MANAGEMENT OF LARGE BUSINESS CORPORATION TAX
Publication of the Committee's 30th Report of Session 2007-08
Edward Leigh MP, Chairman of the Committee of Public Accounts, today 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 per cent of the Department's enquiries into compliance turn out to produce less than one per cent 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."
Mr Leigh was speaking as the Committee published its 30th Report of this Session which, on the basis of evidence from Her Majesty's Revenue & Customs (the Department), examined the level and distribution of Corporation Tax receipts, its performance in managing large business Corporation Tax, tackling tax avoidance, and its staff skills and training.
In 2006-07, HM Revenue & Customs raised a total of £23.8 billion 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, whilst 181 businesses paid none. Two thirds of the tax comes from the banking, oil and gas and insurance sectors. Businesses pay little or no Corporation Tax because, for example, they have made a loss, or had losses in previous years, or they are using tax reliefs, or engaging in tax avoidance.
In 2006-07, the Department's large business Corporation Tax enquiry programme raised nearly £2.7 billion. 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.
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 £8.5 billion. It is currently using these estimates to develop a measure of the tax gapthe difference between the amount of tax it collects and the theoretical tax liability if all taxpayers were fully compliant.
Recent legislation requires 'promoters' to disclose, and 'users' to declare, their tax avoidance schemes. By February 2007, the Department had received 900 disclosures of avoidance schemes, with 350 schemes closed through legislation.
Large businesses are often multinational organisations, whose operations may involve trade and financing across national boundaries. Around half the growth in global trade is from intra-company trade between related companies within large multinationals. These features add to the complexity of their tax assessments, and the Department faces similar issues to tax authorities in other countries in handling their tax affairs.
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.