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How to protect your business from HMRC input VAT claim refusals: the Kittel threat
Waqar Shah
On 26 March 2025, in the Spring Statement, the Chancellor of the Exchequer set out her continued plans to raise money without raising taxes. The aim is to raise over £1billion in additional tax revenue by 2029-30.
- There will be a concentrated effort on collecting outstanding tax debts owed to HMRC (over £44 billion as of December 2024) by an expanded and modernised debt recovery system.
- HMRC is expanding its counter-fraud capability to increase the number of those charged with the most harmful tax fraud every year by 20% by 2029-30 (using today’s level as the base). The Chancellor hopes that these additional criminal investigations will deliver a strong deterrent, tackling:
- Those who undermine legitimate trade and small business;
- Fraud committed by the wealthy;
- Fraud facilitated by those in large corporations; and
- Individuals and companies who make it possible for others to hide money offshore.
- A ‘new HMRC reward scheme for informants’ will be launched later this year and will target serious non-compliance in large corporates, wealthy individuals, offshore and avoidance schemes. The scheme, which has ‘taken inspiration from the successful US and Canadian models’, will reward informants with compensation linked to a percentage of any tax taken as a result of their actions. HMRC currently compensates informants on a discretionary basis, with the amount varying depending on sums recovered and time saved.
- HMRC, Companies House, and the Insolvency Service are joining forces to ‘tackle those using contrived insolvencies to evade tax and write off debts owed to others’. This is intended to ‘increase the use of upfront payment demands’ and interestingly, ‘make more directors personally liable for company taxes’ and increase the number of enforcement sanctions with the aim of protecting tax of £250m by 2026/27.
- HMRC will be ‘overhauling its approach to offshore tax non-compliance by the wealthy’ by recruiting experts in private sector wealth management and using AI and advanced analytics to help identify those who attempt to hide their wealth. There are plans to increase HMRC’s resources in this area by around 400 people, which the Chancellor estimates will raise £500m over the forecast period.
Following the Spring Statement, several consultations were also announced and notably, there may be a ‘behavioural penalties reform’ in the pipeline with a view to providing a stronger deterrent for those who deliberately avoid paying what they owe. There are also consultations on enhancing HMRC’s ability to tackle tax advisers facilitating non-compliance and ‘closing in on promoters of tax avoidance’. Therefore, it is not just taxpayers who will be scrutinised by HMRC as part of these new initiatives, but potentially their advisers too under this range of significant proposed additional anti-avoidance measures.
Further information
If you have any questions or concerns about the topics raised in this blog, please contact Waqar Shah or Krishna Mahajan.
About the authors
Waqar Shah is a Partner in the Dispute Resolution department, focusing on the resolution of complex tax matters. He acts for high net worth individuals and corporate clients across all sectors in respect of HMRC disputes and investigations across the full range of taxes.
Krishna Mahajan is a Senior Associate in the Dispute Resolution Team, who specialises in litigation and resolution of complex tax matters.
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
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