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ALLISON PLAGER delves into a recent report on the administration of the tax system.
THE INLAND REVENUE collected £211.5 billion tax and National Insurance in the year 2000-01 according to the National Audit Office's Inland Revenue Appropriation Accounts 2000-01.
ALLISON PLAGER delves into a recent report on the administration of the tax system.
THE INLAND REVENUE collected £211.5 billion tax and National Insurance in the year 2000-01 according to the National Audit Office's Inland Revenue Appropriation Accounts 2000-01.
The report, among other matters, covers the procedures established by the Revenue to counter non-compliance and fraud. It reports that the Revenue estimates that it identified additional tax liabilities of £4.5 billion (compared to £5.4 billion in 1999-2000), and of this some £2.14 billion related to work carried out by the Large Business Office, £0.38 billion by the Special Compliance Office, and £0.43 million to company enquiries.
So much for the tax collected, but how has the Revenue fared in clearing taxpayers' records? In the 1999-2000 report, Sir John Bourn said that at December 1999, the Revenue still had to complete its end-of-year checks on some 2.5 million records for 1997-98. This arose as a result of difficulties in transferring information on employees' pay and tax deductions from the National Insurance Recording System (NIRS2) to the computerisation of the pay-as-you-earn system.
The Revenue undertook some research, and reconsidered its assumption that the 1.04 million records with no pay or tax details would have been cleared automatically had the information been available. It issued letters to these taxpayers by 2 July 2001, telling them that they may have under or overpaid tax for 1997-98 and, on the basis of responses received, the Revenue estimates that the underpaid tax totals £2 million, and the overpaid tax £15.1 million. The remaining 1.46 million records unchecked have been reduced to approximately 856,000, of which 556,000 do not have pay and tax details. The Revenue is continuing to review and clear these cases.
Since the last appropriation accounts report, the Revenue has also cleared 0.9 million of the 2.1 million cases relating to 1998-99 which were on the pay-as-you-earn system without pay and tax details. However, another 4.3 million cases are open for 1999-2000.
The Revenue is trying to sort out this seemingly hopeless state of affairs. It has set up an end-of-year steering group to take a strategic view of the end of year processes. It has also organised a fortnightly end-of-year forum, which will monitor performance. However, as always, it is shifting the problem to the employers, by encouraging them to adopt electronic on-line filing of pay and tax details instead of submission on paper. The Revenue will not bear the cost of sorting out NIRS2 alone.
In order to clear the open cases requiring 'clerical intervention', the Revenue has provided substantial extra funding of £18 million for 2001-02 and £10 million each for 2002-03 and 2003-04. A recovery plan has been drawn up for each region, and recovery programme manager appointed to oversee the national recovery plan.
The National Audit Office commissioned a review of the interfaces between the NIRS2 and pay-as-you-earn computer systems, which showed areas for improvement, but found that the problems suffered in earlier years had been resolved. The latter point is reflected in the performance for 2000-01: as at 30 September 2001 18.4 million cases had been closed on the pay-as-you-earn system.
Customs and fraud
Sir John Bourn's appropriation accounts looked at Customs' approaches to tackling fraud. As a result of their work, Customs have estimated that the levels of fraud in cigarette smuggling, alcohol, hydrocarbon oils and VAT missing traders totals between £6.4 billion and £7.3 billion, i.e. between 6.3 per cent and 7.1 per cent of the tax collected in 2000-01. Customs did not carry out routine independent quality reviews of excise assurance work in 2000-01, but have since April 2001 collated regional statistics to check that matters are being dealt with properly.
With regard to VAT, the audit noted that the number of trader visits has reduced, largely as a result of Customs' policy of improved risk assessment and targeting assurance visits. However, Sir John said that Customs needed to ensure that where traders did not receive planned visits, the risk of non-compliance did not undermine the 'efficiencies gained from the effective use of sift teams'.
The report also looked at how Customs use the registration system to identify VAT fraud. At the end of March 2001, there were approximately 1.6 million registered traders, and Customs registered 189,423 traders and de-registered 176,061 in 2000-01. The registration system is a key component of Customs' strategy of dealing with missing trader fraud, the value of which they estimate at between £1.7 to £2.6 billion. In order to help combat this, Customs redeployed 340 employees during 2000-01. They have also revised the registration application form, so that it requires more information from traders; on receipt, they carry out checks to identify potential fraudsters. Suspect cases are referred to law enforcement staff for further checks, which may result in pre-registration visits.
Sir John noted Customs' growing success in dealing with missing trader fraud, but recommended that they improve their computer system for registering traders as soon as possible. He also suggested that legislative changes might be needed to enable Customs to refuse applications where there are concerns about an applicant, and suggested that Customs should make more use of the intra-European Union enquiry systems to identify suspect traders.
Overall, it would seem that Customs are having some success in tackling fraud in all aspects of their work, but there is still considerable work to do.
The Inland Revenue Appropriation Accounts 2000-01, National Audit Office and the Customs & Excise Appropriation Accounts 2000-01, National Audit Office can be downloaded from www.nao.gov.uk/publications/nao_reports/.
