* HM Revenue & Customs Corporate report CUSTOMER COMPLIANCE: HOW HMRC’S COMPLIANCE YIELD IS SPLIT BY BUSINESS AREA AND OUR APPROACH TO TAX COMPLIANCE AND LARGE BUSINESSES Published 5

November 2020 CONTENTS * Compliance yield breakdown in 2019 to 2020 * HMRC’s approach to tax compliance and large businesses Print this page © Crown copyright 2020 This publication is

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COMPLIANCE YIELD BREAKDOWN IN 2019 TO 2020 HMRC has previously reported its compliance results under the headings of cash expected, revenue losses prevented, future revenue benefit, product

and process, and since 2015, Accelerated Payments. In 2019 to 2020 we have introduced a new category of upstream operational see supporting documents. We still report these in HMRC’s Annual

Report and Accounts 2019 to 2020, but we also report, below, from which specific directorate the compliance results were delivered, and the head of duty under which the risks tackled were

identified. In its 2014 to 2015 Standard Report, the National Audit Office (NAO) said that there were inconsistencies between how we recorded future revenue benefit (FRB) and product and

process yield (these classifications are explained further in HMRCs Annual Report and Accounts 2019 to 2020). FRB was reported in the year the compliance intervention concluded, whereas

product and process yield is reported when the product or process change has an impact on Exchequer receipts. At the beginning of the Spending Review 2015 period (2016 to 2017 to 2019 to

2020), and responding to the NAO’s recommendation, we started recording FRB for the future year or years in which the FRB has an impact on Exchequer receipts. The technical note published on

this topic provides more background to this methodology. The change of methodology has had no impact on the total FRB that we score, only the timing of the year in which we score it. As a

result, totals reported for the head of duty and directorate splits of compliance yield in technical notes from years prior to 2018 to 2019 are not comparable to the totals in the tables

below. The following tables show the compliance yield generated by HMRC during 2019 to 2020, broken down by directorate. Head of duty and directorate splits of compliance yield are reported

on the same basis as the Annual Report and Accounts. Based on this methodology, this results in the total yield generated of £36,948 million. LARGE BUSINESS DIRECTORATE TAX REGIME 2019-20

(£M) Corporation Tax 2,582 Excise 4,545 Income Tax 118 VAT 5,164 Other Compliance Interventions 788 Total 13,197 WEALTHY AND MID-SIZED BUSINESS COMPLIANCE DIRECTORATE HMRC’s Wealthy and

Mid-Sized Business Compliance Directorate deals with wealthy individuals (both high net worth and affluent), mid-sized businesses as well as public bodies and specialist employer compliance.

TAX REGIME 2019-20 (£M) Corporation Tax 428 Excise 0 Income Tax 2,279 VAT 2,519 Other Compliance Interventions 889 Total 6,115 INDIVIDUALS AND SMALL BUSINESS COMPLIANCE DIRECTORATE TAX

REGIME 2019-20 (£M) Corporation Tax 201 Excise 1,286 Income Tax 1,402 VAT 1,293 Other Compliance Interventions 773 Total 4,955 COUNTER-AVOIDANCE DIRECTORATE TAX REGIME 2019-20 (£M)

Accelerated Payments 113 Corporation Tax 38 Income tax 1,045 Other Compliance Interventions 908 Total 2,104 FRAUD INVESTIGATION SERVICE TAX REGIME 2019-20 (£M) Corporation Tax 162 Excise

2,329 Income Tax 324 VAT 1,045 Other Compliance Interventions 832 Total 4,692 OTHER CUSTOMER GROUP ACTIVITIES This includes: other activities in relation to Risk and Intelligence Service

activities, debt collection work and other personal tax compliance activity. 2019-20 (£M) Other compliance activities 5,885 Total 36,948 HMRC’S APPROACH TO TAX COMPLIANCE AND LARGE

