Press Release - Corporation Tax: Companies managed by HM
Revenue and Customs’ Area offices
13 January 2006
The management of Corporation Tax by HM Revenue and Customs’
Area offices has improved in recent years, according to the
National Audit Office. However, the variations in performance
across offices offer scope for further savings in the costs of
managing the tax and generating additional tax revenue.
The Department’s Area offices administer Corporation Tax for all
but the largest UK companies and generate almost half of the
overall revenue from Corporation Tax, approximately £15 billion.
The Department spends around £220 million a year on Corporation Tax
work in the Areas, including processing of tax returns and
compliance and enquiry work. Areas have coped with a surge in new
incorporations in recent years. Planned enhancements in electronic
filing should help to reduce costs.
Since 1999 when Corporation Tax Self Assessment was first
introduced, there has been a 42 per cent increase in the extra
revenue secured by area offices from their detailed enquiries on
tax returns, giving a total of £602million in extra revenue for
2004-05. Focusing on higher risk cases has meant that this increase
in revenue has come from fewer enquiry cases, down from over 80,000
in 1999-00 to 44,000 in 2004-05. To achieve this, the Department
has made greater use of databases and risk profiles to select
enquiry cases and it has plans to develop these techniques
further.
Areas undertake two types of enquiry. One type scrutinises every
part of a company return and yielded on average £27,000, five times
their average cost. Most of these enquiries tend to be carried out
on less complex companies. The other type concentrates on
particular aspects of a company’s affairs and these enquiries
yielded an average of £12,000, nearly 23 times their cost.
Around 40 per cent of all enquiries resulted in no change to the
tax or profit assessment. While enquiries are now carried out more
quickly they still take many months to complete. A trial of new
methods of communication with companies on enquiries suggests that
enquiries might be completed 20 per cent more quickly.
Yields varied widely from office to office, even after economic
geography had been taken into account. Variations in coverage mean
that companies of a similar size have different chances of being
selected for enquiry depending on where they are located.
Similarly, there were wide variations in Areas’ efficiency in
processing returns and undertaking enquiries, with, for example,
average enquiry costs in some areas being twice as high as in
others.
These variations in performance and costs across the 68 Areas
suggest scope for efficiency savings in processing and enquiry
work, together with still higher yields. Much of the variation
stems from imbalances across areas in the number and experience of
tax inspectors and other staff compared to the size and complexity
of company caseload dealt with by each Area.
The Department is consulting staff on plans to restructure local
compliance work into fewer but larger offices. This would provide
opportunities to match staffing levels and experience more closely
to local workloads and compliance risks, and more easily to share
best practice and experience of new techniques.
The scope for further improvement hinges also on being able to
tackle some of the underlying reasons for non-compliance. The
Department has a programme of random enquiries underway which
should improve its understanding of the nature and extent of
non-compliance. This work has detected errors by companies in
around 40 per cent of returns. The Department has introduced
various measures to help businesses submit compliant returns, such
as a shorter tax form for companies with simpler financial affairs,
an electronic return with inbuilt checks, and working with some
companies to resolve issues before they submits their returns.
There is relatively little research into the administrative
burdens and costs for businesses in meeting their Corporation Tax
obligations, although some studies suggest that these might be less
in the UK than in some other countries. A review of available
research suggests that such burdens and costs principally arise
from the complexity of the tax structure and frequent legislative
change. The Department has been consulting on small businesses’
priorities for simplifying administration of the tax system. It
also has work underway to set a baseline for tracking and reducing
the costs of compliance. As part of its restructuring, the
Department has set up a business unit to focus on the needs of
small and medium size enterprises and employers.
Head of the NAO Sir John Bourn said today:
"I welcome the improvement in the Department’s
management of Corporation Tax over the last five years, which has
led to higher tax yields from fewer formal enquiries, bringing
benefits to the Department and company taxpayers
alike.
"My report highlights how HM Revenue & Customs can
build on these achievements, by deploying its staff to focus its
work on tax returns that pose the greatest risk, while helping
companies to meet their obligations."
Notes for Editors:
- Until April 2005, responsibility for Corporation Tax was vested
in the Inland Revenue. The Commissioners for Revenue and Customs
Act 2005 received Royal Assent on 7 April 2005. The Act provided
the legal basis for the new integrated Department, HM Revenue and
Customs, which was launched on 18 April 2005. HM Revenue and
Customs exercises the functions previously vested in the Inland
Revenue and HM Customs and Excise.
- The local office network administers the tax affairs of 1.1m UK
companies and collects £15 billion in Corporation Tax. Its
enquiries netted an additional £602m in 2004-05 from 44,000
enquiries. The number of enquiries has come down from 88,000 when
Corporation Tax Self Assessment was introduced, while the tax yield
from these enquiries has increased. Along with the Tax paid by
companies managed centrally in the Department, Corporation Tax
revenue was £33 billion overall in 2004-05.
- The Department is currently examining options for restructuring
its local office network, bringing together those of the former
Inland Revenue and HM Customs and Excise.
- Companies become liable for Corporation Tax when they
incorporate (i.e. register with Companies House and begin
business). The general rate of Corporation Tax is 30% with a series
of reliefs, which taper the rate for companies with profits less
than £1.5m. Each year approximately half a million UK companies
have some liability to Corporation Tax but almost 70% of all UK
companies have a liability of less than £1000.
- Press notices and reports are available from the date of
publication on the NAO website at www.nao.org.uk.
Hard copies can be obtained from The Stationery Office on 0845 702
3474.
- The Comptroller and Auditor General, Sir John Bourn, is the
head of the National Audit Office which employs some 800 staff. He
and the NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 02/06
All enquiries to Barry Lester, NAO Press Office:
Tel: 020 7798 7937
Mobile: 07748 181 692