01743 271071 [email protected]

They’ve got their sums wrong again

Amyas Morse has caught HMRC out

Amyas Morse has caught HMRC out

HMRC has had to make a public apology after it incorrectly claimed that it had collected billions of pounds in extra tax.

In its annual report on HMRC’s accounts for the 2013-2014 tax year, the National Audit Office (NAO) found that HMRC has set the baseline to measure its performance £1.9bn too low in 2010.

Chartered Accountant Amyas Morse, Comptroller and Auditor General of the NAO stated that although he accepted that the Revenue has been “broadly successful” in collecting extra tax revenue he was concerned 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.”

    The NAO also found that:

  • HMRC received total tax revenue of £506bn, £30bn (or 6.3%) more than in 2012-13.
  • The taxes that contributed most of this increase were income tax and national insurance which increased by £16.2bn (6.4%), VAT by £7.2bn (7.1%) and stamp taxes which increased by £3.4bn (35.8%)
  • The value of debt either written off or ‘remitted’ (not pursued by HMRC for reasons such as hardship or value for money) during the year was £5.1bn
  • HMRC reported compliance yield (the additional revenue it generates through its compliance activities including tax investigations) of £23.9 billion in 2013-14 was its highest yield so far

The Revenue said in a statement: “We regret an historic error made in 2011 when we wrongly calculated the baseline against which our performance was measured. We have corrected this error and even against the corrected baseline we have still exceeded our targets. We will work closely with the NAO to prevent this happening again.”

HMRC said that last year was its best-ever performance. “We … secured £23.9bn in additional compliance revenues and achieved our best-ever customer service levels, while also making £235m of efficiency savings.”

Professor Sir Andrew Likierman the non-executive Chairman of the National Audit Office commented that HMRC’s methods of measuring customer service levels were somewhat arbitrary and open to miss-interpretation. He indicated his preference for statistics produced by the National Consumer Council, which showed much more variable results and demonstrated that HMRC still had some way to go in this area, especially in their response time to letters from taxpayers and at their call centres.

Real Time Information

The NAO said HMRC had made genuine progress in modernising the payroll system of collecting Income Tax and National Insurance through the new RTI system for employers, including support for smaller companies that have struggled to adapt.

Under RTI, employers send information about tax and national insurance they deduct from employees’ wages to HMRC when they are made, rather than at the end of the tax year as previously happened.

Tax Credits

Amyas Morse also qualified his audit opinion on HMRC’s 2013-14 resource accounts for the third consecutive year because of “significant and material levels of error and fraud in the payments of personal tax credits”.

He added that the errors and fraud by claimants was surpassed by those of the Revenue and cited a recent court case in which a HMRC employee, who was on the staff of the St Austell tax office, was jailed for stealing more than £93,000 in working family tax credits.

Offshore bank accounts

The NAO stated that the HMRC’s claim that the UK-Swiss Tax Agreement, which came into force in January 2013, would bring in in excess of £5bn was significantly overstated. The NAO found the amount raised in the tax year ending 31 March 2014, was only £1bn, five times the original forecast by HMRC.

David Jones is the Senior Partner and Founder of Morgan Jones & Company. Born in Liverpool and an Accountancy graduate of the University of Wolverhampton, David spent twenty years working for the Customs & Excise in London then Shrewsbury before starting his own business. David’s depth of knowledge of the UK tax system and his ability to communicate this learning has seen Morgan Jones & Company grow into Shropshire’s most respected Accountancy Practice. Email David