NAO concerned over HMRC’s real-time PAYE tracking systems

THE TAXMAN’s ACCOUNTS have been qualified by the government auditor over the level of error and fraud in the tax credits system. The 2011/12 tax credit figures show HMRC overpaid between £1.9bn and £2.3bn to claimants because of error and fraud, while up to £360m was underpaid.

Estimated error and fraud stands at 7.3%, the lowest since the tax credits scheme was introduced in 2003/04.

Despite the qualification, the report by National Audit Office comptroller and auditor general Amyas Morse was relatively benign.

The NAO found that HMRC had met its target to operate a normal PAYE service up to March 2013. It successfully cleared the remaining 6.7 million outstanding end-of-year reconciliations for 2008/09 and 2009/10. It also cleared historic open cases back to 2003/04, and reconciled the 2010/11 and 2011/12 tax years.

However, an estimated £953m of tax was foregone for the years between 2003/04 and 2009/10 to “keep workloads manageable”.

The real time PAYE (RTI) system, which is being rolled out to employers, does not contain a budgeted contingency for any significant extra development costs, the NAO noted.

It recommends that HMRC “urgently addresses” weaknesses around its ability to produce and report financial information on PAYE, following identification of the issues during the pilot scheme.

The taxman has yet to produce a “comprehensive plan” to deal with VAT losses incurred through online trading, but it had prevented £579m of erroneous and fraudulent VAT repayments in 2012/13.

“We have found good progress by HMRC in reducing costs and meeting its revenue targets. In respect of raising customer service levels to an acceptable standard, it has a much longer way to go,” said Morse.

“HMRC faces a considerable management challenge if it is to meet its commitments to increase revenue by stepping up its anti-avoidance and anti-fraud activities. It needs to strengthen its own efforts in tackling avoidance. But it also requires the help of legislators and changes in international tax rules, if it is to respond effectively to the ‘borderless’ internet world.”

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