Rachel Reeves’ attempt to crack down on tax avoidance by businesses has backfired.
In a blow to the Chancellor, Revenue and Customs (HMRC) has recovered less in unpaid VAT than last year – despite a big rise in investigations by the taxman.
Probes into unpaid VAT by firms raked in £10.8 billion in the 2024-25 financial year, down from £11.3 billion the previous year. Value Added Tax is one of the top three revenue raisers for the Treasury, which has raked in £180 billion this year.
HMRC investigations into unpaid VAT by medium-sized businesses surged by more than 33 per cent during the year, while those into large firms rose 2.9 per cent, research compiled by Thomson Reuters showed.
Despite this, the data provider revealed that the amount of unpaid VAT being recovered from medium-sized firms was down 20.5 per cent during the year at £1.8 billion, while for large companies the number had fallen 8.6 per cent to £5.3 billion.
The only increase in takings was from individuals and small businesses, where the amount of recovered VAT rose 4.3 per cent year-on-year to £1.9 billion following a 4.3 per cent rise in the number of investigations.
Blow: HMRC has recovered less in unpaid VAT than last year – despite a big rise in investigations by the taxman
The falling total presents a headache for Reeves as she looks for ways to fill an estimated black hole of up to £50 billion in the public finances.
In the Spring Statement in March, Labour said it aimed to raise £7.5 billion by cracking down on tax avoidance. Last week, HMRC said it would begin taking money directly from the bank accounts of those who ‘can afford to pay what they owe but are choosing not to’.
Ray Grove at Thomson Reuters warned that some innocent firms could be hit as ‘HMRC may be inclined to see a simple error as potential evidence of tax avoidance or evasion’.
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