HMRC urged to report on corporate tax dodgers

The taxman should produce an annual report analysing which companies pay no tax each year, an influential commons committee has said.

The government is also taking on retired tax accountants to tackle big companies avoiding corporation tax, the Commons Public Accounts Committee said.

In a report published today it said too many big firms did not pay what they should.

The all party group warned: 'There has been a widening gap between the skill set of large business tax staff and that of the Large Business Service. The department is bringing in external recruits, including retired tax advisers, to help to train its staff and to deal with the more complicated technical work.'

PAC chairman Edward Leigh MP, a former Tory minister, said: 'The amounts that large businesses pay in corporation tax vary greatly. It is very telling that, of the 700 largest businesses in the UK in 2005-06, just 50 companies paid two-thirds of the corporation tax raised and 181 of them paid not a penny. How much tax is paid also heavily depends on the industry sector that the company belongs to. HMRC should analyse these variations annually and publish a report explaining the trends.

'The fact that nearly 60% of the Department’s enquiries into compliance turn out to produce less than 1% of the additional tax raised constitutes very poor targeting. It is extraordinary that there is no correlation between the resources HMRC commits to each enquiry and the amount of corporation tax in question.

'The department has introduced a new approach in which high risk businesses will be singled out for extensive investigation. That’s good but it must publicise this new approach. It should also robustly apply new penalties for those companies engaged in serious tax avoidance activities.'

The committee was particularly critical of the government's large business tax enquiry programme.

'In 2006–07, the department’s large business corporation tax enquiry programme raised nearly £2.7bn. Many of these enquiries were poorly targeted, with nearly 60% producing less than 1% of the additional tax raised. The enquiries also take too long: in January 2008, 42% of its enquiries were over two years old, and 10% over four years old,' the report said.

In 2006–07, HM Revenue & Customs raised a total of £23.8bn in corporation tax from large businesses. There are some 700 of these businesses, and in 2005–06, just 50 of them paid 67% of the large business corporation tax, while 181 businesses paid none. Two thirds of the tax comes from the banking, oil and gas and insurance sectors.

In February 2007, based on initial review of tax returns from the previous 12 months, the department estimated that the potential corporation tax at risk was £8.5bn. It is currently using these estimates to develop a measure of the tax gap — the difference between the amount of tax it collects and the theoretical tax liability if all taxpayers were fully compliant.

Further Reading:

Read the full report