The tax office has been slammed by the Public Accounts Committee for a £1.5bn hole in HMRC's revenue due to businesses filing returns late, and often missing the return dates altogether.
The PAC's report showed that HMRC spent spent over £9 million a year on processing over nine million VAT and Company Tax returns and incurs further costs in chasing businesses for overdue returns and correcting errors.
The report further stated that only 60% of companies pay Corporation Tax on time and that only 50% of VAT receipts are received by the due date.
This left at least £1.5 billion of tax revenue estimated to be in doubt from late and missing returns in October 2006, although businesses may have actually paid over some of the tax relating to these returns.
The PAC has also pointed out that there are gaps in the department’s information on the potential tax outstanding from all missing returns, the businesses that fail to file both types of return and the link between late filing and other forms of non-compliance.
'Since HMRC introduced online filing for VAT returns in 2001 and Company Tax returns in 2003, take-up by businesses has been low. It does not expect to meet its Public Service Agreement target to get 50% of VAT returns filed online by 2007–08. Its plans for introducing mandatory online filing have been put back to 2010 for VAT and 2011 for Company Tax returns,' the report said.
PAC chairman Edward Leigh said far too many businesses are failing to file returns on time and to pay what they owe by the due date.
'HMRC must be much better informed about the types of business which tend to be late in filing and slow in paying up.
'HMRC could make greater use of non-financial incentives to businesses to comply with filing deadlines. For instance, tax clearance certificates could be awarded confirming that businesses have complied with their tax obligations thereby qualifying them for public sector contracts,' said Leigh.
He added that HMRC must ensure its online services for VAT and company tax returns are not only sufficiently robust and secure - but also offer facilities which sell the idea of electronic communication and online filing to businesses.
'And the Department must go further than it plans at present to lighten the administrative burdens associated with compliance,' he said.
In the meantime, Chancellor Alistair Darling has backed European Union proposals to modernise EU VAT rules for the cross-border supply of services especially in terms of telecoms, broadcasting and e-services and moves by Brussels to tackle carousel and other VAT fraud, he told MPs in a written Commons statement.
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