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September 26, 2022

UK’s automotive industry seen by HMRC as risk for underpaid tax

By Zoya Malik

  • Retailers can also be expected to be targeted – thought to be underpaying £3.5bn in tax

The amount of tax that HMRC thinks that the UK automotive industry* is avoiding has jumped by 143% over the last year from £182.3m to £444.2m, making it the biggest increase in underpaid tax of any business sector says PfP, the tax investigation insurance experts.

PfP adds that the increase in suspected tax avoidance in the automotive sector means that the industry can expect to be the focus of a sharp increase in tax investigations over the next year.

Other industries that can expect to see a large rise in tax investigations include the the oil & gas industry, where HMRC believes underpaid tax has jumped by 11% from £1.84 billion last year to £2 billion this year.

Real estate businesses are also expected to be a focus for HMRC in the year ahead with the amount of underpaid tax in that sector rising from £471m last year to £493m this year.

Areas that HMRC will be looking for underpaid tax in the automotive industry and oil & gas industry will include the tax treatment of self-employed contractors that HMRC believes should really be classified as employees. Paying a worker as a contractor rather than an employee means that the employer can avoid paying employers’ NIC.

Across the UK’s Top 2000 businesses HMRC believes that employers underpay £1.4billion in taxes relating to employment and a further £67m in taxes on expenses and perks for managers and directors.

Adds Kevin Igoe, Managing Director PfP: “HMRC follows the money. It goes after where it thinks the most tax is avoided and where it thinks it has cases it can win easily.”

“We’re expecting a continued pressure on retailers from HMRC. One of the specific concerns that HMRC has is that retailers are now using software that allows them to take money both online and at tills without that sale registering for tax purposes.”

Last year HMRC undertook 30 raids on the same day in an effort to crack down on retailers and restaurants using software to commit “point of sale” fraud.

Kevin Igoe says that he expects to see a continued increase in tax investigations over the next year.

Explains Kevin: “Obviously, the Government’s finances are not looking very healthy which means more tax investigations. We saw a similar sharp rise when public finances deteriorated during the global financial crisis.”

The total amount of tax that HMRC believes that the UK’s Top 2000 businesses have underpaid in taxes is £34.3billion.

*Tax underpaid or avoided based on HMRC’s figures for tax “under consideration” for UK’s largest 2,000 businesses. This is an estimate of the additional tax that HMRC believes is underpaid by businesses, prior to investigations being completed.

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