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HMRC has made progress in changing the way it deals with Corporation Tax for the largest businesses in the UK, the NAO says today, but there are ways in which it can improve, particularly in focusing on higher amounts of tax at risk.

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That was the main finding in today’s report to Parliament which recognises that large businesses are an important part of the economy and that the largest 700 businesses paid £23.8 billion in Corporation Tax in 2006-07. Dealing with Corporation Tax for large businesses is complex because most are multinational companies, the tax legislation is complex and businesses are entitled to plan their tax affairs to minimise their tax liabilities within the rules.

The Department has adopted a new approach to improve the way it works with large businesses and to create incentives for businesses to reduce their levels of tax at risk. It has appointed client relationship managers for each large business, and has begun to reduce the number of long running enquiries giving businesses greater certainty over their Corporation Tax liabilities. It has a more structured approach to risk assessment and it has begun a programme where HMRC senior management engage directly with management boards of businesses which pose higher risks.

But the report points out that the Department could better direct its efforts on higher value risks and progress enquiries more quickly. In February 2007, it was carrying out 4,700 enquiries but nearly 1,700 were five years old or more, and 58 per cent of its open enquiries were expected to produce less than one per cent of the total additional tax yield generated from compliance activities.

Implementing the new approach successfully depends on engaging frontline staff to achieve a change in culture, moving away from the traditional practice of opening enquiries whenever tax is at risk, and working with businesses and their advisers to achieve a more collaborative approach. It also involves developing the skills and training of staff to build their expertise on more complex tax matters and the businesses with whom they deal. The Department should also develop a broader set of performance measures to assess the impact of its work.

"Large businesses are a significant contributor to the UK economy. The recommendations in my report will help the Department manage the risks to Corporation Tax revenues more effectively and work more collaboratively with large businesses. The Department should embed cultural and behavioural changes in the everyday practice of its staff to achieve these aims."

Sir John Bourn, head of the NAO

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