The National Audit Office has qualified the Trust Statement issued by HM Revenue & Customs for 2006/2007 because of problems with the tax credit system, and also noted serious glitches in collecting tax paid through PAYE.

The NAO was able to issue an unqualified opinion on the Trust Statement of revenues, but as was the case in 2005/2006 comptroller general Sir John Bourn qualified the opinion on 'regularity' due to levels of 'claimant error' and 'fraud in the tax credit system'.

On the issue of tax credits the NAO said that overpayments of the credits had caused debts of £6bn. The NAO also criticised HMRC for making incorrect payments of £40m in cases of suspected fraud, even though it had already closed its tax credit website following attacks from organised criminals.

HMRC also took flak for paying out between £1bn and £1.3bn to claimants who were not eligible for tax credits. The NAO said there was 'no evidence to demonstrate a lower estimate for 2006-07'.

With regards to PAYE, the NAO said HMRC's computer systems 'were no longer well suited to the efficient administration of income tax' and said that the department was failing to pursue £880m of tax every year.

This, coupled with the fact that taxpayers are likely to have overpaid tax by £340m, meant that 5 million people were paying the incorrect sum of tax.

Further reading:

£6bn overpaid to tax credit claimants since 2003