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HM Revenue & Customs (the Department) collects £129 billion a year in VAT and Corporation Tax. Some 1.8 million businesses are registered for VAT and 1.8 million companies registered to file Company Tax returns, which include a self assessment of the amount of Corporation Tax payable. 600,000 businesses file both types of return. Businesses are normally required to file VAT returns quarterly and Company Tax returns annually.
The Department spends 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.
85% of VAT returns and around 77%-79% of Company Tax returns are submitted on time. Getting accurate tax returns in on time is important for the Department in ensuring that it is collecting the right amount of tax at the right time. It tends to focus more on getting tax payments in and on the accuracy of returns, although only 60% of companies pay Corporation Tax on time and 50% of VAT receipts are received by the due date. At least £1.5 billion of tax revenue was 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. 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.
In the absence of a return the Department may levy a penalty and it can raise an assessment of the tax due. The penalties have had limited impact on encouraging companies to file already overdue returns or in deterring those companies intent on filing late.
Since the Department introduced online filing for VAT returns in 2001 and Company Tax returns in 2003, take-up by businesses has been low. The Department 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 Department expects online filing to save most of the £9 million a year it currently costs to process paper returns. It estimates that a typical business will save £5 per VAT return and £20 per Company Tax return by filing online. Online filing also brings added benefits because the potential for error in the returns is reduced.
The Department has measured the administrative burdens the tax system places on businesses and has a target to reduce the burden by at least 10% by 2011. It has various plans to make it easier for businesses to comply with their filing and tax obligations but many of these are unlikely to take effect before 2011.
On the basis of a report by the Comptroller and Auditor General,[1] we examined HM Revenue & Customs on getting VAT and Company Tax returns in on time, encouraging businesses to file tax returns online and making it easier for businesses to comply with their filing obligations.
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