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HMRC has collected over £70m in extra tax in the past year from multinational businesses who voluntarily admitted diverting profits overseas, according to law firm Pinsent Masons.
It also opened 147 new investigations last year into businesses’ use of what is known as ‘transfer pricing’ – the allocation of costs and income between business units in different countries – which can be used to potentially reduce their tax paid in the UK.
The law firm said this has become a major area of focus for HMRC due to the sheer scale of the tax potentially lost. In 2022, HMRC estimated that it may have lost up to £9.3bn in tax in this way in the previous year.
Sam Wardleworth, senior associate at Pinsent Masons, said: “HMRC is now particularly vigilant to multinationals diverting profits abroad to reduce their UK tax bills. It is an area where HMRC is increasingly focusing its investigations. Any that have done so should consider coming forward to avoid the worst penalties.”
Pinsent Masons explained that corporations have come forward and paid the £70m voluntarily through HMRC’s ‘Profit Diversion Compliance Facility’. Using this facility, businesses can voluntarily disclose structures or arrangements that would fall foul of the Diverted Profits Tax, which is charged at a higher rate than corporation tax. The facility also potentially allows them to secure reduced penalty rates.
Wardleworth said: “HMRC’s approach has been quite successful in persuading multinationals to come forward and admit they have shifted profits overseas and reduced their tax in the UK. The alternative is a costly tax investigation, which both businesses and HMRC would prefer to avoid.
“Businesses that wait for HMRC to investigate them are more likely to be hit with higher ‘geared penalties’. That can quickly become very expensive. Proactively engaging with HMRC to deal with the problem is likely to be a far better approach.”
He added: “HMRC would strongly prefer businesses to contact it voluntarily to regularise their tax affairs, but it is certainly not afraid to investigate those who don’t.”
