The Inland Revenue continued to provide an effective check over the assessment, collection and allocation of tax during the year 1999-00, according to the National Audit Office.
A report to Parliament today by Comptroller and Auditor General Sir John Bourn points out that the Inland Revenue collected almost £200 billion tax and national insurance receipts at the same time as managing a major change programme which saw:
- the transfer of the Contributions Agency to the Department;
- the introduction of new arrangements for collecting tax in the construction industry; and
- an important new programme of tax credits for working families and disabled people.
Sir John reported that implementation of the new tax credits scheme went smoothly, with the Inland Revenue paying out more than £1 billion to around 1 million applicants. The Department is continuing to strengthen the controls necessary for the effective operation of the scheme. Key areas in which the Department is taking action are the management of the risk of incorrect or fraudulent applications and reconciliation of the amounts paid with the awards made to individuals.
The new taxation scheme for the construction industry scheme which started in August 1999 has led to the identification of 100,000 people not previously registered with the Department and around £280 million extra tax receipts. Sir John notes, however, that there were teething troubles in issuing registration cards and tax certificates and in managing the issue and receipt of returns from taxpayers. The Department is working to resolve the difficulties, which have increased the risk of fraud and error remaining undetected in the early stages of the scheme.
The transfer of the Contributions Agency to the Inland Revenue will help streamline the way in which checks on employers’ compliance with PAYE regulations are carried out. But this, and other organisational changes, affected the level and quality of employer compliance work during 1999-00. There have been a number of improvements following a Public Accounts Committee report in 1998, but there remains scope to improve the selection of cases for enquiry and the dissemination of best practice.
Sir John reports that the Inland Revenue cleared the records of 1 million PAYE taxpayers in 1997-98 without knowing whether they had paid the right amount of tax, because of difficulties in processing employers’ end of year returns. Had it been able to process these records in the normal way, the Department estimates that it would probably have identified £4 million underpaid tax and £22 million overpaid tax.
Although it will review these cases if further information comes to light or if the taxpayer makes a repayment claim, the NAO report suggests that the Department should consider the scope for alerting those taxpayers affected to the risk that they may have paid the wrong amount of tax.
The Department believes that the processing difficulties have been resolved but will not know for sure until it has completed processing end of year returns from employers for 1998-99. It is carrying out a fundamental review of the process which, according to Sir John, needs to be completed quickly as the Department’s systems will have to cope with additional information on tax credits and student loans from 2000-01.