HMRC must better tackle large tax risk of multinationals diverting profits across borders, says PAC

- Recent US deal with OECD nations on corporation tax reduces UK tax take by £600m a year

- Public Accounts Committee report finds that lack of use of special measures' regime for tax-avoidant businesses damages credibility of any future pleas for further HMRC powers 

The international nature of large businesses presents high risks to the UK's tax revenues. In a new report on large business tax compliance, the Public Accounts Committee (PAC) warns that, while HM Revenue and Customs' (HMRC) approach to collecting tax from large businesses is generally working well, the scale of risks posed by large multinationals diverting profits across borders remains significantly high - even with a new international minimum tax rate being implemented.

Of the £70.1bn of tax under consideration in 2025 as part of investigations into large businesses, HMRC estimates around £21bn relates to international risks, including profit shifting. The PAC is calling on HMRC to provide insights gained on the scale and nature of international tax risks, and how these can be better tackled.

A key measure to address these challenges, as part of the UK's work with other countries within the Organisation for Economic Co-operation and Development (OECD), is the Pillar 2 agreement. This introduced a global minimum effective corporate tax rate of 15% for large multinational businesses. However, the PAC's inquiry found the benefits of Pillar 2 will likely be reduced by a recent agreement negotiated by the US with its OECD partners, excluding US-headquartered companies from Pillar 2. HMRC estimates that this will reduce the taxes brought in to the UK by Pillar 2 by £600m a year, down to £1.6bn.

The PAC finds that HMRC, has never used its full powers to sanction the worst-offending large businesses - despite having had these powers for ten years. The legislative threshold for using the special measures regime is high, even where a business is particularly aggressive in avoiding paying tax, and HMRC has been slow to review whether the threshold for using it is set at the right level. HMRC makes limited use of its available powers elsewhere, such as its power to prosecute individuals for failing to prevent the facilitation of corporate tax evasion, and the PAC is warning that this recurring trend damages the credibility of any future pleas HMRC may make for further powers.

Turning to the difficulties inherent for businesses in navigating the UK's incredibly complex tax system, the report notes that as the largest multinationals begin to provide data to support international minimum tax rate rules, this will likely increase the burden on companies seeking to comply with the system. HMRC acknowledged this complexity is a problem to the PAC's inquiry, with for example new legislation on vaping duty and updates to the tax code following the emergence of cryptoassets driving some of this complexity. The PAC is calling on HMRC to take further action in support large businesses in navigating the system.

The report further warns that HMRC is taking too long to resolve compliance investigations and bring in the taxes owed by large businesses, with completed investigations last year taking on average 17 months to conclude, with those involving litigation taking on average 97 months in the same year. Great reliance is being placed on HMRC's ambitious IT transformation programme to improve its compliance operations, for which it received £1.6bn for new IT infrastructure from government last year. But HMRC was able to cite only limited examples of how its new IT infrastructure would better support its large-business tax compliance work, and the PAC is not yet convinced the IT transformation programme will deliver real benefit for its large business directorate.

Clive Betts MP, Deputy Chair of the Public Accounts Committee, said: Much of the public may find it counter-intuitive to learn that HMRC's approach to collecting tax from large businesses is generally working well. Small businesses account for far more of the tax gap than large ones, and for every pound spent on staff pay in HMRC's large business directorate, £95 was brought in. This is around four times more than HMRC achieves across all taxpayer groups. This is value for money in action, and exactly the kind of positive outturn that this Committee welcomes but secrecy around this work is undermining public confidence and risks giving the impression that the government is failing to tackle tax avoidance. HMRC should do whatever they can to improve transparency and publicise its successes to reassure the British public.

There is also room for improvement elsewhere. The UK still risks bleeding a significant amount of its tax take overseas through the cross-border diversion of multinationals' profits over borders. HMRC should be bearing down on work to understand how companies are complying with new rules on international minimum rates for corporation tax, particularly in light of the parallel agreement with the US exempting their own companies from these rules. HMRC should also be asking itself whether a power to put non-compliant large businesses in special measures that has not been used in the decade of its existence is worth having in its current form. Amber warning lights are also flashing over its implementation of new IT infrastructure, for which it received £1.6bn in last year's Spending Review and on which so much improvement in its compliance work depends. This Committee has seen too many failed IT transformation projects at the taxpayers' expense it is critical that HMRC not add another to the list.

