Posted: 26 July 2010
Issue: Online only
Categories: News, Update
Keywords: National Audit Office, NAO, tax debts, Amyas Morse

Millions of taxpayers may have overpaid or underpaid

HMRC have not made sufficient progress in reducing their backlog of cases of potentially overpaid or underpaid tax, according to the National Audit Office (NAO).

The latest NAO report on the Revenue’s accounts shows that the department raised £435.1 billion from taxes and duties in 2009-10, a decrease of £5.9 billion on 2008-09.

Although HMRC improved their performance in collecting debt, with unpaid amounts due from taxpayers decreasing by £1.6 billion to £26.1 billion, seven million cases of potentially overpaid or underpaid tax were identified when end-of-year PAYE reconciliations for 2008-09 were belatedly performed. (The delay was caused by problems with data quality and processing.)

The taxman has yet to process the cases and check their validity.

At 31 March 2010, a total of 18.2 million cases from a number a tax years were awaiting action. Around half are expected to involve an overpayment or underpayment of tax, and they may lead to repayments and recoveries of the order of £3.0 billion and £1.4 billion respectively.

Handling the accumulation of cases remains a very significant challenge, warned the NAO.

The office’s comptroller and auditor general, Amyas Morse, said the Revenue ‘has not made enough progress in reducing the backlog... It also needs to improve its collection rate for tax credits debt, which is substantially lower than that for tax debts.’

HMRC paid £27.3 billion in tax credits in 2009-10. Unlike for tax debts, the department’s performance in recovering tax credits overpayments did not improve and, at 31 March 2010, the value of tax credits debt had increased to £4.5 billion from £4.4 billion a year previously.

This is partly because claimants face financial difficulties and are unable to pay and partly because the Revenue prioritised collecting higher value tax debts, rather than the comparatively lower value tax credits debts, said the NAO.

Amyas Morse added, ‘The administration of tax in 2009-2010 by HMRC [was] influenced by three broader issues: the recession, which has increased the value of tax debt to be recovered; the pressure on the department to streamline its processes, and the effectiveness of [the Revenue’s] information systems.

‘Those systems need to be developed so they improve the department's ability to monitor and assess the targeting and performance of its debt collection campaigns.’

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