.png)
.png)
HMRC's targeting of corporation tax (CT) enquiries has been criticised in a new report by the Committee for Public Accounts.
The document asserts that there is currently no correlation between the resources the taxman commits to each enquiry and the amount of CT in question. It also insists that the department should robustly apply new penalties for firms engaged in serious tax avoidance activities.
'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,' said committee chairman Edward Leigh MP, who also remarked that HMRC must publicise their 'good' new approach in which high risk businesses will be singled out for extensive investigation.
The Revenue reacted to the committee's remarks by saying that 'the tax system supports business expenditure… through a carefully policed system of reliefs and allowances.
'This inevitably reduces the amount of tax paid by some businesses. This is not the result of avoidance or evasion but of the proper use of the reliefs that Parliament has approved in order to encourage business growth and support investment in company pension funds.'
HMRC went on to add that it 'has significantly improved [our] targeting of corporation tax enquiries. We have cut the number of open enquiries by over 50% since April 2007, and the number of lower risk issues open is down by nearly 90%'.
The new report from MPs claims that in 2005-06, just 50 of the UK's 700 largest businesses paid 67% of the large business CT, while 181 paid none because they made a loss, or suffered losses in previous years, or used tax reliefs, or engaged in tax avoidance.
'Does avoidance planning go on? Of course it does,' said PricewaterhouseCoopers tax partner John Whiting. 'But to suggest that 181 might be avoiding paying massive amounts of tax is misleading.'
He added: 'Even if they aren't paying corporation tax, companies pay lots of other taxes, like business rates and National Insurance contributions.'
Mr Whiting also pointed out that the Committee for Public Accounts' findings were in line with those of PwC's: 'a relatively small number of companies pay a huge amount of corporation tax, followed by a long tail of firms that pay little or nothing'.
The MD of tax advisers Alvarez & Marsal Taxand, Kevin Hindley, commented: 'The vast majority of the 181 companies identified in the report as not paying tax are doing so because they are loss-making, or don't have a significant UK presence. Only 12 of these companies were identified as mitigating their tax affairs through avoidance.'
'It makes perfect sense for companies classed as 'low risk' to benefit from a lighter touch on enquiry from the Revenue,' said Mr Hindley.
'However, it's important that efforts are also focused on those non-compliant companies that are not even completing their returns. For all companies, ensuring compliance and managing the tax burden is essential for driving performance.'
