Amount raised through corporation tax enquiries into large businesses falls to its lowest level in six years

HMRC's Large Business Service collected an extra £3.17 billion in tax in the year to 31 March 2013 as a result of compliance activity relating to corporation tax, according to the figures. This was an 8% drop from £3.44bn the year before – and a 25% drop on the £4.1bn collected in 2010-11.

The figures show that the number of businesses investigated by HMRC’s Large Business Service over underpaid corporation tax in 2012-13 was also down 9%, at 405 from 444 in the previous year. The Large Business Service deals with the UK’s 770 largest businesses.

The House of Commons Public Accounts Committee has been critical of HMRC's dealings with multinational businesses such as Google and Amazon.

Jason Collins, a tax expert at Pinsent Masons, said that HMRC is under pressure to recover additional money from businesses, not only to help close the gap in public finances, but also to show that the UK Treasury and HMRC have not been allowing bigger businesses to escape their tax obligations.

Collins said that whilst the figures "may be seen by some as a poor result for HMRC", they can be explained by reforms to corporation tax over the last few years.  "It is frequently argued that lower taxes and simpler taxes should lead to lower levels of tax evasion and avoidance activity and inevitably that means lower tax investigation yields,” he said.

In 2007 the rate of corporation tax was 30%. It has been reduced gradually to its current rate of 23% and will be reduced to 20% by 2015. Collins said that the rate reduction will mean that companies will consider tax avoidance less attractive in the UK, which has amongst the lowest level of corporation taxes of any major economy.

“When the corporation tax rate was 30% many businesses were going to great lengths to work around what was seen as an unfairly onerous tax bill. However, as the rate has been lowered, the tax simplified, and lower tax rates promised for the future, the need to avoid this tax has been reduced,” said Jason Collins. 

Collins said that lower tax investigation yields are unlikely to be because of a relaxed approach on the part of HMRC to big businesses. 

“Anyone who has seen HMRC at work whilst investigating a company will know that they do not pull their punches. HMRC has done a lot of field work over the last decade to reduce the size of the market for aggressive corporate tax planning,” he said.