500,000 missing companies in the Guardian today

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The following is in the Guardian this morning, and since I wrote the report I quote at length:

The Treasury could be missing out on £16bn in unpaid taxes, according to an in-depth report that has found more than half a million companies disappeared last year without paying tax and in most cases without filing accounts.

The losses are equal to almost half of the entire corporation tax receipts last year and would pay for many of the services under threat from government spending cuts, said anti-poverty campaigners.

Tax Research UK, an independent consultancy, said regulators had failed to clamp down on fraudulent firms that avoided filing accounts. Meanwhile, the tax authorities allowed firms to disappear without checking if they owed PAYE tax on employees, national insurance payments or corporation tax on company profits.

The study, released today, found more than 500,000 companies were dissolved in the year to March 2010, with most removed from the official register because they failed to file accounts.

TUC boss Brendan Barber said the report was further evidence of a growing tax gap that allowed wealthy business owners to escape paying tax while ordinary workers suffered unemployment and cuts in services.

Richard Murphy, director of Tax Research and author of the report, said cuts in staff numbers at HM Revenue & Customs and at Companies House, which oversees company registrations, had allowed thousands of businesses to escape detection and avoid billions in unpaid taxes.

He said: "This report catalogues extraordinary failures in regulation by both Companies House and HMRC. It lays no blame on anyone at those organisations for these failures: it is clear that they do not have the resources they need in terms of staffing to undertake the duties demanded of them by parliament."

HMRC has lost more than 30,000 staff in recent years and will lose another 15,000 by 2014 under coalition spending cuts. Companies House recently announced plans to reduce staffing by 25%.

Murphy said the government should demand information from banks offering business accounts. Banks already pass information to HMRC on individuals' savings interest and could do something similar with business accounts, he said.

"The consequences of these failures are enormous," he said. "It is inevitable that significant amounts of tax are being lost to the exchequer. In the meantime companies trading fraudulently undermine honest business in the UK and consumers are bound to be the subject of fraud by unscrupulous traders who will never account for their actions."

The report shows hundreds of thousands of companies every year fail to supply vital information to Companies House, an offshoot of the business department that registers all companies in the UK. Instead of pursuing the directors the agency strikes them off the register.

Murphy claims HMRC demanded tax returns from fewer than 70% of all companies in the UK in the year to March 2010.

"Just 45% of companies actually submitted tax returns due in that year by November 2010, and as a result just 33% of all UK companies in existence in that year paid tax. This is despite the fact that fewer than 20% of all companies are officially recorded as not trading, a figure in itself that is not subject to any checks," he said.

The Oxford Centre for Business Taxation recently estimated that up to a million companies have failed to pay tax. Murphy said analysis of tax collection trends shows that almost half are likely to be dormant or loss-making.

The average amount of taxes unpaid by the remaining 536,000 is estimated to be £30,000 a year, leading to a loss of £16bn, almost 23% of the estimated tax evaded in the UK each year.

Caroline Lucas MP, leader of the Green Party, said the government was guilty of adopting an "out of sight, out of mind" approach to collecting corporation tax.

Anti-corruption charities voiced concerns that lax regulation of company finances allowed foreign dictators to hide funds in the UK without fear of detection.

Anthea Lawson, head of the kleptocracy campaign at Global Witness, the human rights and environmental group, said: "This massive failure to know who is behind British-registered companies means corrupt dictators and their families can hide assets here without us being any the wiser.

"There's little point in freezing potentially corrupt assets like Gaddafi's when we have this huge loophole in our system that still allows every other corrupt official in the world to hide their identity behind the nominee shareholders and directors of a British-registered company," she said.


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