Today the National Audit Office (NAO) publishes its first assessment in over a decade of how effectively HMRC is chasing the missing tax revenues of Britain’s biggest companies.
TaxWatch was pleased to give evidence to the NAO’s enquiry, whose headline finding is that large business ‘compliance yield‘ – unpaid taxes that were recovered or prevented by HMRC’s efforts – has doubled over the last three years. This figures covers the 2,000 largest corporate taxpayers managed by HMRC’s Large Business Directorate: typically those with a turnover greater than £200 million, or gross assets over £2 billion. The NAO considers rising compliance yield to be a sign that HMRC’s efforts to get these big companies paying their due taxes are good value for money. Which is crucial, given that 39 percent of the nation’s tax revenues is paid by or through[1] these 2,000 corporate giants.
(Interestingly, the fact that large business compliance yield is rising much faster than the large business ‘tax gap’ has garnered positive headlines this morning, echoing the verdict of the NAO’s head that HMRC has developed “an efficient and effective approach to ensuring large businesses remain tax compliant“. By contrast, when the NAO found the same thing last May about wealthy individuals it led to news stories that “Tax dodging by the rich could be ‘much greater than thought’”, questioning whether bumper compliance yield meant HMRC was grossly underestimating the ‘wealthy tax gap’).
The NAO’s findings beg another question, though, which lies slightly outside the remit of their report: what does this rising compliance yield mean about how much the UK’s biggest companies are avoiding paying their due taxes? Are the UK’s largest companies tax heroes or tax sinners?
In the money
One way to read today’s NAO report is purely positive: HMRC is recovering a growing amount of missing tax from the biggest businesses. Even discarding unusually large settlements with a single business in 2019-20 and 2024-25, compliance yield from large businesses is up two-thirds from 2021-22. Though as Figure 1 shows, today’s celebratory headlines overlook the fact that 2021-22 was a historically low mid-pandemic period of compliance activity. Nonetheless a return above pre-pandemic form is a reason to celebrate both the tax authority and tax-compliant large companies.
But rising compliance yield also means – logically – that there’s a growing amount of those companies’ due taxes that are only being paid after HMRC’s intervention.
The idea that some big businesses may still be pushing the boundaries of the acceptable is borne out, in part, by the detail of HMRC’s own estimates of the large business ‘tax gap’: the amount of tax that it estimates the biggest companies are failing to pay every year.[2] This measure fell precipitously in the 2010s with a raft of domestic measures against corporate tax avoidance and changes to international tax rules. Strikingly, though, it’s risen by £1.9 billion since 2020-21. The NAO attributes this recent increase principally to a rise in the subset of the gap that covers VAT, which is notoriously volatile due to trade fluctuations. That said, a similar trend is actually visible in large businesses’ missing corporation tax, which is much less volatile. The gross large business corporation tax gap – the tax that HMRC estimates goes unpaid until and unless it does something about it – has risen by over £2 billion since 2017-18, a striking reversal of longer-term trends (Figure 2). It’s also rising (more slowly) as a percentage of large businesses’ theoretical corporation tax liabilities.
That’s a story that runs counter to the one we’re usually told: that the era of large business tax dodging is largely over. ‘Big 4’ accountancy firms no longer retail tax schemes to large corporates, and international initiatives to tackle profit-shifting and tax havens have cleaned up multinationals’ tax behaviour. That’s the story that justifies HMRC’s ‘cooperative compliance’ approach even with those corporate giants it thinks pose the biggest risks of not paying their due taxes: as it told the NAO, “large businesses are generally compliant and cases of egregious behaviour are rare“. Measures to take a harder line with unco-operative large businesses are almost never used.
For instance: in response to criticism from the Public Accounts Committee and others that penalties were difficult to impose on large businesses that were “habitually aggressive tax planners”, especially in transfer pricing cases, in 2016 the government introduced a specific penalty framework — the ‘persistently un-cooperative large businesses regime’ — which allows HMRC to publish the names of large businesses that hinder HMRC enquiries or engage in aggressive tax planning, and to impose strict liability penalties on those using tax avoidance schemes or interpreting tax law in clearly speculative ways. HMRC at the time said that this regime filled “a gap in the armoury.” Yet nine years on, we learn today from the NAO that HMRC has still never applied the regime to any company. Similarly, though penalties on large businesses in 2024-25 were nearly four times the number in 2021-22, HMRC suspended over 70 percent of the penalties it has issued over that time, the NAO says, to reward large businesses’ subsequent compliance.
HMRC also wrote publicly in January 2025 that “there are a number of large businesses under civil or criminal investigation with HMRC’s Fraud Investigation Service”. However, it has been unable to provide TaxWatch – or the NAO – with the numbers of civil or criminal investigations into fraud involving large businesses it had completed or were currently running. HMRC told TaxWatch that this information was not readily available because records held by its Fraud Investigation Service (FIS) are based on individuals, and do not systematically record the companies associated with those individuals. (It remains unclear whether the lack of cases recorded primarily under the name of a company means that there are no companies which are themselves the primary target of investigation, or that FIS’ record-keeping system simply does not allow such categorisation). On the criminal side, figures in today’s NAO report suggest that activity is extremely sparse: in the six years since 2019-20 criminal investigations relating to large business non-compliance resulted in five prosecutions and three convictions.
On the hunt
HMRC enquiries are nonetheless chasing ever more taxes they believe are missing from big companies’ tax returns: the stock of “tax under consideration” in compliance officers’ outstanding tax enquiries with large companies is rising (Figure 3). Strikingly, we learn from today’s NAO report that this “tax under consideration” rose dramatically last year, growing by over £17 billion in just the six months from March 2025 to September 2025.
