8 October 2011
- Businesses feeling increasingly burdened by red tape
HMRC is currently investigating £25 billion of tax which it thinks might be owed by large businesses, according to our research.
Considering that HMRC only collected £4.9 billion in 2008/9 from large companies through its tax enquiries and other compliance work, the amount being investigated (£25 billion) seems disproportionately high.
HMRC is now carrying out enquiries into 2,595 issues to validate its suspicions that additional tax is due by large businesses (as at June 2011). The amount at stake is £25 billion.
Recent research undertaken for HMRC revealed that businesses overwhelmingly felt that the tax related red tape burden was on the rise and that HMRC was becoming less transparent in its decision making.
Roy Maugham, Tax partner at our London office comments: “This is causing a number of companies to seriously consider relocating abroad. It could also make the UK a less attractive base for a European headquarters.”
“Large businesses generate over a third of all revenues for HMRC. It’s in the interest of our economy that they stay in the UK. To do this, we need to create the kind of business environment that is as attractive as possible and reducing red tape is part of that.”
“The complexity of the UK tax system places a significant cost burden on businesses as well as fuelling disputes. Simplifying the tax system should reduce both tax avoidance and red tape for businesses.”
“HMRC are known for having opened many fruitless investigations in the past.”
“These investigations can end up in lengthy legal disputes which are very costly for businesses.”
With estimates of the tax gap standing at £35 billion in 2009/10, HMRC is under high pressure to collect tax it is owed. The tax gap is the amount of tax lost to tax evasion and avoidance.
Roy says: “By introducing its new litigation strategy, HMRC has vowed to be less litigious with taxpayers. However, it remains to be seen whether this can be achieved when there is such an impetus to close the tax gap.”
“HMRC intends to raise an additional £7bn per annum through compliance measures by the end of this Parliament. Quite how it is going to do this without ruffling a few feathers remains to be seen.”
Our research says that businesses have been operating in difficult economic conditions for several years now, so this kind of inconvenience this is causing can seriously compromise their future ability to do well and contribute to the economy by creating jobs and generating profits for their shareholders.
Roy says: “Businesses haven’t got any resources to waste. This was always the case, but it’s even truer right now.”
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