It now takes an average of almost three and a half years to complete tax investigations by HM Revenue & Customs into the UK’s largest companies, according to new analysis by multinational law firm Pinsent Masons.
The research shows open tax investigations carried out by HMRC’s Large Business Directorate (LBD) take an average of 41 months, around three years and five months, although this is slightly faster than last year’s average of 45 months.
The number of active cases has also increased, rising from 2,031 to 2,149 last year. The increase reflects both HMRC’s efforts to crack down on tax infringements and the significant time required to process complex corporation tax queries.
HMRC’s Large Business Directorate focuses on the UK’s largest companies, around 2,000 companies with an annual turnover of over £200 million. Together, these companies account for around 40 percent of all taxes collected by the British government.
With more than 2,100 investigations currently pending, the figures suggest that around half of the UK’s largest companies are subject to some form of tax scrutiny at any given time. In many cases, companies face multiple simultaneous inquiries about different aspects of their tax affairs.
Jake Landman, partner and head of tax litigation at Pinsent Masons, said the growing number of cases partly reflected HMRC’s efforts to close the UK’s estimated £47bn tax gap, the difference between the amount of tax owed and the amount actually collected.
“The increase in open investigations is due to HMRC’s increased efforts to close the tax gap, as well as the time required to complete complex corporate investigations,” he said.
Last year alone, HMRC opened 1,879 new investigations against large companies, an increase of 21.1 per cent, representing 327 additional cases compared to the previous year.
Landman warned that prolonged investigations can place a significant operational and financial burden on companies, particularly during a time of economic uncertainty.
“Having companies’ tax affairs investigated for three, four or even five years runs counter to efforts to make the UK a more business-friendly environment,” he said. “Protracted investigations create additional administrative and financial burdens at a time when business trust is already fragile.”
Corporate tax disputes can be particularly complex, often involving international business operations, transfer pricing arrangements and disputes over the interpretation of evolving tax laws. These factors often contribute to a longer examination time.
However, the data also shows that HMRC has made some progress in clearing its backlog. The tax office closed 1,761 cases last year, compared to 1,617 the previous year.
This improvement has helped reduce the average exam time by four months year-over-year.
“HMRC deserves credit for reducing the average time it takes to complete investigations,” Landman said. “However, the fact remains that some cases remain open for longer than four years, highlighting the need for additional resources if the system is to become more efficient.”
The issue is increasingly being scrutinized by lawmakers. The Public Accounts Committee is currently conducting an inquiry into HMRC’s approach to tax compliance for large companies.
The parliamentary inquiry is examining how effectively HMRC is ensuring that multinationals and large UK groups pay the correct amount of tax, and whether the current inquiry process strikes the right balance between enforcement and maintaining a competitive business environment.
In its call for evidence, the committee asked businesses, advisers and experts to provide insights into the way HMRC deals with tax disputes with large companies and whether improvements are needed to reduce delays and increase transparency.
The investigation is part of a wider debate about the UK’s tax enforcement system, particularly at a time when government finances remain under pressure and policymakers are looking for ways to improve compliance while maintaining the country’s attractiveness to global investors.
For many large companies, the findings highlight the growing complexity of the UK tax landscape and the increasing importance of robust tax governance and compliance frameworks as scrutiny from regulators intensifies.
