MPs from the Common public accounts select committee are urging HM Revenue and Customs to “robustly” pursue companies that avoid paying tax on their profits.

The committee found that over 25 percent of the UK’s 700 largest businesses paid no corporation tax to HMRC in 2005-6, with some cases due to their use of tax relief and tax avoidance schemes.

A spokesman for the HMRC said that it had improved its targeting of corporation tax inquires “significantly”.

The reports from the select committee criticised the wide variation in the amount of tax paid by companies and called for a yearly report to b produced to explain any discrepancies.

The MPs discovered that 181 of the 700 firms avoided paying corporation tax at all in 2005-06. The group of MPs found that 50 companies accounted for two-thirds of the £24bn collected in 2006-07 – the majority of those were involved in oil, gas, banking and insurance.

According to the committee, investigations into the tax discrepancies of certain firms under scrutiny currently take too long and are yielding too little.

Committee chairman Edward Leigh said that, “The fact nearly 60% of the department’s inquiries into compliance turn out to produce less than 1% of the additional tax raised constitutes very poor targeting.”

“It is extraordinary that there is no correlation between the resources committed to each inquiry and the amount of tax in question.”

Mr Leigh said that the HMRC must plan a new way that “high-risk businesses will be singled out for extensive investigation”.

“It should also robustly apply new penalties for those companies engaged in serious tax avoidance activities,” he added.

Although the HMRC is currently calculating the amount of tax owed to the economy, one initial report claims the figure could be as high as £8.5bn.

The Liberal Democrats argue that the government could save million of pounds by tightening the rules on corporate tax payment.

An HMRC spokesman said: “We have cut the number of open inquiries by over 50% since April 2007 and the number of cases focused purely on low-risk issues is down by nearly 90%.”

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