Misappropriation? - Allison Plager dips into the National Audit Office's recently published reports on the 1999-2000 appropriation accounts of the Inland Revenue and Customs.

Misappropriation?

Allison Plager dips into the National Audit Office's recently published reports on the 1999-2000 appropriation accounts of the Inland Revenue and Customs.

The Revenue cleared the records of some one million pay-as-you-earn taxpayers in 1997-98 without checking that they had paid the correct tax, said Sir John Bourne, comptroller and auditor general in his report 'Inland Revenue Appropriation Accounts 1999-2000'. The Revenue's reason for this is given as 'difficulties in processing employers' end of year returns', i.e. the infamous NIRS2 system, and it estimates that without the difficulties, checks would have identified approximately £4 million underpaid tax, and £22 million overpaid tax.

It 'believes' that the processing difficulties have been resolved, but will not know for certain until the work on the 1998-99 end of year returns is complete. The Revenue is carrying out a review of the process, but Sir John says that this review needs to be completed quickly for the system to be able to cope with additional information on tax credits and student loans. He also suggests that the Revenue considers how it could alert the affected taxpayers to the fact that they may have over or under paid tax. Perhaps the Revenue should take an advertisement out in the national newspapers, along the lines of the faulty product warnings which appear so regularly, warning taxpayers that they should check their pay and tax details for 1997-98 in case they are due a repayment — or need to repay the Revenue …

Revenue business

The report covers the assessment, collection and allocation of tax during the year 1999-2000, and points out that the Revenue collected tax of around £198 billion (including £58.7 billion National Insurance) in that year at a cost of £1.84 billion or 1.32 per cent of the tax collected. This compares well with 1998-99, where the cost of collection was 1.33 per cent of the total collected. In addition during this period, the report points out that the Revenue had to cope with expanding to take in the Contributions Agency, the introduction of the new construction industry scheme and the tax credits programmes.

The report does not cover self assessment, and an in-depth review of the income tax and capital gains tax self assessment system is due to report to Parliament in Spring 2001.

Tax credits

With regard to the tax credits scheme, the report says that the Revenue paid out over £1 billion to some million taxpayers, the related administrative cost being £36 million, and that the implementation of the scheme went smoothly.

However, Sir John made a few recommendations. For instance, it is important to verify the applicant's income, particularly if he is self employed, and this can sometimes cause delays. It was recommended that the Revenue consider whether links can be made to other databases containing details of income in order to provide another source of assurance.

Construction industry scheme

The new construction industry scheme has resulted in approximately 100,000 people being identified as needing to be registered with the Revenue, and produced extra tax of £280 million. However, the report identified that the Revenue's processing of applications for tax certificates and registration cards was not always followed properly. While the situation had improved, the report recommended that the Revenue ensure that it had sufficient resources to deal with the next peak in workload, i.e., when certificates come up for renewal in 2002.

The report also noted that payment vouchers had been oversupplied, and suggested that the Revenue monitor carefully the results of checks which it makes on a ten per cent sample of vouchers submitted with repayment claims. If there were a significant number of incorrect claims, then the Revenue should consider widening the sample for checking.

Employer compliance

The report noted that the Revenue had tried to improve the risk assessment process underlying its employer compliance work. However, a database of employers which was designed to assist Revenue employees in identifying higher risk cases for investigation was not used as much as it could be because the information it contained was believed to be unreliable. It was recommended that the Revenue should monitor the progress on the action being taken to improve the database.

It was also noted that there was considerable exchange of information within the Large Employer Compliance Office, but less exchange of information between that office and local offices. Sir John suggested that there was 'scope for disseminating lessons learnt' from the Revenue's employer compliance activities.

Customs

Sir John's report on Customs Appropriation Accounts 1999-2000 concentrated on Customs' systems, and showed up a massive breakdown of controls which led to some £620 million duty being lost to the Exchequer between 1994 and 1998. This matter is under an independent investigation. VAT collection per se was not reported on.

Inland Revenue: Appropriation Accounts 1999-2000 and HM Customs and Excise: Appropriation Accounts 1999-2000

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