Tardy taxpayers put £1.5bn in doubt

Up to half of VAT and corporation tax bills are paid late, leaving at least £1.5bn of revenue in doubt, MPs have warned.

They said that HM Revenue and Customs did not have information about which businesses repeatedly file late tax returns and did not link late returns and delaying in payment.

Members of the Commons Public Accounts Committee warned fewer than one in 10 companies filed their VAT or company tax returns over the internet and said HMRC was likely to miss its target to get half of VAT returns filed electronically by the end of this year. Plans to make internet returns compulsory have been delayed until 2010.

MPs said revenue officials should consider a scheme used in the Republic of Ireland to issue "tax clearance certificates" to firms which had filed on time. Certificates could be made a requirement of bids for public sector contracts, the committee suggested.

They said penalties imposed for late filing and payment had little effect on persuading firms to be prompt and warned that online services "do not fully meet the needs of business for robust and secure online systems".

The committee's report also called for "substantial reductions" in the administrative burdens to firms filing VAT and other tax returns.

Edward Leigh, the chairman of the committee, said: "Far too many businesses are failing to file their company tax and VAT returns on time and to pay what they owe by the due date.

"The amount of tax revenue in doubt as a result was estimated a year ago at £1.5bn per annum. HMRC must be much better informed about the types of business which tend to be late in filing and slow in paying up."

He added: "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."