More robust measure for tax gap is needed

hmrc logo

The corporate ‘tax gap’ is as much as £8.5bn, according to a report by the
Public Accounts Committee into corporation tax.

The figure was revealed this week and is based on a review of tax returns for
the 12 months to February 2008.

HM Revenue & Customs does not have a robust measure for the corporation
tax gap which outlines the difference between tax paid and the theoretical
liability, said the committee.

It recommends HMRC develop a measure and publish the results. Individual
estimates should be produced for large and small and medium-sized businesses, it

The report also shows that in 2006/07, HMRC raised £23.8bn in corporation tax
from some 700 large businesses. In 2005/06, 50 of these businesses paid 67% of
the large business corporation tax while 181 paid none.

Businesses pay little or no corporation tax because they have made a loss ­
or recorded losses in previous years, used tax reliefs, or are engag-ing in tax
avoidance, said the report.

Kevin Hindley, managing director of Alvarez & Marsal Taxand, said there
are often legitimate grounds for companies obtaining tax relief.

Hindley said that the majority of the 181 companies identified in the report
as not paying tax were
loss-making, or did not have a significant presence in the UK.

‘It makes perfect sense for companies classed as “low risk” to benefit from a
lighter touch on enquiry from the Revenue. However, it’s important that efforts
are also focused on those non-compliant companies which are not even completing
their returns,’ he said.

The report also said that HMRC had received 900 disclosures of avoidance
schemes by February 2007 ­ 350 of which were closed through legislation.

Recent legislation requires ‘promoters’ to disclose and ‘users’ to declare
their tax avoidance schemes.

Related reading

Life Belt with Computer Folders