National Audit Office: HMRC’s large business directorate doubles the amount of additional tax revenue secured over three years

• HMRC's large business directorate's close contact approach to managing tax compliance from large businesses has helped HMRC to obtain £15.8 billion in additional tax, which is double the amount from 2021-22.
• The large business directorate has a return on investment of £95 for every £1 spent on staff pay, which is four times higher than HMRC achieves across all taxpayers.
• HMRC is now exploring the viability of expanding this close contact approach beyond large businesses to cover other businesses that are complex or high-risk.

HM Revenue and Customs' (HMRC's) large business directorate has doubled the amount of tax revenue collected or protected since 2021-22 using a hands-on approach to tax compliance for large businesses, a new report by the National Audit Office (NAO) has found.1 

HMRC established the large business tax directorate to ensure the UK's largest business groups comply with the tax rules. Around two fifths of the UK's tax revenues come through large businesses, equivalent to £337 billion in 2024-25. This includes taxes that large businesses pay directly and those they pay on behalf of their employees and customers. 

HMRC takes a more hands-on approach than with other taxpayers due to the complex nature of large businesses and the scale of the revenue collected. The large business directorate has proven to be a success, with customer compliance managers assigned to each business establishing co-operative and effective relationships. The directorate has doubled compliance yield (tax revenue collected or protected that would otherwise be lost to the Exchequer) since 2021-22 to £15.8 billion in 2024-25. The return on investment on staff pay is four times more than what HMRC achieves across all taxpayers, with a £95 return on every £1 spent.2 

The tax gap for large businesses (the difference between what they should have paid in tax and what they actually paid) has steadily decreased over the long term, from £7.5 billion in 2005-06 to £5.8 billion in 2023-24, and is now at less than 1% of possible liabilities from all taxpayers.3 However, HMRC does not have reliable data to estimate short-term changes to the tax gap. HMRC's estimate of the large-business tax gap increased by nearly £2 billion between 2020-21 and 2023-24, driven by a large spike in the tax gap for VAT, the data for which are particularly volatile.4 

Since 2006, HMRC has put 70 large businesses through its High Risk Corporates Programme, designed to tackle its most complex or riskiest cases. This has brought in more than £32 billion in extra tax. Since 2016, HMRC has had the power to put businesses that consistently fail to comply into a special measures regime, though it has never used this power. 

The NAO found no evidence of HMRC reaching special deals with large businesses on how much tax they should pay. HMRC's own testing found that it correctly followed its governance processes in 98.1% of cases it examined in 2024-25.5  

To help improve its efficiency further, the NAO has recommended that the large business directorate should now:   

• Ensure it carries out detailed planning and analysis to inform its approach to potentially expanding cooperative compliance to more businesses.
• Explore any barriers to using available legislative powers, such as special measures, when it identifies that businesses are behaving poorly regarding their tax compliance.
• Improve the recording of data on IT systems to ensure better understanding of productivity, and continue with planning for improvements to these IT systems.
• Build on the areas of good practice identified in this NAO report, and share these learnings with other HMRC directorates.

Gareth Davies, head of the NAO, said:  

“Through its large business directorate, HMRC has developed an efficient and effective approach to ensuring large businesses remain tax compliant. This has made a significant contribution to reducing the tax gap. HMRC should continue to explore whether this approach could usefully be extended to other complex and high-risk businesses.” 

ENDS
Notes to editors

1. The large business directorate spent £166 million on staff pay in 2024-25, meaning its return on investment in that year was 95:1. This compares with a return on investment across HMRC's entire compliance group of 25:1. In line with trends we observed in compliance yield, return on investment for the large business directorate has broadly returned to pre-pandemic levels. HMRC could not provide us with data or insights into the marginal returns it would expect from investing further in large businesses relative to other customer groups, or on different types of compliance interventions within the large business directorate, to inform how it decides to prioritise spending in different areas.  
2. HMRC estimates that large businesses accounted for £5.8 billion in lost tax revenue in 2023-24, the latest data available. This represented 12% of the overall tax gap, the difference between the amount of tax that should, in theory, be paid and the amount that is actually paid. Small businesses, in contrast, accounted for 60% of the overall tax gap. See Figures 4 and 5 within the report for more detail on the tax gap breakdown.
3. As a proportion of the taxes owed by all taxpayers, the large business tax gap has decreased over the long term, from 1.7% (£7.5 billion) in 2005-06 (the first year for which HMRC produced an estimate) to 0.7% (£5.8 billion) in 2023-24. There are, though, some indications that it is rising again, with the tax gap in 2022-23 and 2023-24, in both cash terms and as a percentage of total theoretical tax liabilities, being higher than in 2020-21 and 2021-22. Contributing to this is a large spike in the tax gap for VAT in 2022-23.
4. We examined 21 large business interventions, most of which closed in 2024-25, partly to see how governance arrangements were working. In these interventions, the case teams had followed all necessary governance processes, including the right person or board signing off each settlement amount. The results from HMRC's own testing also indicate that governance is adhered to in the vast majority of cases. Its tax settlement assurance programme found that HMRC followed the correct processes in 100% (four of four) of the large business interventions it reviewed in 2024-25 which required referral to a governance board.