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Qualified … again
The National Audit Office has published its report on HMRC's accounts for 2006-07. As in 2005-06, Sir John Bourn, head of the NAO, has issued a qualified opinion on regularity due to levels of claimant error and fraud in the tax credits system. However, in terms of tax collected, in 2006-07 HMRC delivered £437 billion in revenues to the Exchequer, an increase of £31.7 billion (7.8%) on 2005-06.
In 2006-07, HMRC paid a net £18.7 billion in tax credits with an average of 5.5 million families receiving awards. Since the scheme was introduced in 2003, overpayments arising from adjustments to awards, and other small changes to entitlement after the finalisation of awards, have led to a debt of £6 billion. HMRC have also identified £600 million in year adjustments to 2006-07 awards. At the end of March 2007, they had collected £2 billion of this debt and written off £0.7 billion. At the end of March 2007, £3.9 billion of this remained to be collected by HMRC. It has also provided for £1.6 billion for those debts where recovery is doubtful.
HMRC measures overall levels of claimant error and fraud and found that between £1 billion to £1.3 billion was paid to claimants to which they were not entitled in 2004-05. These levels are unacceptably high, says Sir John and, while HMRC have made changes to their compliance procedures since 2004-05, there is no evidence to demonstrate a lower estimate for 2006-07. As a result, he qualified his opinion on the regularity of trust statement.
Turning to income tax self assessment, the NAO report says that HMRC have changed the self assessment process to ease the burden on certain taxpayers. However, the report also notes that in 2006-07, around one million taxpayers did not submit their returns by the 31 January deadline. HMRC say that this was primarily because of reduced media advertising in 2006-07 and problems with its campaign to contact taxpayers new to self assessment to remind them to complete their return.
In respect of missing trader fraud, the report notes that HMRC have strengthened measures to deal with this fraud. The reverse charge was introduced in June 2007, but the NAO report points out that this has been limited to goods commonly associated with fraud and that there is a danger the organised criminals will divert their attention to other goods not covered by the derogation. The NAO says that missing trader fraud is a European-wide problem and, in the long term, can only be tackled with the co-operation of other European Union Member States.
NAO press release dated 12 July 2007; HMRC press release dated 12 July 2007
