Revenue squeezes an extra £13bn out of UK business

HMRC's recent crackdown (a sign of things to come) has boosted Treasury coffers. But could it back-fire?

Last Updated: 12 Jul 2011

It looks as though HM Revenue and Customs’ efforts to get tough on corporate tax dodging have paid off: according to accountancy UHY Hacker Young, the Revenue’s yield from its enquiries into large companies shot up by nearly 70% in the four years to March 2009. With fiscal rectitude the order of the day, we can expect to see plenty more where this came from in the coming years. But is there a risk that this will just drive firms (and valuable intellectual property) overseas? Is the Revenue going after the right targets? And as with the recent case of a tax-payer slapped with a £1,300 fine for getting his sums wrong, will its harder line create some undeserving victims?

HMRC denies it’s been getting tougher; it says it’s just done a better job of focusing on high-risk activities. But an increase like that – equivalent to £12.6bn – does suggest a more stringent approach. Large corporates are now its most profitable area of activity, accounting for almost a third of the £40bn generated by its anti-avoidance measures during the period.

Not before time, some would say. The complexity of the UK tax rules has made tax avoidance a big business, with large corporates employing a battery of experts to set up sophisticated schemes to minimise their tax bills. Although they’re perfectly entitled to do this by law, there’s a strong whiff of unfairness about it all. (The Lib Dems in particular are keen to make it a political hot topic, even though various experts scoffed at their proposed savings last week).

However, the counter-argument is that if the Revenue gets too tough, it will just drive firms to different jurisdictions. Like it or not, tax just isn’t a level playing field – look at chemicals giant Ineos, one of the UK’s biggest private companies, which has just decamped to Switzerland in a row over VAT. It’s true that we need the tax receipts to cut the deficit, but the Exchequer gets nothing if the company concerned moves to Geneva. So there’s a happy medium to be found (along with more pressure on tax havens not to distort the market).

Others suggest the Revenue is just squeezing extra cash out of the more honest firms, because it doesn’t have the resources to go after the really big tax dodgers. Naturally there’s a degree of special pleading here. But a more aggressive approach and a higher yield doesn’t necessarily mean the Revenue is working better. Take the taxpayer who was fined £1,300 for trying to claim a £3,000 tax debate when he was only due £1,000 – because he got his sums wrong on the self-assessment. That can’t be right; if you’re going to do the taxman’s job for him, it’s not fair or reasonable of him to come down on you like a ton of bricks if you make a mistake. Crackdowns are all well and good, but the Revenue needs to choose its targets carefully.

In today's bulletin:

Tesco continues land-grab with house-building plan
Companies get the jitters about potential hung parliament
Revenue squeezes an extra £13bn out of UK business
Employees still value CSR, despite recession
eBay joins virtual catwalk after model first quarter

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