HM Revenue & Customs (HMRC) has intensified its scrutiny of Britain’s larger businesses, with VAT investigations surging by nearly a third over the past year.
Probes into unpaid VAT by large and medium-sized enterprises reached 11,894 in the 12 months to March 2025.
This represents a 31 per cent jump from the 9,071 investigations conducted during the preceding year.
The escalation forms part of the Government’s push to narrow the gap between taxes owed and taxes actually collected.
Overall VAT probes, encompassing smaller firms and individuals, also climbed from 103,790 to 110,300 across the same period, signalling a broader enforcement drive by the Treasury’s tax collection arm.
The crackdown comes as ministers have made closing the so-called tax gap a central priority for HMRC, which answers to the Treasury.
A shortfall between what taxpayers owe and what they actually hand over stood at £46.8billion, or 5.3 per cent, in 2023-24, the most recent complete year on record.
The estimated VAT-specific gap expanded to £11.9billion in 2024-25, having been £8.9billion 12 months earlier.
VAT investigations rise 31 per cent as tax gap hits £46.8billion
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The scale of enforcement activity is particularly pronounced among Britain’s biggest corporations.
According to the freedom of information request submitted by law firm Pinsent Masons, roughly one in every three large companies were subject to a VAT investigation during the past year.
Completed probes into the UK’s largest enterprises yielded £5.3billion, averaging £8.6million per case.
Bryn Reynolds, partner at Pinsent Masons, said: “With a VAT gap in the billions of pounds, large and midsized businesses are facing a high level of scrutiny from HMRC.”
Ministers have made closing the so-called tax gap a priority
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GETTYHe added: “The stakes are high, not just in terms of potential assessments, but also regarding reputational and operational risk.”
The surge in investigations may partly reflect enhanced technological capabilities at the revenue authority.
Ed Saltmarsh, tax technical manager at the Institute of Chartered Accountants in England and Wales, said: “Investigators now have a much richer picture of trading activity than was previously available.”
He said improvements in HMRC’s data matching and analysis systems had strengthened enforcement capabilities.
Mr Reynolds identified incorrect legal interpretations of VAT regulations as a primary cause of underpayment, alongside businesses testing the boundaries of existing rules and calculation errors.
Tax professionals have highlighted that VAT regulations have grown increasingly complex for businesses to navigate, with the food and drink sector proving particularly problematic.
Emma Rawson, director of public policy at the Association of Taxation Technicians, said: “It’s over 30 years since the famous VAT case which looked at whether a Jaffa Cake is a biscuit or a cake, but we still see unusual cases arising in this area.
“A recent case on the VAT treatment of giant marshmallows saw the tribunal develop a mathematical formula based on how a marshmallow is eaten, which underlines the complexity of the system.
“Overall, VAT is an area which is ripe for reform.”
HMRC said its approach is focused on higher-risk and more complex cases where accurate VAT compliance matters most.
To address the tax gap, the Government is recruiting 5,500 additional compliance officers and 2,400 debt management personnel.