NAO to audit HMRC projections following sums error

THE NATIONAL AUDIT OFFICE is to audit HM Revenue & Customs’ yield projections in the future after it the tax-man accidentally overstated the expected performance of its compliance drive in 2013/14, the department’s chief executive Lin Homer has confirmed.

While HMRC brought in £23.9bn through compliance action in 2013/14 – its highest yield to date – the watchdog found when HMRC agreed performance targets with the Treasury for the spending review period, it had made errors that led it to set its baseline £1.9bn too low. In turn, the targets set became easier to achieve. It exceeded its performance targets by £1.9bn in 2011/12 and £2bn in 2012/13, when in fact it had hit 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.

In the period immediately after the last election, the government made a decision to invest £1bn in HMRC compliance activity, Homer told the Public Accounts Committee.

“We got that initial estimate wrong, and therefore the judgement of where we were going to measure that improvement from was based on an incomplete assessment of our performance at that time,” she said in a hearing this week.

“We were asked over the four-year period to give a climbing return of £18bn for the £1bn investment and we have honoured that commitment. We’re on target to honour that, although we need to perform this year as well,” she said. “Even allowing for the adjustment we delivered what we told the government we would. Because we got the baseline wrong, we thought we were over-delivering. We thought we’d over-achieved, when in fact we’d achieved.

“I’m happy to accept Amyas’ [Morse, head of NAO] recommendation that we should involve the NAO in auditing those figures in the future because that gives us more security.”

The committee accepted Homer’s explanation, but queried the quality of the body’s governance structure and internal audit.

“This should have been discovered before three years were up and before it reached external auditors,” chairwoman Margaret Hodge said.