Tax and duties

HM Revenue & Customs 2009-10 Accounts: Report by the Comptroller and Auditor General

The NAO has published its report on the 2009-10 accounts of HM Revenue and Customs.

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"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.