NAO Publishes Audit Of HMRC Finances

by Jason Gorringe, Tax-News.com, London

16 July 2008

Tim Burr, head of the UK's National Audit Office (NAO) on Monday issued his audit certificate on the HM Revenue & Customs 2007-08 Trust Statement of revenue from tax and duties.

In addition to issuing an unqualified audit opinion on the truth and fairness of the Trust Statement, the NAO revealed, Mr Burr has issued a qualified opinion on the regularity of tax credits owing to high levels of error and fraud, as in previous years.

Commenting on HMRC's handling of the tax credit regime, the NAO report noted that:

"In 2007-08, the Department paid a net GBP20bn in tax credits and an average of 5.7 million families received awards. The Department's latest estimates show that adjustments to awards led to GBP1bn being overpaid to claimants in 2006-07, compared with GBP1.7 billion in 2005-06."

"At 31 March 2008, GBP4.3bn remained to be recovered from claimants, of which GBP1.8bn was in doubt. As part of its Tax Credits Transformation Programme the Department is evaluating service improvement pilots that are designed to assist claimants who need extra support in making a claim and reporting changes in circumstances. It anticipates that most of these will be implemented by April 2009."

It continued:

"In 2006-07, between GBP1.31bn to GBP1.54bn (7.2% to 8.4%) of tax credit entitlement was paid to claimants to which they were not entitled. The Department has now set a target to reduce this to 5% by 2011."

With regard to the collection of income tax through PAYE, the Audit Office observed that:

"In 2007-08, the Department collected GBP127bn in income tax and GBP98bn in National Insurance Contributions. At the end of March 2008, there were 16.2 million open cases where the taxpayer records for earlier years still need to be reconciled and cleared. The Department has not collected all tax due from some pensioners. This error could affect some 420,000 pensions with a tax loss of some GBP135mn a year."

On VAT, it stated:

"In 2007-08, GBP81.2bn in VAT was collected and around eight million VAT returns processed. The Department introduced long-term measures to increase VAT registration performance, but, owing to a combination of factors, performance significantly deteriorated during 2007. Performance recovered by January 2008 and continued with 83 per cent of applications processed within the 14 calendar day target in March 2008."

In conclusion, the NAO chief announced that:

“Levels of tax credits error and fraud are significant when compared with the expenditure on the scheme. I have therefore qualified my opinion on the regularity of these payments. HMRC now has a target and has developed a strategy for reducing error and fraud. It will need to monitor how the measures it adopts are contributing to the achievement of the target and to respond effectively.”

“The Department must strike a balance between stopping criminals entering the VAT system and ensuring legitimate traders receive their VAT registrations without delay. Its performance in processing VAT registrations is now operating in line with targets. ”

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