BUSINESSES HMRC’s Large Business directorate works with around 2,000 of the UK’s largest and most complex businesses to make sure they pay the correct amount of tax at the right time. We

subject large businesses to an exceptional level of scrutiny; we actively investigate the tax affairs of around half of the UK’s largest businesses at any one time. The department’s

compliance strategy is based on directing our efforts where we think there’s the greatest risk of tax being unpaid. With large businesses, the money involved, and the complexity of their tax

affairs means we take a resource-intensive approach. We assign a senior professional called a Customer Compliance Manager (CCM) to each of the UK’s largest businesses. Their primary role is

to make sure the business pays everything it owes. CCMs are experts in their field and build an in-depth knowledge of the business and the sectors it operates in. They are also supported by

tax specialists for all regimes, and can call on data analysts, solicitors, audit specialists, trade sector experts and forensic accountants. HMRC’s approach is in line with internationally

recognised best practice. We continue to enhance our cooperative compliance model by further engagement with other fiscal authorities. This enables us to share best practice, to work more

efficiently with multinational enterprises (MNEs), as well as to ensure greater transparency, building public confidence about the integrity of both the UK and global tax systems. In 2019 to

2020, the Large Business Directorate achieved compliance yield of £13.2 billion, as shown in the table above. TAX UNDER CONSIDERATION Tax under consideration is an estimate of the maximum

potential additional tax liability in each case before we have carried out a full investigation of the specific facts or analysis of relevant law. It is not actual tax either owed or unpaid,

it is a tool to guide our enquiries to focus on the most significant risks that exist at any particular time with the largest businesses. In many cases, when we have looked at the full

facts, it becomes clear that there is some lesser liability or even no further liability at all. Tax under consideration will naturally vary from time to time as outstanding issues are

settled and new risks are identified. The total is a snapshot of work in progress at a given point. Tax under consideration covers all taxes and duties, including Corporation Tax, VAT, PAYE

and National lnsurance contributions. A snapshot, as at 31 March 2020, of the tax under consideration figure for enquiries by HMRC’s Large Business directorate is shown in the following

table. INACCURACY CATEGORY TAX UNDER CONSIDERATION Accounting Standards £165,217,883 Alcohol Supply Chain £49,025,054 Apprenticeship Levy £4,955,511 Assessment - NICs £655,000 Avoidance

£910,035,941 Bank Levy £113,500,118 Capital Allowances £496,881,008 Classification £6,109,743 CT Capital Gains £309,396,510 Customs Procedures with Economic Impact £597,028,215 Earnings

£74,915,684 Employment Issues £903,740,391 EU Issues £475,805,940 Expenses £5,309,941 Failure to notify £65,918,481 Financial £2,062,722,531 Gaming Duty £140,103,262 Group Litigation Order

£1,074,526,469 Input Tax Overclaimed £875,802,452 Intangible Asset Regime £1,125,015,999 International £4,116,559,756 Leasing £564,077,213 Loss Relief £639,497,211 Management Expenses

£35,942,934 Oil CT Ring Fence £106,507,508 Origin £626,468 Other Issues £1,315,535,055 Output Tax Underdeclared £1,958,537,171 Partial Exemption £366,313,925 Patent Box £144,432,420 Post

Return Amendment £35,167,112 Post Transaction Issue £269,917,500 Pre Return Work £63,019,468 PSA/Dispensation £47,151,206 Research & Development Claims £406,141,486 Research and

Development Expenditure Credit £217,045,677 Refused Repayments £2,904,077,613 Registered Trader £205,571,243 Statutory Allowances / Reliefs £32,001,152 Trading & Comps - Receipts &

Deductions £1,488,536,014 Transfer Pricing and Thin Capitalisation £10,351,463,258 Valuation £50,112,053 Voluntary Disclosure £6,106,221 Workers from abroad £46,736,492 Total £34,827,742,289

The recorded location of the ultimate parent of each group of companies covered by the Large Business Directorate as at 31 March 2020 is shown below. We have taken ‘company’ as referring to

a ‘business’ as recorded on the HMRC system – in most cases a ‘business’ will actually be a group of companies. The table below shows the location of parent companies as at 31 March 2020.

