Senior exec pay

HMRC is stepping up its investigations into taxes which may be underpaid by the directors and senior executives of the UK’s largest companies in an effort to recover more from the 50p rate of tax.

HMRC’s Large Business Service – responsible for the taxes paid by the 770 largest businesses in the UK – is investigating directors and senior executives for £400m worth of underpaid taxes – including PAYE, and National Insurance Contributions (NICs), Pinsent Masons says.

According to the firm, this is 43% higher than the £280m under investigation last year, driven by the upswing in HMRC compliance activity, as well as investigations into avoidance linked to the 50p tax rate and the temporary special tax on bank bonuses.

Jason Collins, Partner at Pinsent Masons, said that HMRC has increased its focus on executives as they are a potentially lucrative source of extra tax revenue – particularly with executive pay rocketing over recent times.

‘HMRC has taken a particular interest in cases where income or an individual’s role at a company has been structured to reduce their tax burden, particularly their PAYE or NICs.

‘The introduction of new taxes for higher earners, such as the 50p marginal tax rate, mean HMRC will be on increased alert for any new forms of tax avoidance. The 50p tax brought in less than expected, so this may have set alarm bells ringing for tax investigators,’ said Collins.

Collins added that HMRC will look at whether ‘abusive’ tax avoidance or evasion had taken place, and will demand extra tax if they feel it is due.

The value of tax HMRC has under investigation is understood to have also been boosted by its recent increased effort to bring in as much extra tax as possible, and by added powers gained to tackle ‘disguised remuneration’ – where pay that would normally be subject to income tax or NIC is artificially structured in a such a way that these are avoided.

‘HMRC has been set some daunting targets to hit in terms of cracking down on tax avoidance, so inspectors will be broadening their scope when identifying taxes that they think have been underpaid.

‘There are things that HMRC previously wouldn’t have looked at too closely, but now it will. HMRC has also been given new tools to tackle disguised remuneration and they haven’t been afraid to use them,’ said Collins.

Pinsent Masons adds that the jump in tax under consideration by HMRC suggests that the government may have been right to change tack on the 50p tax rate.

Said Collins: ‘As the government has said, and as these figures suggest, the 50p tax rate struggled to produce the yield that was expected. It has proved to be too easy for individuals and companies to find ways of not paying them through tax planning – probably assisted by the expectation that the rate was only intended as a short term measure so planning could merely involve delaying the receipt of income.’