HMRC needs a ‘better understanding’ of the costs and benefits of interventions such as debt campaigns and initiatives to drive down error and fraud in tax credits, according to the Head of the National Audit Office.
HMRC needs a ‘better understanding’ of the costs and benefits of interventions such as debt campaigns and initiatives to drive down error and fraud in tax credits, according to the Head of the National Audit Office.
Amyas Morse, the Comptroller and Auditor General, was reporting last week on HMRC’s accounts for 2011/12. HMRC should also prioritise and target activities on the basis of a better understanding of risks, he said: ‘Before implementing significant structural changes, the department needs to be clear about what its future operating model will be: it needs to understand how its business will change following the introduction of real-time information and universal credit.’
HMRC received total revenue of £474.2bn in 2011/12, an increase of almost 1% on 2010/11.
PAYE reconciliations
Stabilising the administration of PAYE after the ‘serious problems’ that emerged on the introduction of the National Insurance and PAYE Service (NPS) in 2009 had ‘come at a cost’ in terms of the tax HMRC had decided to forgo to keep workloads manageable, the NAO said.
‘In 2011/12, it remitted an additional £12.7m relating to claims from taxpayers [that HMRC failed to make proper and timely use of information], bringing the total of those claims to £53.7m.’
HMRC had met its target to process 6.7m end-of-year PAYE reconciliations for 2008/09 and 2009/10. It was ‘on track’ to reconcile 2010/11 and 2011/12 by March 2013 and to clear by December 2012 outstanding reconciliations for 2003/04 to 2007/08.
Tax debt
The value of tax debt under active management at 31 March 2012 was £13.3bn, 11% below the balance a year earlier. The NAO said: ‘The department has made progress in implementing its debt strategy through tailoring its approach based on the characteristics of the debt.
‘The department’s records show a large increase over the last two years in the amount of tax which the department has decided not to pursue, especially for income tax which was £756m in 2011/12. This is in part owing to PAYE stabilisation work but also as a result of improvements in the recording of remissions.’
‘Revenue losses written off and remitted’ during 2011/12 amounted to £5.2bn, compared to £5.5bn for 2010/11.
The Daily Telegraph reported on 28 June that ‘a litany of errors’ had led HMRC to write off ‘more than £5bn it is owed’. It quoted Margaret Hodge, Chairman of the Commons Public Accounts Committee, as saying: ‘Sadly it is no surprise that the NAO has found substantial problems with HMRC's accounts. This year has seen a litany of tax errors and scandals come to light with mistakes made at the most senior level from the permanent secretary for tax downwards.’
Hodge added: ‘The sheer scale of waste and mismanagement at HMRC never ceases to shock me. Without even mentioning the tax gap, in 2011/12 the department wrote off a staggering £5.2bn of tax owed, overpaid nearly £2.5bn in tax credits due to fraud and error and underpaid around £290m.’
But the Telegraph report also quoted an HMRC spokesman as saying: ‘The £5.2bn debt written-off figure relates to irrecoverable debt, where there is no practical way to pursue the liability – for example, the taxpayer cannot be traced or has gone bankrupt – and tax debt remitted, where HMRC decides not to pursue a tax debt because of reasons such as hardship or value for money.’
HMRC also took to Twitter, where it has almost 15,000 followers, to explain the figure.
Tax credits
Morse qualified his regularity opinion on HMRC’s 2011/12 resource accounts because of ‘material levels of error and fraud’ in expenditure on tax credits. HMRC failed to meet its target to reduce the level of tax credits error and fraud to no more than 5% of entitlements.
The NAO said: ‘The overall level of error and fraud in 2010/11 (the latest year available) indicates that payments of between £2.08bn and £2.46bn were made to claimants incorrectly because of error and fraud. Further amounts of between £170m and £290m are not being paid to claimants due to error.’
In previous years tax credits were reported in HMRC’s annual ‘trust statement’. That statement had received qualified opinions since tax credits commenced in 2003.
'Adequate'
The NAO report concluded: ‘While recognising that no tax collection system can ensure that all those who have a tax liability comply with their obligations, we conclude that in 2011/12 HMRC has framed adequate regulations and procedure to secure an effective check on the assessment, collection and proper allocation of revenue, and that they were being duly carried out. This assurance is subject to the observations on specific aspects of the administration of taxes in this report and our other reports to Parliament.’
Large companies
On 14 June the NAO reported on the reasonableness of five tax settlements with large companies, the subject of a Public Accounts Committee investigation following the NAO’s report on the 2010/11 accounts.
‘Our original report had concluded that the department had not followed its normal governance processes in agreeing these settlements,’ the NAO said last week. ‘Our follow-up report found that all five settlements were reasonable and the overall outcome for the exchequer was good, but expressed concerns about the processes through which the settlements were reached.’
Hodge’s committee questioned senior HMRC officials last week on tax disputes and new governance procedures. In a reference to the recent ‘Secrets of the tax avoiders’ series published in The Times, Hodge confirmed at that meeting that Amyas Morse had agreed to ‘look at the way in which [HMRC deals] with tax loopholes, arising out of the issue in The Times’.