RECORDED LOCATION OF THE PARENT OF THE GROUP TAX UNDER CONSIDERATION (£BN) UK £24.6bn Non-UK £9.9bn Associated with multiple customers with UK and non-UK parented businesses £0.3bn LENGTH OF

TIME TAKEN TO RESOLVE ENQUIRIES INVOLVING LARGE BUSINESSES At any given time, around half of the largest businesses are under enquiry, often covering multiple issues and years. We record

our enquiries into tax issues as ‘risks’ and, if a single issue covers multiple years, we record this as a single risk. Risks cover all taxes and duties, including Corporation Tax, VAT, PAYE

and National Insurance Contributions. HMRC will be actively working open risks towards resolution, and our statistics include those where this requires litigation. Risks are recorded as

closed when the issue has been resolved. The stock of risks will continuously change as risks are concluded and new risks are identified and opened. By engaging with businesses in

‘real-time,’ Customer Compliance Managers identify emerging tax risks and resolve tax disputes at the earliest opportunity. Our stock of open risks is increasingly characterised by complex

and novel areas of tax law, including instances where customers are challenging HMRC’s opinion of where legal boundaries lie, or which require litigation to conclude. These risks will

typically take longer to resolve. For enquiries that concluded during 2019 to 2020, the average length of time taken to settle an enquiry was 17 months. These figures include cases in

litigation. In 2019 to 2020, the Large Business Directorate reached decision point on risks within 18 months in 84.04% of cases. CUSTOMER COMPLIANCE MANAGERS We manage the tax compliance of

large businesses through Customer Compliance Managers (CCMs) because the tax at stake, their size and complexity and the significant risk these businesses present to the Exchequer, mean that

this is the most cost-effective way of ensuring they pay the right amount of tax. The number of CCMs working in the Large Business Directorate as at 31 March 2020 was 170. BUSINESS RISK

REVIEW – BRR+ The Business Risk Review+ (BRR+) rating system was introduced by HMRC on 1 October 2019. The new BRR+ system rates large businesses based on their behaviour and strategy in

relation to tax. Under the new process, companies will be categorised as low risk, moderate risk, moderate-high risk, or high-risk, as opposed to the previous ‘low risk’ or ‘non-low risk’

categories. The new system follows a public consultation in 2017 and a trial period with a group of more than 60 large business customers. The new system provides greater clarity and

consistency for customers around the BRR+ process by: * developing clearer guidelines * having a more standardised approach * setting clearer expectations while adopting a deeper,

collaborative approach The BRR+ is a core feature of how we ensure large businesses pay the tax they legally owe. They are carried out by HMRC customer compliance managers (CCMs) who work

with each of the UK’s 2,000 largest businesses. The new process helps us focus our compliance resources where there is the greatest risk of businesses not paying the right amount of tax. It

aims to encourage businesses to reduce their risk profile with HMRC, while enabling customers to effectively understand how their risk assessment has been reached and what steps can be taken

to move to a lower risk rating. You can read consultation information on the Business Risk Review The table below sets out the number of businesses assessed to one of 4 BRR+ risk rating

categories. These ratings are the result of BRR+ exercises completed in the period 1 October 2019 to 31 March 2020. BRR+ RISK RATINGS RECORDED BETWEEN 1 OCTOBER 2019 – 31 MARCH 2020 LOW RISK

MODERATE MODERATE-HIGH HIGH 91 148 31 4 PROFITS DIVERSION COMPLIANCE FACILITY In January 2019 we launched a new Profit Diversion Compliance Facility (PDCF) and published guidance on when

and how to use it. Multinational enterprises are encouraged to use the guidance to assess whether the transfer pricing methodology used to calculate their profits for Corporation Tax

purposes might be incorrect. If so, they should prepare and submit a report with proposals to settle any liabilities due. A large number of businesses have registered to use the facility. A

new PDCF reports panel of senior HMRC tax specialists met twice in 2019 to 2020 to consider the first disclosures. At least 2 designated international tax specialists review each disclosure

report received and make a recommendation to the PDCF reports panel on whether to accept the customer’s proposal and the panel decide whether or not to accept that recommendation. These

cases are subject to HMRC’s tax governance framework. The panel will make appropriate referrals, with recommendation, to the relevant governance boards in accordance with this governance

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