HMRC got sums wrong – NAO

THE PERFORMANCE of HM Revenue & Customs’ drive to raise additional funds was accidentally overstated by the department, the National Audit Office has found.

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.

The department’s latest annual report explained the implications of its error and recognised that changes in its measurement methodology prevent direct comparisons of the data over the long term. It has also accepted the principle that there should be external scrutiny before it publishes data on its compliance performance in future, and has invited the National Audit Office to undertake this work.NAO head Amyas Morse has qualified his regularity audit opinion on HMRC’s 2013/14 resource accounts because of material levels of error and fraud in the payments of personal tax credits.

HMRC’s central estimate of error and fraud in 2012/13 is £2bn which represents 7% of finalised entitlement, the lowest proportion since the current personal tax credits scheme was introduced in 2003/04.

Morse said: “HMRC has been broadly successful in meeting its objective of securing additional tax revenue by investing in compliance projects, as measured by its estimates of compliance yield.

“I am concerned, however, that an error of as much as £1.9bn in HMRC’s baseline calculation led it to report the trend in its performance in a way that inadvertently exaggerated the improvement since 2010/11.

“I welcome HMRC’s decision to invite the National Audit Office to provide independent assurance on the data it publishes on compliance revenue in future, and the greater clarity and transparency about its performance that HMRC has provided in this year’s annual report”.

In other developments, its tax debt has increased to £13.3bn, up from £12.2bn last year; but it collected £39.6bn in 2013/14 and focused on clearing debt older than one year, resulting in the balance of that debt falling to £3.7bn, down from £4.2bn last year.

The UK-Swiss tax agreement, which came into force in January 2013, had brought in £1bn by 31 March 2014, compared with the £5bn HMRC had originally forecast it would collect by March 2016, but in line with its updated forecast of £1.7bn.

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