HM Revenue & Customs (HMRC) has significantly increased investigations into unpaid VAT among large and medium-sized businesses, opening nearly 12,000 probes last year—a 31% rise from the previous year. This crackdown is part of a broader government effort to close the staggering £47 billion VAT tax gap.
According to data obtained through a freedom of information request, VAT investigations targeting large companies soared to 11,894 in the year ending March 2025, up from 9,071. The total number of VAT probes, which also include small businesses and individuals, climbed from 103,790 to 110,300.
Industry experts caution that businesses face increasing scrutiny and heightened risks. Bryn Reynolds, partner at Pinsent Masons, noted, “The stakes are high, not just in terms of potential assessments, but also reputational and operational risks.”
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Enhancements in HMRC’s investigative systems have sharpened its ability to analyze trading activities. Ed Saltmarsh, tax technical manager at the ICAEW, explained that these improvements provide investigators with a deeper understanding of complex VAT transactions.
Despite the regulatory advances, VAT rules can still produce unusual cases. Emma Rawson, director of public policy at the Association of Taxation Technicians, highlighted quirky tribunal rulings—from debates over whether a Jaffa Cake qualifies as a biscuit or a cake to recent determinations about the VAT treatment of giant marshmallows, based humorously on how they are consumed. Rawson called for reforms citing VAT as an area ripe for change.
HMRC emphasized its approach is targeted and proportionate, focusing on high-risk and complex cases where accurate VAT reporting makes the greatest difference. The agency stated that fluctuations in investigation numbers reflect a smarter and more focused strategy to support compliant businesses, promote fairness, and help reduce the VAT gap.
To bolster these efforts, the government has committed to providing HMRC with 5,500 new compliance officers and 2,400 new debt management staff, strengthening the agency’s capacity to tackle tax evasion and improve revenue collection.