HM Revenue & Customs (HMRC) has published its 2024-25 accounts. Gareth Davies, the Comptroller and Auditor General (C&AG), has modified his audit opinion to Parliament on HMRC’s Resource Accounts due to material levels of fraud and error estimated by HMRC within Corporation Tax research and development (R&D) reliefs, Child Benefit expenditure and Personal Tax Credits. For more details see Basis for qualified opinion on regularity.

Here we share highlights from his Resource Accounts audit certificate. You can read the full certificate and report on the accounts in context in HMRC’s annual report and accounts.

See also HMRC Trust Statement and the C&AG’s Report on Accounts

Opinion on financial statements

In my opinion, the financial statements:

  • give a true and fair view of the state of the Department and the Departmental Group’s affairs as at 31 March 2025 and their net expenditure for the year then ended; and
  • have been properly prepared in accordance with the Government Resources and Accounts Act 2000 and HM Treasury directions issued thereunder.

Qualified opinion on regularity

In my opinion, except for the effect of the matters described below in the Basis for qualified opinion on regularity section, in all material respects:

  • the Statement of Outturn against Parliamentary Supply properly presents the outturn against voted Parliamentary control totals for the year ended 31 March 2025 and shows that those totals have not been exceeded; and
  • the income and expenditure recorded in the financial statements have been applied to the purposes intended by Parliament and the financial transactions recorded in the financial statements conform to the authorities which govern them.

Basis for qualified opinion on regularity

Error and fraud in Corporation Tax research and development reliefs

Note 4.1.4 to the Resource Accounts records Corporation Tax research and development reliefs expenditure of £7.7 billion in 2024-25. Where error and fraud result in overpayments, the transactions do not conform with the relevant primary legislation specifying entitlement and calculation criteria, and the expenditure is irregular. Using the latest data available from a random enquiry programme, at Note 4.1.5 the Department has estimated the level of error and fraud from overpayments that it expects is present within Corporation Tax research and development reliefs expenditure as £481 million (5.9% of related expenditure).

Error and fraud in Personal Tax Credits

Note 4.1.1 to the Resource Accounts records Personal Tax Credits expenditure of £2.7 billion in 2024-25. Where error and fraud results in overpayments and underpayments, the transactions do not conform with the relevant primary legislation specifying entitlement and calculation criteria, and the expenditure is irregular.

For 2024-25 the Department has estimated the mid-point level of error and fraud, which are based on the latest available data are:

  • overpayments of £85 million (4.2% of forecast expenditure); and
  • underpayments of £15 million (0.8% of forecast expenditure).

Error and fraud in Child Benefit

Note 2 to the Resource Accounts records Child Benefit expenditure of £13.3 billion in 2024- 25. Where error and fraud results in overpayments, the transactions do not conform with the with the relevant primary legislation specifying entitlement and calculation criteria, and the expenditure is irregular. For 2024-25 the mid-point of the Department’s estimates, which are based on the latest available data are £270 million (2.0% of related expenditure).

I consider the aggregate levels of error and fraud arising from overpayments and underpayments in these areas of expenditure to be material to my opinion on the accounts. I have, therefore, qualified my opinion on the regularity of expenditure in respect of Corporation Tax research and development reliefs, Personal Tax Credits and Child Benefit because of:

  • the estimated level of overpayments attributable to error and fraud where payments have not been made for the purposes intended by Parliament; and
  • the estimated levels of overpayments and underpayments in these areas of expenditure which do not conform with the relevant authorities.

My report, which follows on pages R1 to R43 provides further details on the basis for my qualified audit opinion on regularity.

Key audit matters

IT Systems that impact financial reporting

Description of risk

HM Revenue & Customs’ IT environment is complex with a number of new and legacy IT systems supporting a range of expenditure, benefits, tax credits and tax reliefs. Due to HM Revenue & Customs significant reliance on IT systems, effective general IT controls are critical to allow reliance to be placed on the completeness and accuracy of financial data. IT audit is a core part of my assurance over the systems for providing support through benefits, credits and reliefs and financial reporting systems.

Key observations

I am satisfied that HM Revenue & Customs’ overall IT control environment appropriately supports the financial reporting process.

Estimate of Corporation Tax Research and Development expenditure

Description of risk

This risk relates solely to my true and fair opinion, the basis for my qualification on regularity related to Corporation Tax research and development expenditure is explained more fully in my report on pages R1 to R43 and the Basis for qualified opinion on regularity section above.

Corporation Tax research and development reliefs expenditure and liabilities are calculated using a model produced by HM Revenue & Customs statisticians. The model uses past claims data to forecast current year expenditure and liabilities on qualifying expenditure incurred by claimants, but where the claim has not yet been submitted. Expenditure reported in the accounts on Corporation Tax research and development reliefs was £7.7 billion in 2024-25, which is highly material.

There is a risk of material misstatement due to the significant estimation uncertainty inherent in the calculation of the expenditure and liabilities. Estimation uncertainty is driven by the fact that Corporation tax reliefs expenditure and related accruals are estimated using analysis of historic relief claims and applying forecast growth and uplift assumptions, and adjustments made for planned changes in relevant policy and rates. This is because of the time lag of at least two years between the expenditure for which relief is being claimed and the filing of the Corporation Tax claim in relation to that expenditure. HM Revenue & Customs has set out the method used to develop the estimate in note 4.1.4 of the accounts.

Key observations

Based upon the evidence reviewed and the audit work completed, I am satisfied that expenditure and liabilities reported in the accounts in respect of Corporation Tax research and development reliefs are reasonably stated and adequately disclosed in the accounts.

Application of materiality

Departmental group

Materiality: £344,000,000

Basis for determining materiality: 1% of gross expenditure of £34.41 billion (2023-24: £40.26 billion)

Rationale for the benchmark applied: HM Revenue & Customs is funded primarily from the Consolidated Fund and expenditure is the most significant element of the accounts by value. The Group’s primary activities, as reported in its Resource Accounts, are to ensure appropriate payment of Personal Tax Credits, Child Benefit, Corporation Tax reliefs and other reliefs, to pay its staff and to manage its administration costs in support of its primary purpose of collecting taxation. Taxation revenue is reported separately in the HM Revenue & Customs Trust Statement. I therefore consider that expenditure is likely to be of greatest interest to users of the accounts and is a suitable basis on which to calculate materiality.

As the Group consists of HM Revenue & Customs Resource Accounts and the Valuation Office Agency, an executive agency, the Group and Parent materiality are the same.

HM Revenue & Customs Annual Report and Accounts 2024-25

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