VAT probes targeting larger businesses reached 11,894 in the year to March 2025, a 31 per cent increase from 9,071 the previous year, according to data obtained via a freedom of information request by law firm Pinsent Masons. Across all businesses and individuals, total VAT investigations climbed from 103,790 to 110,300 over the same period. Nearly one in three large companies had an investigation opened against them, and concluded cases yielded £5.3bn for the Treasury – an average of £8.6 million per case.

The drive reflects a broader government priority to narrow the tax gap, the difference between tax owed and tax collected, which stood at £46.8bn, or 5.3% of liabilities, in 2023-24. The VAT element of that gap has worsened, widening to £11.9bn in 2024-25 from £8.9bn the previous year.

Bryn Reynolds, a partner at Pinsent Masons, told Financial Times that large and mid-sized businesses now face intense scrutiny, with significant risks beyond financial penalties, including reputational and operational damage. He attributed much of the underpayment to incorrect legal interpretations of VAT rules or businesses testing their boundaries, alongside calculation errors.

Ed Saltmarsh, tax technical manager at the ICAEW, suggested the surge in investigations partly reflects HMRC’s improved data-matching capabilities, which now give investigators a far clearer picture of trading activity than was previously possible.

Tax specialists note that VAT rules have grown increasingly complex, particularly in food and drink. Emma Rawson of the Association of Taxation Technicians pointed to a recent tribunal case involving giant marshmallows, in which judges devised a mathematical formula based on how the product is consumed to determine its VAT classification – a reminder, she said, that the system is overdue for reform.

Separately, businesses are also facing a greater number of late-payment penalties. Some 582,000 fines were issued in the year to July 2025, generating £302m, both figures slightly up on the previous year, according to FOI data obtained by accountancy firm Lubbock Fine.

To bolster compliance, the government is providing HMRC with 5,500 additional compliance staff and 2,400 debt management officers. In a statement, HMRC described its approach as “targeted and proportionate”, saying it focuses on higher-risk cases where addressing VAT errors makes the greatest difference.