PAC report conclusions and recommendations

HMRC's approach to collecting tax from large businesses is generally working well and achieving good return on investment. HMRC takes a more hands-on approach with large businesses, known as 'cooperative compliance', than with other taxpayers. Under this model it assigns each business a customer compliance manager to work constructively with the business and build an in-depth understanding of its tax affairs. HMRC's large business directorate brought in £95 for every £1 spent on staff pay in 2024-25, around four times more than what HMRC achieves across all taxpayer groups. Large businesses have positive views of the cooperative compliance model, with 91% of large businesses surveyed in 2024 stating that they had a good relationship with their customer compliance manager, and 82% saying that they had an overall positive experience dealing with HMRC. Large businesses account for 12% (£5.8 billion) of the tax gap - the difference between what should be paid and the amount that is actually paid - which is far less than small businesses. HMRC is now exploring expanding the cooperative compliance model and will use three pilots from September 2026 to test the cost and value of applying it to other businesses, in particular larger mid-sized businesses.

Recommendation 1: HMRC should update us in 12 months to set out the results from its pilots, and its plans for then expanding the cooperative compliance model, paying close attention to protecting the benefits of the existing model.

Despite having the power since 2016, HMRC has never put a business into special measures and has been slow to review whether the threshold for using it is set at the right level. HMRC says that the special measures regime was initially intended to function as a deterrent and to incentivise large businesses to adopt responsible tax strategies. However, as HMRC has never put a large business into the egime, we found it difficult to know whether the claimed deterrent effect is real. The legislative threshold for using the special measures regime is high, even where a business is particularly aggressive in avoiding paying tax. Despite having special measures powers for 10 years, HMRC is only now reviewing whether the powers are working well and exploring what barriers there are to using them more. We reported previously that HMRC makes limited use of its available powers elsewhere, such as its power to prosecute individuals for failing to prevent the facilitation of corporate tax evasion. This recurring trend damages the credibility of any future pleas HMRC may make for further powers.

Recommendation 2: In its update to us in 12 months, HMRC should report on the findings of its review of the special measures regime, in particular setting out:

1. a) what evidence it has on the deterrent effect of special measures, and any plans it has to improve this evidence; and
2. b) what changes, if at all, it will seek to make to the threshold for using special measures and what impact it expects that change to have.

HMRC is taking too long to resolve compliance investigations and bring in the taxes owed by large businesses. The investigations into large businesses that completed in 2024-25 took on average 17 months to conclude. This is down from the high of 35 months for cases completed in 2021-22, following the COVID-19 pandemic, but represents only a slight reduction from 2019-20 levels. Investigations involving litigation are taking much longer, with an average case duration of 97 months in 2024-25, up from 57 months in 2019-20. In response, HMRC is increasingly using alternative dispute resolution to avoid the lengthy litigation process, it claims that this is already reducing the number of cases going through litigation. Where litigation is required, HMRC says it will focus on ensuring that cases are better prepared before they go to court, where it already has a 90% success rate.

Recommendation 3: In its Treasury Minute response, HMRC should set out what more it will do to accelerate the time taken to resolve compliance investigations, in particular those where the business decides to litigate.

HMRC is placing great reliance on an ambitious IT transformation programme to improve its compliance operations, but it has not made it clear what benefits the large business directorate will see and when. At Spending Review 2025, HMRC received £1.6 billion of investment for new IT infrastructure. It has since published a transformation 'roadmap', which sets out how it intends to implement its IT transformation, and says that it has the goal of becoming a digital first organisation by 2029-30. HMRC claims that this infrastructure upgrade will enable it to improve its collection and analysis of data and risk assess more accurately, and so avoid costly investigations. It also plans to make greater use of AI, which it expects will help it analyse large caches of data more quickly and speed up compliance investigations. While the plans are promising, they are also highly ambitious, with HMRC rating delivery as an amber risk. With HMRC only able to cite limited examples for us of how its new IT infrastructure will better support its large-business tax compliance work, we are not yet convinced the IT transformation programme will deliver real benefit for its large business directorate.

