“HMRC is primarily in the business of bringing in tax revenue, and numbers are up for 2017-18 which is good news. Of course it needs to be vigilant on fraud and error, which is rising in Tax Credits, and on customer service. I welcome HMRC’s recognition of the need for prioritisation, to balance Brexit pressures and other elements of its change portfolio. It is too soon to determine how effective the execution of these plans proves to be in terms of value for money.”
Amyas Morse, head of the National Audit Office, 12 July 2018
There’s plenty of coverage of the National Audit Office‘s 14th consecutive “qualified opinion” of HMRC’s accounts. The ICAEW’s Economia has a big article on it. AccountingWeb’s global editor John Stockdyk also sheds light on the assessment by the NAO’s comptroller and auditor general Amyas Morse.
HMRC raised £605.8 billion of tax revenues this year, an increase of £30.9 billion (5.4 per cent) on 2016-17 and paid out £38.0 billion in benefits and credits (approximately one-fifth of the government’s total benefit expenditure).
The taxes that contributed to most of this increase were income tax and national insurance, which increased by £20.2 billion (6.8 per cent); corporation tax which increased by £2.2 billion (4.3 per cent); and VAT which increased by £4.2 billion (3.4 per cent).
Error and fraud estimate
HMRC’s most recent error and fraud estimate, for the 2016-17 award year, indicates that overpayments have increased to 4.9 per cent (£1.3 billion) of Tax Credits expenditure (£26.3 billion), while underpayments have increased to 0.8 per cent (£200 million).
HMRC expects the level of overpayments to increase for 2017-18, when measured. Misreporting of income is the biggest cause of error and fraud overpayments. This now accounts for £355 million of total overpayments and has increased every year since 2012-13. HMRC has had some success in reducing error and fraud relating to children and undeclared partners since revising its strategy in 2009.
Material levels of error
But, according to the Morse’s report, there were “material levels of error and fraud in personal tax credits payments”.
Morse says: “HMRC collected more tax revenue in 2016-17 and improved its service levels for taxpayers. However, error and fraud is rising within tax credits and HMRC needs to make it easier for claimants to get help.”
He adds: “HMRC is part-way through an ambitious programme to bring in digital services and reduce its costs. In doing so HMRC must ensure it maintains adequate services if it is to protect revenue and tackle error and fraud.”
Stockdyk’s piece points out: “Tax credit overpayments increased to 4.9 per cent (£1.3 billion) of tax credits expenditure during the year, while child benefit fraud and error accounted for about £155 million, just 1.3 per cent of total expenditure.”
He adds: “While the underlying trends are not good for the department’s reputation for financial competence, help is at hand in the shape of the universal credits programme. Some 123,000 tax credits claimants transferred to universal credit during the year and another 2.7 milllion will move across between now and 2023, when they will become the responsibility of the Department for Work and Pensions – along with £6.8 billion of tax credit-related debt.”
Making tax digital for business
There are several comments in the report about how HMRC is coping with change brought on by the likes of Brexit and Making Tax Digital. For instance, the NAO report says: “Last year we reported that HMRC had forecast that complying with Making Tax Digital for Business would result in net costs for businesses in the short-term transitional period.
“However, there would be £100 million annual net benefits for businesses from 2021-22. HMRC has published revised forecasts reflecting the impact of the government’s decision to change the scope and pace of the roll-out. HMRC now forecasts that there will be lower transition costs, but that ongoing costs will outweigh ongoing savings for businesses by £37 million a year in the long term.”
The NAO’s press release says: “The impact of HMRC’s decisions has been to marginally reduce or delay the intended benefits from its transformation plans. The prioritisation exercise has reduced HMRC’s forecast efficiency savings from £717 million to £675 million each year from 2019-20, although HMRC expects that, ultimately, it will be able to meet its original target. It is not clear yet what impact prioritisation will have on delivery of benefits across the whole of HMRC or on its customers.
“HMRC’s transformation plans remain highly challenging but the revised delivery timeline may be more realistic. HMRC still expects to spend almost all of its transformation budget of £1.8 billion in the four years to 2019-20, even though it has stopped or delayed some of its projects.”