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HMRC targets directors of UK’s biggest firms

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21/11/2012
HM Revenue and Customs (HMRC) is pursuing the directors and senior executives of the UK's largest companies for underpaid taxes.

According to international law firm Pinsent Masons, HMRC’s Large Business Service is investigating directors and senior executives for £400m worth of underpaid taxes – including PAYE, and National Insurance Contributions.

This is 43% higher than the £280m under investigation last year.

Pinsent Masons says the sharp rise in directors’ taxes under the microscope has been driven by the upswing in HMRC compliance activity, as well as investigations into avoidance linked to the 50p tax rate and the temporary special tax on bank bonuses.

Jason Collins, partner at Pinsent Masons, says HMRC has increased its focus on executives as they are a potentially lucrative source of extra tax revenue – particularly with executive pay rocketing over recent times.

HMRC has taken a particular interest in cases where income or an individual’s role at a company has been structured to reduce their tax burden, particularly their PAYE or national insurance contributions, he says.

“The introduction of new taxes for higher earners, such as the 50p marginal tax rate, mean HMRC will be on increased alert for any new forms of tax avoidance.

“The 50p tax brought in less than expected, so this may have set alarm bells ringing for tax investigators.”

HMRC will look at whether ‘abusive’ tax avoidance or evasion has taken place, and will demand extra tax if they feel it is due, Collins says.

Pinsent Masons says that the value of tax HMRC has under investigation will have also been boosted by added powers gained by HMRC to tackle ‘disguised remuneration’ – where pay that would normally be subject to income tax or national insurance is artificially structured in a such a way that these taxes are avoided.

According to Collins, HMRC has been set some “daunting targets” to hit in terms of cracking down on tax avoidance, so inspectors will be broadening their scope when identifying taxes that they think have been underpaid.

“There are things that HMRC previously wouldn’t have looked at too closely, but now it will. HMRC has also been given new tools to tackle disguised remuneration and they haven’t been afraid to use them,” he says.

The National Audit Office said today that HMRC has failed to halt the widespread use of “highly contrived” tax avoidance schemes.

HMRC has 41,000 open avoidance cases on its books and the schemes are thought to cost the exchequer £10bn in lost tax.

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