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The National Audit Office has urged HMRC to ‘get a better understanding of the costs and benefits of its interventions’ after examining the department’s 2011/12 accounts and finding £5.2bn in taxes written off while tax credits were overpaid by between £2-£2.5bn.
Tax credits were underpaid by up to £290m due to fraud and error.
Amyas Morse, the comptroller and auditor general, made the statements upon releasing the NAO’s report of HMRC’s accounts, detailing progress and weaknesses of the last year.
Morse was speaking of the department’s interventions – such as debt campaigns and initiatives to drive down levels of error and fraud in tax credits.
‘It should prioritise and target its activities on the basis of a better understanding of risks, such as risk profiling of taxpayers. Before implementing significant structural changes, the department needs to be clear about what its future operating model will be: it needs to understand how its business will change following the introduction of Real-Time Information and Universal Credit.
According to the NAO, stabilising PAYE has come at a cost, in terms of the amounts of tax the HMRC has decided to forgo to keep workloads manageable. In 2011-12, it remitted an additional £12.7m relating to claims from taxpayers, bringing the total of those claims to £53.7m.
The report also highlighted £756m in tax income that HMRC decided not to pursue.
HMRC met targets for reducing tax credit debts from £4.7bn to £4bn – but this was only after writing off old debts of £1.7bn. The department indicated that an estimated £2.3-£4bn in tax credit debt is unlikely to be recovered.
‘There are broad lessons here which reinforce the messages in our recent value for money work on tax administration. The department should seek to apply those lessons across the full range of its activities,’ said Morse.
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