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Peter-Mandelson pulling a doubtful face

‘putting a positive spin on bad news’

HMRC put a brave face on things at a conference for stakeholders last week, but behind the scenes the annual report and Accounts for 2014-2015, showed that yet another qualification to the Accounts demonstrating an increase in tax credit fraud & errors and a decline in customer service levels.

The qualification is an annual ritual for the tax department’s Accounts, this is now the fifteenth year in a row! However, the department claimed that at 4.4%, they had reduced error and fraud in the tax credit system to the lowest level ever.

Have you spotted the contradiction? Yes you’re right, so just how can the numbers go up, whilst the percentage has gone down? The answer is as the overall tax take has risen, whilst the number of error and fraud cases has also risen, as a percentage of the overall take it has fallen by a tiny percentage. I think this is what Peter Mandelson would call, ‘putting a positive spin on bad news’.

As the National Audit Office (NAO) report on the accounts explains, HMRC’s strategy over the past five years has been to reduce costs, while increasing its compliance work to secure additional revenues. Since the 2010 Spending Review £917m has been earmarked for efficiency savings in compliance work to generate additional revenues of £7bn a year.

Amyas Morse

Amyas Morse

Amyas Morse, head of the NAO, commented: “Over the last parliament, HMRC met its strategic objectives to increase tax revenue while cutting its administrative costs. However, it made less progress in improving customer service, the standards of which still fall well short of that expected by taxpayers.”

Overall, HMRC brought in £517.7bn in in tax during 2014-15, an increase of 2.4% on the previous year, which the department ascribed to economic growth and a continuing crackdown on tax evasion and avoidance.

>HMRC says it also “protected” a £26.6bn in additional compliance yield, which was £8bn up on 2013-14.

According to the NAO, compliance yield is HMRC’s measure of the additional revenue generated through its compliance activities. While the figure reached a new high in 2014-15, the NAO commented: “Caution is needed as new areas were included in its measure this year.”

Included in this year’s compliance yield estimate is £768m anticipated from the use of accelerated payments legislation and other compliance projects that were excluded from 2013-14 figures. Without these additions, HMRC’s reported compliance yield in the absence of these changes would have been £25.2bn.

“A significant element of the yield calculation relies on estimates of current and future benefits and is not the amount of cash generated each year from HMRC’s enforcement and compliance activities,” the auditor said. He then went on to comment, “HMRC’s track record on estimates is not good and we recommend that HMRC be clearer in its published statements that the yield figure is not a cash figure and the inclusion of ranges around the estimated elements of yield would help to achieve this.”

HMRC also achieved £210m in cost efficiencies last year from property closures, job cuts and reduced IT and procurement costs. “This brings total sustainable cost savings over the past four years to £991m – exceeding the target by £25m,” HMRC said.

At the stakeholder event in London, HMRC chief Executive Lin Homer said the year’s performance “provides very firm foundations for the challenges of transforming HMRC into a smaller, more highly-skilled, digital and efficient organisation and for meeting the Chancellor’s new target of securing £5bn a year of additional compliance yield by 2019-20”.

HMRC’s Accounts Are Contested By Accountants & Trade Unions

The success of HMRC’s economies, however, have been endlessly contested by trade unions and accountants who have argued that investing in staff and service would increase rather than decrease the amounts raised.

Lin Homer Chief executive of HMRC

Lin Homer Chief executive of HMRC

The argument about HMRC resourcing does appear to have had some impact, which was seen in plans announced by the Chancellor on 8th July to invest £750m+ to recoup another £7.2bn in extra tax over the course of this parliament.

The Accounts included data showing that HMRC handled 72.5% of the 65m customer calls it received last year, a significant drop in performance from 79% in 2013-15, while 70% of the 15m postal items received were processed within 15 working days, this was down from 83% in 2013-14.

Cartoon of Bull on a Toilet

Is one conclusion we can draw

“Our customer service levels slipped this year, but the work we are already doing on digitising our services, using real-time information, and creating online tax accounts for individuals and businesses will help us improve customer service as well as improve voluntary compliance.

Our plans to invest in our people’s skills, data and technology, and new powers announced by the Chancellor will further help us to meet the revenue and efficiency challenges in the Summer Budget,”

Homer said.

Does anyone else detect the unmistakeable whiff of bovine excrement emanating from Ms Homer?


Image of David Jones Shrewsbury Accountant and Founder of Morgan JonesIf any of you would like more detailed information on any aspect of UK Tax Returns, send me an e-mail and I’ll be pleased to advise further.