Page last updated at 04:13 GMT, Tuesday, 21 October 2008 05:13 UK

Call for corporate tax clampdown

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Economists say that tax yields are set to fall sharply

HM Revenue and Customs should more "robustly" pursue companies that avoid paying tax on their profits, a committee of MPs has urged.

The Commons public accounts select committee found that more than 25% of Britain's 700 largest businesses paid no corporation tax to HMRC in 2005-6.

Some cases were due to their use of tax relief and tax avoidance schemes.

An HMRC spokesman said it had "significantly improved" its targeting of corporation tax inquiries.

The select committee's report criticised the wide variation in the amount of tax paid by companies and called for a report to be produced each year explaining any discrepancies.

'Poor targeting'

The group of MPs found that 181 of the biggest firms paid no corporation tax at all in 2005-6.

In contrast, 50 companies accounted for two-thirds of the 24bn collected in 2006-7.

Most of those were involved in oil, gas, banking and insurance.

BBC business correspondent Nils Blythe said problems in those sectors meant the outlook for corporate tax receipts in the coming years was weak and would contribute to the rapid deterioration of public finances.

It should robustly apply new penalties for those companies engaged in serious tax avoidance activities
Edward Leigh
Public Accounts Select Committee

The committee also said that investigations into the tax affairs of certain firms under scrutiny were taking too long and yielding too little.

"The fact nearly 60% of the department's inquiries into compliance turn out to produce less than 1% of the additional tax raised constitutes very poor targeting," its chairman Edward Leigh said.

"It is extraordinary that there is no correlation between the resources committed to each inquiry and the amount of tax in question."

Mr Leigh said HMRC must publicise plans for a new approach in which "high-risk businesses will be singled out for extensive investigation".

"It should also robustly apply new penalties for those companies engaged in serious tax avoidance activities," he added.

HMRC is currently calculating the amount of tax owed which has been "lost" to the economy, but an initial report last year suggested the figure could be as high as 8.5bn.

The Lib Dems have argued that the government could save millions by cracking down on corporate tax avoidance more effectively.

An HMRC spokesman said: "We have cut the number of open inquiries by over 50% since April 2007 and the number of cases focused purely on low-risk issues is down by nearly 90%."




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