Recommendation 4: In its Treasury Minute response, HMRC should set out:

1. a) which aspects of its IT transformation programme will benefit large business tax compliance the most;
2. b) what spending from the overall £1.6 billion investment these aspects will receive; and
3. c) the key milestones for implementing these aspects, so that the Committee can more closely monitor progress.

It is difficult for Parliament and the public to be assured that HMRC settles large and long-running tax disputes fairly and consistently, given it reports only a limited amount of the testing that it carries out. HMRC reports the results of its tax assurance settlement programme each year to Parliament. However, in 2024-25 this programme only examined 20 disputes involving large businesses. Though HMRC does carry out other testing, it does not publicly report these results. HMRC could not provide us with assurance over long-running tax disputes, even where the details of these disputes are freely available in the public domain. The limited nature of HMRC's reporting does not help to change public perceptions that large businesses play by different rules to other taxpayers. While we recognise HMRC has a duty to protect taxpayer confidentiality, it is frustrating that HMRC is not doing more to reassure Parliament and the public that it is acting fairly and consistently in such cases.

Recommendation 5: Building on recent recommendations we have made to HMRC on improving transparency and publicising its successes to deter egregious behaviour, HMRC should report back on how it plans to improve assurance to Parliament and the public on:

1. a) the scale and outcomes of the testing it carries out on large-business tax disputes;
2. b) the broader themes arising from these large disputes and the implications for other large businesses and HMRC; and
3. c) the successes and outcomes of its compliance work with large businesses.

Even with a new international minimum tax rate being implemented, the scale of risks posed by large multinationals diverting profits across borders remains significantly high. International tax risks, including businesses artificially shifting their profits to lower-tax jurisdictions, account for £21 billion of the tax under consideration in HMRC's investigations into large businesses. These risks are common to many countries and HMRC has therefore been working with international partners and the Organisation for Economic Cooperation and Development (OECD) to develop clear legislation and guidance related to international taxation. Central to these efforts is Pillar 2, which applies a minimum Corporation Tax rate on the largest multinationals. Pillar 2 is expected to impose significant added complexity and administrative burdens across these businesses, with one-off costs of £13.7 million, and recurring costs of £8.2 million a year. HMRC says it is providing greater support to large businesses and is working with them to understand where compliance burdens might be minimised. However, the benefits of Pillar 2 will likely be reduced by the recent agreement negotiated by the US with OECD partner countries, which excludes US-headquartered companies from Pillar 2 calculations. HMRC estimates that this will reduce the taxes brought in by Pillar 2 by £600 million a year, down to £1.6 billion.

Recommendation 6: In its update to the Committee in 12 months, HMRC should set out the results and analysis from the first returns from businesses meeting their Pillar 2 reporting requirements. This should include:

1. a) the filing rate, and any work underway with those businesses who have failed to provide returns; and
2. b) insights gained on the scale and nature of international tax risks and how these can be better tackled.

The UK tax system is incredibly complex and there is more for HMRC to do to reduce the compliance burden on large businesses.Around half of the large business tax gap results from large businesses interpreting tax law differently to HMRC. This is due, in part, to the complexity of the UK tax system. HMRC acknowledges that this complexity is a problem, as it can make it difficult for both large businesses and HMRC to be certain about when and how much tax is owed. HMRC says that some of the recent increase in complexity stems from new legislation, for example on vaping duty, and updates to the tax code to reflect developments in the wider economy, such as the emergence of cryptoassets. HMRC also requests large volumes of data from large businesses and thereby imposes significant extra administrative burdens. In 2024, only 49% of large businesses surveyed by HMRC viewed the overall level of administrative burden relating to tax compliance as reasonable; 29% felt it was unreasonable. HMRC hopes that automating the collection of data will help ease the burden on large businesses.

Recommendation 7: HMRC should set out what further action it will take to support large businesses in navigating a complex and burdensome tax system.