"The Department has not made enough progress in reducing
the backlog of 18.2 million income tax cases where there is
potentially overpaid or underpaid tax. It also needs to improve its
collection rate for tax credits debt, which is substantially lower
than that for tax debts.
"The administration of tax in 2009-2010 by HM Revenue
and Customs has been influenced by three broader issues: the
recession, which has increased the value of tax debt to be
recovered; the pressure on the Department to streamline its
processes; and the effectiveness of its information
systems.
"Those systems need to be developed so they improve the
Department's ability to monitor and assess the targeting and
performance of its debt collection campaigns and to design future
interventions in the areas of greatest risk."
Amyas Morse, head of the National Audit Office, 20 July
2010
Amyas Morse, the Comptroller and Auditor General, has today
issued his report on the 2009-10 accounts of HM Revenue and
Customs. Total revenues from taxes and duties were £435.1 billion,
a decrease of £5.9 billion (1.3 per cent) on 2008-09. The
Department improved its performance in collecting debt, with
amounts due from taxpayers but not yet paid decreasing by £1.6
billion to £26.1 billion.
In 2009-10, the Department implemented its new National
Insurance and PAYE Service, allowing it for the first time to
combine its records of individuals' national insurance
contributions with their income tax paid through PAYE. Problems
with data quality and processing led to delays in finalising end of
year PAYE reconciliations for 2008-09. Seven million cases of
potentially overpaid or underpaid tax were identified when the
reconciliations were performed but the Department has yet to
process these and check they are valid.
HMRC has not made significant progress in reducing the backlog
of cases of potentially overpaid or underpaid tax from 2007-08 and
earlier. At 31 March 2010, 18.2 million cases were awaiting action.
The Department's early analysis suggests that around half of these
cases are likely to involve an over or underpayment of tax and
these may lead to repayments and recoveries of the order of £3.0
billion and £1.4 billion respectively. The exact amounts of tax
over and underpaid and the number of individuals affected cannot be
determined until these cases are resolved. Reducing this backlog of
cases remains a very significant challenge.
The Department is changing its approach to collecting tax debt,
running campaigns concentrating on debts for each type of tax and
tailoring its collection activities accordingly. The Department's
evaluation suggests that these campaigns have increased collection
rates and it intends to extend the use of campaigns to all tax
debts by October 2010. To evaluate the success of its campaigns
properly, it needs to improve its performance measures and the data
underpinning these.
The Department paid £27.3 billion in tax credits in 2009-10. Its
latest estimate (based on 2008-09 finalised awards) is that error
and fraud resulted in incorrect payments to claimants of between
£1.95 billion and £2.27 billion. The level of error and fraud has
led to the regularity opinion on tax credits expenditure being
qualified every year since the current tax credits system began in
2003. In 2009-10, the Department launched a new strategy for
reducing error and fraud. There is evidence that its new approach
has yielded positive results, preventing an estimated £569 million
of error and fraud in the year.
Unlike for tax debts, HMRC's performance in recovering tax
credits overpayments did not improve and, at 31 March 2010, the
value of tax credits debt had increased to £4.5 billion (£4.4
billion at 31 March 2009). This is partly because claimants face
financial difficulties and are unable to pay and partly because the
Department prioritised collecting higher value tax debts, rather
than the comparatively lower value tax credits debts. The
Department is working to improve its assessment of tax credit
debtors' ability to pay their debts, and will focus initially on
the overpayments identified in the 2010 renewals process. It needs
to extend this approach to older debts so that it can pursue debts
that can be recovered cost effectively, and write off the
others.