US firms double amount of tax owed to HMRC

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The proportion of US-owned businesses which HMRC judges to be ‘at risk’ over corporation tax revenues has more than doubled in the past year, according to analysis from law firm Pinsent Masons, reports Harris & Co chartered accountant.

Data obtained under the Freedom of Information act shows that at the end of the 2011-12 tax year, US-owned businesses were responsible for 33% of corporation tax revenue from foreign-owned companies considered a ‘risk’ by HMRC’s Large Business Service. This compares with 19% the previous year.

Pinsent Masons says that HMRC believed US companies were responsible for £1.7bn worth of corporation tax considered at ‘risk’ at the end of March 2012 and March 2011.

Jason Collins, head of tax at Pinsent Masons, said:

HMRC has been accused of treading softly with US companies and their tax payments. However, the fact that the US figure of tax payments considered a ‘risk’ hasn’t budged in a year suggests that HMRC is casting a very keen eye on what US-based companies are paying in tax.

By comparison, the amount of corporation tax that HMRC considered ‘at risk’ from non-US overseas companies dropped by 53% from 2011 to 2011, a decrease of £3.8bn. The proportion of UK companies at risk also fell by 16% or £2bn.

Pinsent Masons’s analysis shows the amount of extra corporation tax collected by HMRC from US companies fell to £245m last year from £313m from the year before.

By contrast, HMRC’s investigations into non-US overseas companies’ corporation taxes produced an additional yield of £984m last year, double the £472m from the year before.

Collins said:

‘It does seem that HMRC has been processing investigations into US companies at a much slower rate than with other overseas companies. It may be the case that HMRC is looking at some US cases in more detail than it is with cases from other countries.’

‘For every pound of extra tax collected, HMRC has identified another that might be at risk.’

Pinsent Masons’s analysis also suggests that while HMRC appears to be collecting tax at a greater rate from non-US overseas companies than from US companies, the yield from these investigations seems to be below the average.

Collins continued:

‘HMRC expects its eventual compliance take to be on average roughly half of what it considers a risk. While the corporation tax at risk for non-US overseas companies fell by nearly £3.8bn over the last year, HMRC brought in just over a quarter of that figure in extra tax.’

An HMRC spokesman said:

‘HMRC tackles tax risks irrespective of where the ultimate ownership of a company is located.’

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