‘Tax under consideration’ doesn’t necessarily equal tax avoided or evaded: many enquiries end up finding that a smaller amount of extra tax is due, or none at all. Nonetheless: unless HMRC’s large business tax compliance officers are chasing rainbows, this major uptick in HMRC’s compliance efforts against big businesses does suggest that they believe there is a significant chunk of their tax bills that isn’t yet being collected.
That uptick includes a bumper £4.5 billion (at March 2024) of tax under consideration in enquiries into what HMRC classifies as profits diverted through ‘contrived arrangements’ to try to minimise large companies’ tax liabilities. That’s up over £2 billion from two years previously – another figure that runs against the narrative that if big companies are underpaying tax these days, it’s due almost entirely to legitimate, gentlemanly disagreements over tax law. Despite the fact that the amounts of tax on ‘diverted profits’ being pursued by HMRC have risen in recent years – apparently from a shrinking number of hard-core corporate taxpayers (Figure 5) – the tax authority is continuing to insist on a non-confrontational, co-operative approach. A recent Freedom of Information request from TaxWatch found that five or fewer cases with a diverted profits element are currently being litigated. A forthcoming report from TaxWatch is going to be exploring why that is.
The stakes are high
It’s important to get this right. The biggest companies pay a lot of tax – not because their tax burden is higher than smaller businesses, but because they are so large and dominant in our economy. This concentration of business profits in a small number of companies means that making sure large businesses pay their due taxes is an extremely effective use of public money. TaxWatch’s annual ‘State of Tax Administration’ report has found that for every pound that HMRC spent across all its divisions on recovering or preventing unpaid tax from large businesses in 2024-25 it generated around £58 of tax protected or recovered. Today’s NAO report puts that figure even higher for the efforts of Large Business Directorate specifically: £95 of revenue for every £1 spent. (By comparison, the ‘return on investment’ for non-wealthy individuals’ tax compliance was just £6.50).
We need to keep resourcing those compliance efforts. Last year’s Spending Review gave HMRC an annual budget cut of 1.5% over the next five years – including the deepest capital budget cuts of any government department (24 percent cuts annually to 2030). That’s a false economy.
Little and large
Two weeks ago TaxWatch looked at conflicting views about the tax compliance of small businesses. Parliament’s Business and Trade Committee recently argued that enhanced tax compliance measures are crushing small businesses, especially around R&D credits. We examined the real reasons for these increased burdens: an epidemic of erroneous and fraudulent tax relief claims starting in the late 2010s, coupled with a multi-billion-pound increase (according to HMRC’s ‘tax gap’ estimates) in small businesses under-declaring their taxable profits. Last year’s tax gap figures garnered headlines that HMRC had ‘lost control‘ of small business, now responsible for 60 percent of the overall tax gap according to HMRC estimates.
There’s undoubtedly a major problem with errors, mis-statements and outright evasion in the tax returns of some small businesses. It appears to be growing, and it’s costing us tens of billions of pounds of tax revenue every year. But today’s large business figures, and longer-term trends in the fruits of HMRC’s tax enquiries, suggest that some big companies’ practices of pushing the tax envelope isn’t just old history either.
HMRC insists that very little of the missing tax that they pursue from large businesses is outright tax evasion. Evasion makes up just 2 percent of the large business tax gap, they estimate, compared to 14 percent across all taxpayers.
Yet the fact that HMRC classifies the taxes they’re chasing from big businesses as profit-shifting or ‘boundary pushing’ rather than tax evasion doesn’t mean that they’re a less urgent problem.
And that’s before we get to the kinds of tax arrangements that the law largely allows. A minority of multinationals are still able to book billions in profits in tax-haven subsidiaries with few employees. That’s the kind of structure that’s supposed to be tackled by a new global minimum tax (‘Pillar 2’) agreed in 2021 – and which the UK government and other G7 countries are now seeking to loosen, at the behest of the US White House and at the potential cost of around $40 billion of tax revenues globally every year, TaxWatch estimates. (Today’s NAO report mentions this move, and notes quietly that “[t]here is significant uncertainty over the impact and effectiveness of the two-pillar reforms over the coming years.“)
Meanwhile reliefs and carve-outs in UK tax law continue to produce tax windfalls for some corporate giants, with perverse outcomes that run counter to their intention, Last year TaxWatch found that a single pharmaceutical giant has claimed a quarter of all UK tax relief for patent-related innovation, reducing their tax bills by over £3 billion. Intended to stimulate knowledge development, manufacturing and jobs across the UK economy, this tax break has even reduced taxes on profits paid into UK subsidiaries from sales of drugs that weren’t developed or manufactured in the UK, and for some of the time weren’t even available to NHS patients.
Today’s figures on the missing taxes from big corporates that HMRC has recovered or prevented are good news. But they’re also a warning: we still need to keep an eye both on corporate giants’ tax returns, and on the way that tax law itself treats their tax behaviour.
Photo by Kevin Matos on Unsplash
[1] For example, employment taxes collected by these companies from their employees via PAYE and remitted HMRC.
[2] Annual compliance yield and the annual tax gap are different measures and are not directly comparable. Compliance yield – the actual missing tax repaid or protected by HMRC’s efforts during a given year – can cover tax that was due in multiple previous years, and also interest and penalties. The tax gap is an estimated figure for tax going unpaid in a single tax year due to error, tax fraud/evasion, tax avoidance schemes, taxpayers’ failure to take reasonable care over their tax returns, non-payment, undeclared taxable income, and differing legal interpretations of tax liabilities. Tax gaps are usually reported ‘net’, after taking into account the likely amount that will be recovered through compliance efforts, though HMRC also publishes gross (‘pre-compliance’) figures for some elements of the tax gap.
