Tax Investigations – where might HMRC focus in 2025
Tax Investigations – where might HMRC focus in 2025
Although investigations into tax are not new, HMRC have made it clear that they are recruiting extra staff to complete more ‘compliance checks’ than ever before – so where will they be looking to complete these checks?
It is of course expected that HMRC will increase its attention on individuals and businesses whom they suspect may owe tax to the Treasury. In 2025, this increased compliance activity will likely touch upon a range of areas.
HMRC’s ambition
HMRC has announced a variety of compliance initiatives that includes investing in additional compliance and debt management staff, modernising debt management IT systems, and increasing the late payment interest rate charged by HMRC on unpaid tax liabilities by 1.5%.
From HMRC’s perspective, the return rate on compliance activity is £22 for every one pound spent, hence the increase in investment, and who wouldn’t with a return that good!
The strategy HMRC have adopted is centered around closing the tax gap – the difference between the tax actually collected and the amount which theoretically should be collected. In the latest published figures, the tax gap was estimated as 4.8% (£39.8bn) and is attributed to error, avoidance and abuse, which HMRC is aiming to tackle.
HMRC therefore aims to recruit 5,000 compliance officers. Additionally, the access to higher quality data means that compliance activity through enquiries and interventions will be mostly information led, rather than at random, which was historically the case for a large number of enquiries.
The following are areas that are likely to be investigated, but there will inevitably be others….
Crypto
Crypto asset owners have recently been the ‘target’ of nudge letter campaigns, a trend that will continue in 2025. Historically, nudge letters relating to crypto assets reminded owners of their obligation to report transactions, but the most recent communications go a step further.
Crypto exchanges have been reporting user information to HMRC, meaning it now has specific information relating to taxpayers who have made a disposal, which it has compared to their tax filings or lack thereof.
Therefore, if you receive a nudge letter it means HMRC has a specific concern that your tax is not correct based on information it has received.
R&D tax relief enquiries
HMRC has been casting a wide net over research and development (R&D) claimants, now checking one in five applications, compared to every one in a hundred previously.
HMRC seems to be targeting everyone! In many cases, such compliance checks are made without appearing to review or reference the submitted R&D supporting information.
Your accountants should be assisting you to complete your R&D and advising how to pursue any enquiries.
VAT on private school fees
For school terms starting 1 January 2025 onwards, VAT is being charged for the first time. We have already heard about several creative approaches to tackling this and expect HMRC to monitor these closely, to ensure the payments adhere to the rules in force.
However, HMRC app usage increased by 64% last year, and was used by nearly four million people, a trend that looks set to continue. And whilst HMRC has been actively reducing the amount of telephone contact it has with taxpayers in favour of digital services, it has confirmed there are no plans to close the helplines.