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The number of large UK companies being investigated by HM Revenue & Customs for potential tax underpayments is at a five-year low, according to official data obtained under the Freedom of Information Act.

In the past, the tax authority has investigated around half of the UK’s 2,000 largest companies at any one time. However, in the 2022-23 tax year, only around 790 companies were investigated, following a steady decline in numbers in recent years, according to FOI figures published by HMRC.

In 2021-22, HMRC investigated around 820 large companies – typically those with annual turnover of over £200 million, or annual turnover of under £200 million but complex tax matters – up from around 900 in 2020-21, around 980 in 2019-20 and around 990 in 2018-19.

HMRC said it was focusing its resources on “achieving maximum impact” and “collecting more tax from large companies”, with “compliance work generating £1.6 billion more last year than in 2018-19”.

“The potential value of our cases involving large companies has steadily increased, demonstrating our determination to ensure that large companies pay the taxes they owe,” it said.

Analysts said several factors had caused the drop in the overall number of investigations, including the agency’s suspension of investigations into companies and individuals during the pandemic, and a lack of resources at HMRC, which has been criticised by MPs for its poor performance.

“Investigations into large companies require HMRC’s most skilled and experienced investigators, and these are in high demand and in short supply,” said Ray Grove, head of corporate tax and trading at content and technology company Thomson Reuters, which made the FOI request.

Dawn Register, head of tax dispute resolution at accountancy firm BDO, said HMRC had “limited resources” and “increasing capacity … would improve overall returns in the long term”.

The Labour Party has promised in its election manifesto to spend an additional £855 million a year on “investing in HMRC to reduce tax avoidance”.

But despite the challenges, tax experts broadly agreed with HMRC’s statement that it is using its current resources to better target its compliance activities at large companies.

According to the Register, HMRC’s annual report for 2023-24 shows that despite the decline in the number of investigations, it is “focusing its efforts on cases involving higher amounts”.

It pointed to an increase in compliance revenues – the estimated tax revenue that would have been lost without HMRC’s compliance activities – of £1.6 billion, from £9.8 billion in 2018-19 to £11.4 billion in 2023-24.

According to HMRC’s annual report, investigations have also been completed more quickly: in 2023-24, the average duration of an investigation was 21 months, compared with 36 months in 2022-23.

Andrew Park, partner at accounting firm Price Bailey, said: “For once, the apparent decline in live investigations could actually be a sign of positive progress.”

He cited the new “Notification of Uncertain Tax Treatments” as a factor that helped HMRC decide which large companies to investigate and acted as a “major deterrent”.

Under the law, which came into force under the last Conservative government in April 2022 but also covers transactions that took place before that date, large companies must notify HMRC if their tax situation is “uncertain” and it is not clear whether the company’s position is correct.

Park said the law aims to reduce the tax gap due to “legal interpretation”, which was originally estimated at around £6 billion in 2019-20 but has now fallen to around £4 billion. The tax gap is the difference between the amount HMRC estimates and what is actually paid. In total, it amounted to £39.8 billion in 2022-23.

Before the law was passed, “some large companies tried hard to find sophisticated and optimistic arguments to reduce their tax burden,” Park said.

Tax experts expect the number of investigations to increase over the course of the current legislative period after the Labour government announced it would crack down on tax evasion and avoidance in order to finance its election promises.

Jake Landman, tax partner at law firm Pinsent Masons, said HMRC will “always try to get the best return on investment – and that will probably mean more investigations into large companies”.

“In this area, investigating even a small disagreement between HMRC and a company can result in large additional taxes and penalties,” he added.