HMRC redirects resources to VAT ‘interventions’

A recent freedom of information (FOI) request by RSM UK has revealed that while HMRC has cut support for taxpayers seeking help, the number of VAT interventions (which includes but is not limited to visits to taxpayers’ premises) has increased an astonishing 82% over the last two years. In the last 12 months, this increase seems to have primarily focused on wealthy and mid-sized businesses (up 60%), presumably on the basis that such interventions are likely to yield additional VAT revenue. 

Since the pandemic and the UK’s departure from the EU, there have been a slew of complaints from representative bodies on the level of support offered by HMRC. Most recently, HMRC announced a limitation of the service of its self-assessment (SA) helpline as we approach the deadline for SA tax return submissions. While there is little doubt that the resources available to HMRC to manage its responsibilities have fallen, it is interesting to learn where HMRC is directing its staff. 

The FOI request shows the total number of VAT interventions (visits or enquiries by HMRC on taxpayer affairs) have risen from 60,066 in the 12 months to 31 March 2021, to 109,413 in the 12 months to 31 March 2023. As the number of interventions includes remote investigations, pandemic lockdown restrictions may not particularly affect the totals. The increase suggests a change in HMRC resource allocation in the period. 

HMRC’s response reveals more information on the allocation of their resources. While the number of interventions involving large and mid-sized businesses dropped between 2020-21 and 2021-22, in 2022-23, the number of interventions for this group as a whole increased 56%. This suggests that HMRC is increasingly focusing on those taxpayers that are most likely to be responsible for collecting large values of VAT, and thus are prone to high value VAT accounting errors.

Lastly, our anecdotal experience is that HMRC’s approach to large business interventions is by way of thematic nudge letters. This means that several businesses operating in the same sector will receive almost identical letters seeking information on a specific VAT accounting issue. While this approach is undoubtedly more efficient for HMRC, it can create a significant compliance burden for the businesses that are attempting to comply.