Extra corporate tax collected from largest companies falls 13 per cent

The extra corporate tax collected by tax inspectors targeting the UK’s largest businesses fell 13 per cent last year to £3.5bn, according to new figures, reports the Financial Times.

Heather Self, a partner at Pinsent Masons, international law firm, said the decline was likely to be a sign that HMRC had tackled much of the “low hanging fruit”. She said: “It may now be trying to squeeze blood out of a stone.”

The decline in the tax yield took place in spite of the expansions of Revenue & Custom’s Large Business Directorate from 800 to 2,100 companies last year. But it was offset by a big rise in extra value added tax revenues. Overall, the large business directorate secured an extra £7.3bn in tax last year.

The fall, which partly reflects a cut in the corporate tax rate, followed a spike in the yield in 2013/14. Even so, there has been a declining trend since at least 2010/11 when it totalled £4.1bn.

One possible explanation might be more widespread voluntary compliance, as the official “tax gap” figures — reporting the gap between the tax that is collected and the tax that could be collected — has shown a sustained downward trend. The latest estimates put the gap for tax from big businesses at £1.6bn.

In the summer, George Osborne announced a further crackdown on the small number of big companies involved in “persistent and aggressive tax planning”.

In a statement, HMRC said: “Our yield from individual taxes naturally fluctuates from year to year as a relatively small number of cases is responsible for a large proportion of the additional tax.”

“HMRC allocates resources according to risk and this has seen us focus on VAT with large business in recent years. The large business directorate brought in around £3.4bn in extra VAT last year, more than double the amount collected by the former large business service in 2013/14.”

The £3.5bn of additional corporate tax collected last year represented just over a third of that “under consideration” — an initial estimate of the maximum potential additional liability in each case before full investigation.

Ms Self said the figures suggested that although the Revenue had won a high proportion of cases at tribunal, there were still many technical disputes in which the defendant prevailed.