HM Revenue & Customs returned no money on almost half (47 per cent) of its investigations concerning individual and small business compliance during the 2020-21 tax year, when the pandemic first hit.
According to a Freedom of Information request, submitted by accountancy network UHY Hacker Young, HMRC closed 203,000 of these cases during this period yielding a total of £3.74bn.
But 96,000 of these cases generated no money, making up 47 per cent of the case total. This is compared with 2019-20, when non-lucrative individual and small business compliance cases made up 31 per cent.
Graham Boar, a partner at UHY Hacker Young, said the statistics show HMRC “is coming up short” in too many of its investigations.
He added: “Taxpayers need reassurance that there is a valid reason for an investigation to be opened into their affairs and that time and stress isn’t wasted on cases that will yield no results.”
Historically, there have been worse years for tax intake from HMRC investigations. In 2018-19, the taxman closed 332,000 cases generating £4.95bn. Of these cases, 129,000 generated nothing.
An HMRC spokesperson said: “Decisions on when and where to intervene are not driven solely by the amount of money that it may recover, we also consider the broader impact our interventions will have on compliance in the tax system as a whole.
"It’s important for taxpayers to know we cover all parts of the economy impartially, so they can be confident they aren’t being disadvantaged. Some of our interventions, such as educational visits, don’t aim to bring in yield. If our compliance check shows there is nothing wrong, we’ll bring it quickly to an end."
In the FOI, the government department said the unprecedented economic shock caused by Covid-19 had resulted in a fall in tax receipts during 2020-21.
During that year, the UK’s overall tax take was down by £49bn - an 8 per cent overall drop in revenue for HMRC. Corporation tax receipts made up the most of this total, falling by almost £12bn.
The tax department has been targeting celebrities of late through IR35, which is designed to tax 'disguised' employment at a rate similar to employment.
Most recently, Radio 5 Live presenter Adrian Chiles won a seven-year long tax liability case to the tune of £1.7mn against the tax collector.
In November 2021, former Sky Sports TV presenter Dave Clark lost his IR35 appeal against HMRC, which saw him handed a £281,000 tax bill. TV sports host Gary Lineker's £4.9mn tax battle continues, whilst broadcaster Lorraine Kelly won her case over a £1.2mn bill.
ruby.hinchliffe@ft.com
