Government agencies taking a “blind eye” to non-compliance are losing the Exchequer up to £16bn a year in lost tax, according to tax justice campaigner Richard Murphy.
In a 68-page report published this weekend, Murphy found that in the year to March 2010 more than 500,000 firms were dissolved after failing to file accounts with Companies House.
“Rather than chase or prosecute them Companies House simply gets rid of the offending companies – so sweeping the problem of non-compliance with the law out of view,” the report concluded.
The agency’s reluctance to pursue non-compliant firms, combined with HMRC’s failure to collect tax from a majority of registered companies means that up to £16bn in tax goes uncollected every year, Murphy estimated.
Analysis of the Companies House register found that a majority of the 500,000+ companies dissolved during the year to March 2010 were removed from the Register of Companies because they did not file documents required by law. Roughly a third of all companies dissolved were less than two years old and had never filed accounts.
Evidence from the study suggested HMRC’s stance with non-compliant companies was equally lax. According to Murphy, HMRC does not appear to demand information from companies struck off if they are less than two years old. “In many cases we know almost nothing at all about those companies that disappeared forever,” the study stated. It also found:
- Only 70% of companies are asked to file tax returns by HMRC.
- Of those companies asked to file tax returns in the year to March 2010 only two thirds actually did so.
- As a result of these two figures, only just over 45% of all companies filed tax returns for the year to March 2010.
- In the year to March 2009 (the last year with data available) just 33.6% of all UK companies actually paid corporation tax.
Among 18 recommendations, the report suggested that UK-based banks should be required to advise HMRC and Companies House of bank accounts operated by UK-registered companies in order to pursue those that do not pay taxes nor file their accounts. It also suggested increased personal penalties for directors of non-compliant companies.
The report, '500,000 Missing people: £16 billion of lost tax' can be downloaded from the Tax Research website.
About John Stokdyk
John Stokdyk is the global editor of AccountingWEB UK and AccountingWEB.com.