, HMRC is ramping up its investigations, particularly targeting businesses. This shift comes after the Chancellor announced an additional £1 billion for HMRC over the next four years in last year's budget statement.

The focus of these investigations is threefold. Firstly, HMRC is accelerating scrutiny over Research & Development (R&D) tax credits claims, a scheme that has been under significant scrutiny in the last 12 months. One in 25 R&D claims are now being investigated, according to James Cordiner, Tax Investigations Manager at Markel.

Secondly, HMRC is targeting firms that fraudulently claimed furlough and COVID bounce back loans. The Insolvency Service announced over 450 directors were disqualified in 2022-23 for abusing the COVID-19 financial support scheme.

Lastly, HMRC is looking into areas where a large proportion of businesses made claims. In 2020/21, on average, around 1.6% of businesses made a claim for R&D tax relief. Regions in Great Britain that had a higher percentage of businesses claiming R&D tax relief than the national average typically include areas with strong innovation and technology sectors, such as Greater London, the South East, and parts of the East Midlands. However, specific detailed regional distribution data for 2020/21 was not found in the provided search results.

Northern Ireland (NI) had the highest percentage at 30.9%, suggesting businesses in this region may have been more in need of financial support during the pandemic. Similarly, Northern Ireland, the North East, London, the North West, and Wales were all higher than the national average of 25.7% of businesses taking out a Bounce Back Loan (BBL). London and the South West stand out as the only regions with a significantly higher proportion of the workforce being furloughed compared to the 13.6% national average.

HMRC's increased investigations can have significant implications for businesses. Tax investigations can last for between 18-24 months and cost businesses an average of £5,000 in excess accounting fees. Therefore, James Cordiner emphasized the importance of defending any HMRC check appropriately based on the facts of the case.

In response to these increased investigations, HMRC has recruited 4,800 new compliance staff, leading to 2,500 more in full-time employment than in 2021-22. This expansion of HMRC's workforce is expected to bolster their efforts in combating tax evasion and fraud.

In conclusion, HMRC's intensified focus on businesses is a significant development in the fight against tax evasion and fraud. Businesses should be prepared for increased scrutiny, particularly in the areas of R&D tax credits, furlough, and COVID bounce back loans. It is crucial for businesses to maintain accurate records and seek professional advice when necessary.