381 of the biggest businesses in the UK tried to avoid £13.1 million of tax each in 2011-12

Posted on

A fascinating parliamentary answer by David Gauke MP, the Exchequer Secretary responsible for HMRC to Michael Meacher gives an extraordinary insight into a number of critical tax issues.

This is the exchange, which was noted on Tuesday:

Mr Meacher: To ask the Chancellor of the Exchequer pursuant to the answer of 13 May 2013, Official Report, column 29W, on taxation: business, how many large businesses contributed to HM Revenue and Customs' total additional revenue of £6.9 billion gained via compliance activity in 2011-12. [156966]

Mr Gauke: HM Revenue and Customs (HMRC) deals with around 10,400 large businesses. The largest 800 businesses are managed within HMRC's Large Business Service and 381 of those businesses contributed £5.0 billion additional revenue in 2011-12 as a result of HMRC's compliance activities.

The remaining large businesses are managed within HMRC's Local Compliance (Large and Complex Unit) and from these HMRC secured £1.9 billion additional compliance revenue in 2011-12. The information to show how many businesses were involved in the enquiries that produced this additional revenue could be provided only at a disproportionate cost.

Now let's analyse that.

First, let's note that £5 billion of extra money was raised from just 381 large businesses in the UK in 2011-12. That is an average of £13.1 million each.That's a staggering scale of tax avoidance per company.

But let's look at the total next. According to HMRC's most recent estimate of the tax gap total tax avoidance was £5 billion a year. However, since just 381 companies were seeking to avoid £5 billion in tax (and remember this excludes the well documented multi billion pound abuse of IT companies) it is obviously impossible that this estimate is right. If it was there could be no avoidance by any other companies, individuals or trusts of any other tax. That is obviously wrong. Between them the 30 million or more other tax payers do avoid tax; of that we can be certain. As a matter of fact therefore HMRC's estimate of tax avoidance is very clearly wrong and they should admit it. I would suggest my own estimate of the total (including that notorious IT company abuse HMRC refuse to recognise) of £25 billion is very much more likely to be accurate. In fact, it simply has to be on this basis.

But then let's also look at this large company tax avoidance in the context of the tax they pay. The latest data for corporation tax - for 2011/12 - shows that large companies paid £20.8 billion in all in corporation tax that year. That, presumably, includes the tax recovery by HMRC. This means that these companies did, in total, try to avoid total taxes (admittedly all taxes, not just corporation tax) equivalent to 24% of the corporation taxes they actually paid. That's a staggering proportion.

But it also implies that if only £1.9 billion was recovered from small companies that the total recovery rate there was much lower - at 15.1% of corporation tax receipts - and the whole area of evasion - which I am reasonably happy to say does not occur in the large business sector - was effectively not tackled at all.

What does this mean? I suggest these things. First that HMRC is still not telling the truth about the tax gap.

Second it indicates the scale of abuse by these companies is at what might literally be called an industrial scale.

Last, if this is true then very clearly yet more needs to be done to tackle this issue.

We need more resources at HMRC.

We need a strong General Anti-Tax Avoidance Principle.

We need law to expose which companies trade but do not declare tax - and the right to pursue the beneficial owners for that money.

We need automatic information exchange with tax havens.

We need reform to tackle tax abuse by the likes of Google.

We need country-by-country reporting to tackle big business more cost effectively and easily.

We need a change in attitude to tax.

We need it now.