HM Revenue and Customs (HMRC) is failing to recoup significant amounts of corporation tax from recalcitrant businesses, a public accounts committee (PAC) report published today has warned.
Despite anticipating a £9 billion increase in receipts from corporation tax during 2005-06, the PAC report suggests that nearly 40 per cent of tax returns contain errors "which if undetected would result in a tax loss".
Its research shows that enquiries from confused companies, though decreasing in frequency, are nevertheless taking months to be dealt with, whether or not they produce additional tax yields. In order to prevent this from occurring it calls for an internet-based system which pilot schemes show cuts administration times by one-fifth.
"HMRC must concentrate its resources on identifying and tackling the riskiest corporation tax returns," Edward Leigh, chairman of committee of public accounts, said.
"The department should find out which types of company are most likely to try to abuse the system and also which types are prone to making genuine mistakes in their returns. Work also needs to be done on which types of enquiries by HMRC's area offices into companies' tax affairs fail to deliver any additional tax yield."
Yields on corporation tax, which is levied on all profits earned by businesses, have increased by 42 per cent since becoming a self-assessment tax in 1999. Approximately four per cent of all returns are dealt with by HMRC, either as random check-ups on companies or as enquiries.