Tax take down by 1.3% in 2009/10, and problems with PAYE and tax credits
The latest HMRC accounts were published on 20 July and cover the year ended 31 March 2010.
In 2009/10 HMRC collected just over £430bn, some £5.9bn (1.3%) less than in 2008/09. Of the total, about 85% came from income tax and National Insurance contributions (NIC), VAT and corporation tax.
Income tax and NIC come to £249bn of which almost £100bn is made up of NIC. VAT accounts for £77bn and corporation tax £26bn. The only other tax that produces more than £10bn is fuel duties which brought in £26bn.
The accounts are published with an audit report from the Comptroller and Auditor General (the Head of the National Audit Office). As in previous years the audit report is qualified because of uncertainty about the level of error and fraud in tax credit payments.
The Auditor General noted the difficulties under which HMRC has been operating, namely the recession and the increasing pressure to improve efficiency and reduce costs. He paid particular attention to three key areas of HMRC’s activities: the PAYE system, debt management, and tax credits (see below).
PAYE system
HMRC’s performance in this area comes in for quite a lot of criticism.
There is quite a lot about the new National Insurance and PAYE Service (NPS) and the enormous difficulties that that has caused. The NAO report details the delays and difficulties in implementing the system (and the increased costs as a result), and it is clear that HMRC was unprepared to deal with the huge number of problems that arose once NPS went live. There is a backlog of processing for 2008/09 and 2009/10 and the NAO says: “It is imperative that the Department stabilises the performance of the new Service so that work items are cleared promptly.”
There are also problems for the years before NPS came in, ie 2007/08 and prior. HMRC has not been able to tackle the backlog of unreconciled PAYE cases which was reported in last year’s accounts. There are 18.2m of such cases from 2007/08 and previous tax years, affecting around 15m people. There is a statement – picked up in the national press – that there are total repayments required of £3bn and recoveries of £1.4bn which may take up to four years to sort out. Many of those affected may have no idea that they are due a refund or owe tax.
Debt management
HMRC has succeeded in increasing its debt recoveries by £5.6bn to £67.9bn compared to last year, despite the recession making debts more difficult to recover. It has also some new initiatives, eg new ways for people to pay.
In 2008/10 HMRC started a new campaigns-based approach to debt collection in each of the major taxes. It is too early to say if this is working but the NAO notes that HMRC’s management information systems will need to get a lot better if they are to provide the analysis of debt and of customer behaviours needed to underpin a campaigns-based approach.
Tax credits
In 2009/10, HMRC paid a net £27.3bn in Child and Working Tax Credits to more than six million families. It estimates that error and fraud resulted in payments of between £1.95bn and £2.27bn being made to claimants incorrectly and between £0.20bn and £0.31bn not being paid to claimants due to error. This level of error is what led the NAO to qualify the accounts.
With regard to tax credit overpayments, although the annual level of overpayments continues to fall, HMRC has been less successful in recovering the backlog of overpayments from previous years. At the end of March 2010, the amounts to be recovered had increased to £4.5bn.