My new report, 500,000 missing people: £16 billion of lost tax, highlights the fact that only one third of UK companies actually pay corporation tax and that I believe more than 500,000 may not do so each year when they have liability to do so. I have estimated the resulting tax loss at £16 billion a year.
Now of course that's an estimate - and I accept that it's a point in a range - but however looked at the loss from this failure to regulate must cost considerably more than it cost to run H M Revenue & Customs each year - which is about £4.4 billion.
As I say in the report this makes clear the pressing need for more staff at H M Revenue & Customs and Companies House - both of whom completely bizarrely are facing redundancy programmes when regulation is so obviously failing and the law is not being upheld. But a little more action than that is needed , even though having enough people is a pre-requsitie for anything to work. I make a total of 18 recommendations in the report of which the first five are:
1. All banks in the UK must report to both H M Revenue & Customs and Companies House if they open or close a bank account for a UK limited company. If this information is known by H M Revenue & Customs they will know which companies are really trading in the UK, meaning that accounts can be demanded from all those that are trading;
2. No application for the striking off of a company which has a bank account should be accepted by the Registrar of Companies until it has received up to date accounts to support that application and is satisfied that H M Revenue & Customs has received all tax owing to it;
3. It should be illegal for anyone in the UK to assist, directly or indirectly, a UK company to open a bank account with a bank outside the UK without that person who provides assistance having notified both H M Revenue & Customs and Companies House of the fact that they have done so, with full details of the account opened being supplied ;
4. UK banks should be required to provide full and direct disclosure to H M Revenue & Customs of the bank statements of companies that fail to submit either their accounts to Companies House on time or their corporation tax return to H M Revenue & Customs on time. They should also be required to provide the full names and addresses of all those authorised to operate that account;
5. The tax liabilities of UK limited companies should become the personal responsibility and liability of their directors if their companies have failed to submit either their accounts to Companies House on time or their corporation tax return to H M Revenue & Customs on time, with this liability only being avoidable if all documents are filed and payment is made or if a proper liquidation of the company takes place with it being shown that the inability of the company to pay arose through no fault of the directors.
I can just imagine the squeals of protest. So let's be clear that:
a) No one has to use a company - they can always trade in their own name, when they'd be personally liable;
b) Companies are legal people - not natural ones. Legal people can, as the report notes, disappear with remarkable ease. Real people not so easily, thankfully. So we need special measures to find legal people - especially if they are at risk of doing a runner;
c) It's vital we stop people offshoring bank accounts to get round this legislation - hence item (3);
d) It's essential that H M Revenue & Customs and Companies House be made to police their obligations.
I think all small business that complies with the law and pays its tax would support these measures - and candidly, in this scenario they're the people who count. They're suffering unfair competition now - from companies who are not paying tax to claim what is in effect a subsidy to underline legitimate business. Government has a duty to stop that unfair competition. If H M Revenue & Customs and Companies House had the 'smoking gun' information on where each company banked then pursuit of those companies and their directors for non-compliance would become relatively easy to do.
And that's what we need - legislation that tackles tax evasion, ensures regulation is complied with, creates gainful and self-financing employment in law enforcement, creates a level playing field for business and helps stop cuts.
Now why would any government object to that?
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I’m amazed that the reporting requirement for UK bank accounts isn’t already in place – particularly given the crazy amount of identification you have to have to open an individual account.
So much for the Money Laundering Regulations.
I know as a matter of fact that there is a ton of avoidance going off at small cash based businesses. Avoidance of VAT, income tax and PAYE is literally routine business practice, as is tacit assistance of benefit fraud on the tax credit side.
It’s the only way they can make money and survive – making it impossible for any legitimate business to get a foothold.
That’s unfortunately what you get when you set up the economy to induce a chase to the bottom amongst the poor.
I am a Director/Trustee of a small community organisation, a registered charity and company limited by guarantee, with income from grants and donations in 2009-10 of some £40,000. In this financial year, we have received a late filing penalty invoice (for £150)from Companies House because our annual accounts for that year, despite being filed before the deadline, lack the signatory’s name prnted under the signature to the Directors/Trustees’ Report; this although the signature has the word “Chairperson” under the signature, and the first page of the Report lists Directors/Trustees and their role, if applicable. The signatures on the Balance Sheet correctly have the names of the signatories printed below each signature. There is no problem with the accuracy of the accounts. The organisation is appealing the imposition of the penalty. The time taken up (ours and at Companies House) is completely disproportionate to the alleged offence. Also in this financial year, despite being a registered charity, the organisation received a notice of unpaid payment of Corporation Tax (£200) for 2008-09. This turned out to be a penalty for not submitting Corporation Tax returns. These however are only required if each year HMRC has initially sent the organisation a form requesting a return. The organisation has not received the requisite form from HMRC for 2008-09, nor for 2009-10. To get this sorted out the organisation is dealing with two HMRC departments who do not appear to communicate with each other. Again, the amount of time being spent on this by HMRC staff seems wholly disproportionate given the tax evasion offences today’s Tax Research UK notes as apparently not followed up. And even if these are ways in which Companies House and HMRC raise income, the financial returns overall can only be minute compared to the tax amounts the Tax Research UK report notes as unpaid.
@Martin Vegoda
You describe a common problem
Companies House obsesses with minutiae of almost no relevance. Your accounts could be hopelessly wrong and they wouldn’t care less. Sing in the wrong way and they do
Meanwhile HMRC have to waive half all penalties – many because they’re just wrong
There is massive need for reform
Neil – Are you sure avoidance is what you are talking about. I think you may mean evasion?
“Sing in the wrong way and they do”
Music critics at Somerset House? Shock horror!
🙂
@James from Durham
Correct. Apologies for the wrong terminology.
Lifting the veil of incorporation where directors fail to deal with filings to HMRC/Companies house would have another positive effect:
It would wipe the smile off the face of all the slippery nominee officers/shareholders out there!