HMRC’s investigations into individuals and small businesses produced a yield of approximately £16 for every £1 spent on staff last year, according to research by international law firm Pinsent Masons.
The firm said the “huge” return on investment in staff outweighs returns seen by other private sector businesses.
Whilst HMRC’s focus is primarily on large companies, the “high level” of returns it received from investigations into individuals and small businesses after it invested more into staff targeting this taxpayer group.
According to the research, HMRC collected £4.9bn in extra tax from investigations into individuals and small businesses in 2018-19, but only had to spend £309m on staff to achieve that.
The extra tax included £1.2bn from investigations into underpaid Income Tax.
Steven Porter, partner at Pinsent Masons, said: “For HMRC, this is an outstanding result. These returns will spur HMRC on to do more – taxpayers can therefore expect more attention and more investigations.”
“Individuals and small businesses are more vulnerable to tax investigations as they are less likely to have access to advisers who can shut HMRC down.
Pinsent Masons also said that a “key area” of focus for HMRC was individual self-assessment tax returns. If it identifies any mistake on a tax return, HMRC can conduct an audit of returns filed in previous years too, “increasing the likelihood” that it will find further mistakes.
Its ability to identify mistakes has also been bolstered in recent years by a range of new data sources and civil powers at its disposal.
HMRC now receives data from over 100 tax authorities worldwide through the Common Reporting Standard and can use production orders to retrieve documents from taxpayers’ accountants and lawyers.
Andrew Sackey, partner at Pinsent Masons, said: “HMRC’s data-led approach is proving incredibly effective, driving efficiency and ultimately boosting returns from investigations.”
HMRC’s Individuals and Small Business Compliance (ISBC) directorate manages the tax compliance of individuals and small businesses, which it classes as a company with fewer than 20 employees and an annual turnover below £10m.