A scathing report from the National Audit Office, once again, highlights the problems at HMRC. According to the watchdog, the taxman wrote off £5.2 billion in uncollected taxes.
1.5 billion in income tax, £1.9 billion in VAT, £653 million in National Insurance and £503 million in corporation tax made up the £5.17 billion of written off debts in 2011/12.
In addition, the accounts from the HMRC revealed that the agency had overpaid between £2 – £2.5 billion in tax credits due to fraud and error. And it had underpaid £290 million.
The watchdog report revealed a “large increase” in the amount of tax which HMRC has decided not to pursue – including £756 million worth of income tax in 2011/12 alone. Total tax debts being pursued stood at £13.3 billion at the end of March, down from £15 billion the year before.
While the HMRC reduced its credit debt from £4.7 billion to £4 billion this year but that reduction was based on the agency writing off £1.7 billion in unpaid debts. The auditors expect around £4 billion of debts will never be recovered.
Margaret Hodge, the Chair of the Public Accounts Committee was shocked at the “sheer scale of waste and mismanagement at HMRC”
However, not all the news in the report was bad. The HMRC did increase its revenue rose by £4.5bn – almost 1% – in 2011/12. The hike in VAT rate from 15% to 20% pushed VAT revenues by £9.3 billion between 2010 and 2012. But at the same time, the HMRC failed to meet the target of of reducing the level of fraud and error to 5% of tax credit.
NAO head Amyas Morse said: “Our high-level recommendations are that, first, the department should get a better understanding of the costs and benefits of its interventions – such as debt campaigns and initiatives to drive down levels of error and fraud in tax credits. Secondly, it should prioritise and target its activities on the basis of a better understanding of risks, such as risk-profiling of taxpayers.”