Amyas Morse, the Comptroller and Auditor General, has today issued a report on the 2013-14 accounts of HM Revenue & Customs. The report describes how HMRC deploys its compliance resources and measures and reports the impact of its compliance work. It also covers HMRC’s progress in operating the PAYE service and its implementation of its new Real Time Information service and its performance in tax collection and in reducing error and fraud in personal tax credits.
Performance in 2013-14
HMRC received total tax revenue of £506 billion, £30 billion (6.3 per cent) more than in 2012-13. The taxes that contributed most of this increase are income tax and national insurance which increased by £16.2 billion (6.4 per cent), VAT by £7.2 billion (7.1 per cent) and stamp taxes which have significantly increased by £3.4 billion (35.8 per cent). The value of debt either written off or ‘remitted’ (not pursued by HMRC for reasons such as hardship or value for money) during the year was £5.1 billion.
HMRC reported compliance yield (the additional revenue it generates through its compliance activities) of £23.9 billion in 2013-14 – its highest yield to date. The Department has improved its measurement of compliance yield since 2010-11. However, in response to the NAO’s review, HMRC found that, when it agreed performance targets with the Treasury for the spending review period, it had made errors that led it to set its baseline £1.9 billion too low. This made the targets easier to achieve and led HMRC to report that it had exceeded its performance targets by £1.9 billion in 2011-12 and £2 billion in 2012-13 when in fact it had achieved almost exactly the level of performance anticipated.
It also led to HMRC inadvertently overstating the extent of the improvement in its performance when comparing the years up to 2010-11 with the compliance yield it has generated since. It has explained the implications of its error in this year’s annual report and recognized that changes in its measurement methodology prevent direct comparisons of the data over the long term. It has also accepted the principle that there should be external scrutiny before it publishes data on its compliance performance in future, and has invited the National Audit Office to undertake this work.
Progress in performance of tax systems since last year
HMRC continues to modernize PAYE by rolling out its Real Time Information (RTI) system for all employers. HMRC has announced a package of support for some smaller employers who have experienced problems as they struggled to adapt their systems in time.
The Department’s ‘tax debt’ has increased to £13.3 billion (from £12.2 billion last year); but it collected £39.6 billion in 2013-14 and focused on clearing debt older than one year, resulting in the balance of this debt falling to £3.7 billion (£4.2 billion last year).
The UK-Swiss Tax Agreement, which came into force in January 2013, had brought in £1 billion by 31 March 2014, compared with the £5 billion HMRC had originally forecast it would collect by March 2016, but in line with its updated forecast of £1.7 billion.
Tax credits error and fraud
The C&AG has qualified his audit opinion on HMRC’s 2013-14 resource accounts because of material levels of error and fraud in the payments of personal tax credits. This is the third consecutive year he has qualified the accounts on these grounds. The 2012-13 error and fraud percentages (the last year available) equate to payments of between £1.8 billion and £2.2 billion being made to claimants incorrectly because of error or fraud and a further £70 million to £320 million not being paid to claimants because of error. The overall levels of error and fraud in finalised awards are significant within the context of the £29 billion spent on personal tax credits in 2013-14.
Tax credits debts rose to £5.5 billion at 31 March 2014 (up £0.7 billion from a year earlier). HMRC has undertaken a detailed analysis of its success in pursuing debts and believes that only 34 per cent of the balance is likely to be recovered (31 per cent at 31 March 2013). HMRC is making increased use of private sector debt collection agencies to recover tax credits debt and is on target to achieve a return of £90 million, though recovery rates to date of 18 per cent are well below the 30 per cent it originally forecast.