HMRC needs a ‘better understanding’ of the costs and benefits of interventions such as debt campaigns and initiatives to drive down error and fraud in tax credits, according to the Head of the National Audit Office.
HMRC needs a ‘better understanding’ of the costs and benefits of interventions such as debt campaigns and initiatives to drive down error and fraud in tax credits, according to the Head of the National Audit Office.
Amyas Morse, the Comptroller and Auditor General, was reporting last week on HMRC’s accounts for 2011/12. HMRC should also prioritise and target activities on the basis of a better understanding of risks, he said: ‘Before implementing significant structural changes, the department needs to be clear about what its future operating model will be: it needs to understand how its business will change following the introduction of real-time information and universal credit.’
HMRC received total revenue of £474.2bn in 2011/12, an increase of almost 1% on 2010/11.
PAYE reconciliations
Stabilising the administration of PAYE after the ‘serious problems’ that emerged on the introduction of the National Insurance and PAYE Service (NPS) in 2009 had ‘come at a cost’ in terms of the tax HMRC had decided to forgo to keep workloads manageable, the NAO said.
‘In 2011/12, it remitted an additional £12.7m relating to claims from taxpayers [that HMRC failed to make proper and timely use of information], bringing the total of those claims to £53.7m.’
HMRC had met its target to process 6.7m end-of-year PAYE reconciliations for 2008/09 and 2009/10. It was ‘on track’ to reconcile 2010/11 and 2011/12 by March 2013 and to clear by December 2012 outstanding reconciliations for 2003/04 to 2007/08.
Tax debt
The value of tax debt under active management at 31 March 2012 was £13.3bn, 11% below the balance a year earlier. The NAO said: ‘The department has made progress in implementing its debt strategy through tailoring its approach based on the characteristics of the debt.
‘The department’s records show a large increase over the last two years in the amount of tax which the department has decided not to pursue, especially for income tax which was £756m in 2011/12. This is in part owing to PAYE stabilisation work but also as a result of improvements in the recording of remissions.’
‘Revenue losses written off and remitted’ during 2011/12 amounted to £5.2bn, compared to £5.5bn for 2010/11.
The Daily Telegraph reported on 28 June that ‘a litany of errors’ had led HMRC to write off ‘more than £5bn it is owed’. It quoted Margaret Hodge, Chairman of the Commons Public Accounts Committee, as saying: ‘Sadly it is no surprise that the NAO has found substantial problems with HMRC's accounts. This year has seen a litany of tax errors and scandals come to light with mistakes made at the most senior level from the permanent secretary for tax downwards.’
Hodge added: ‘The sheer scale of waste and mismanagement at HMRC never ceases to shock me. Without even mentioning the tax gap, in 2011/12 the department wrote off a staggering £5.2bn of tax owed, overpaid nearly £2.5bn in tax credits due to fraud and error and underpaid around £290m.’
But the Telegraph report also quoted an HMRC spokesman as saying: ‘The £5.2bn debt written-off figure relates to irrecoverable debt, where there is no practical way to pursue the liability – for example, the taxpayer cannot be traced or has gone bankrupt – and tax debt remitted, where HMRC decides not to pursue a tax debt because of reasons such as hardship or value for money.’
HMRC also took to Twitter, where it has almost 15,000 followers, to explain the figure.
Tax credits
Morse qualified his regularity opinion on HMRC’s 2011/12 resource accounts because of ‘material levels of error and fraud’ in expenditure on tax credits. HMRC failed to meet its target to reduce the level of tax credits error and fraud to no more than 5% of entitlements.
The NAO said: ‘The overall level of error and fraud in 2010/11 (the latest year available) indicates that payments of between £2.08bn and £2.46bn were made to claimants incorrectly because of error and fraud. Further amounts of between £170m and £290m are not being paid to claimants due to error.’
In previous years tax credits were reported in HMRC’s annual ‘trust statement’. That statement had received qualified opinions since tax credits commenced in 2003.
'Adequate'
The NAO report concluded: ‘While recognising that no tax collection system can ensure that all those who have a tax liability comply with their obligations, we conclude that in 2011/12 HMRC has framed adequate regulations and procedure to secure an effective check on the assessment, collection and proper allocation of revenue, and that they were being duly carried out. This assurance is subject to the observations on specific aspects of the administration of taxes in this report and our other reports to Parliament.’
Large companies
On 14 June the NAO reported on the reasonableness of five tax settlements with large companies, the subject of a Public Accounts Committee investigation following the NAO’s report on the 2010/11 accounts.
‘Our original report had concluded that the department had not followed its normal governance processes in agreeing these settlements,’ the NAO said last week. ‘Our follow-up report found that all five settlements were reasonable and the overall outcome for the exchequer was good, but expressed concerns about the processes through which the settlements were reached.’
Hodge’s committee questioned senior HMRC officials last week on tax disputes and new governance procedures. In a reference to the recent ‘Secrets of the tax avoiders’ series published in The Times, Hodge confirmed at that meeting that Amyas Morse had agreed to ‘look at the way in which [HMRC deals] with tax loopholes, arising out of the issue in The Times’.
