Julia Irvine 17 Jul 2017 04:36pm

NAO qualifies HMRC's accounts for 14th consecutive year

HMRC boosted tax revenues by 7.1% – or £38.1bn – to a total of £574.9bn during 2016-17, including an extra £14.9bn (5.3%) from income tax and National Insurance contributions, according to the National Audit Office (NAO)

The increase more than paid for the entire annual cost of running HMRC (£3.3bn) and almost matched the £39.1bn that HMRC paid out in benefits and credits over the year (which is around one fifth of the government’s total benefit expenditure).

However, because of material levels of error and fraud in personal tax credits (PTC) payments, comptroller and auditor general Amyas Morse has qualified the accounts for the fourteenth year running.

He says that the Revenue's central estimate of error and fraud in 2015-16 (the most recent available) is £1.57bn of overpayments and £0.21bn of underpayments (5.5% and 0.7% of total PTC spending respectively).

“HMRC collected more tax revenue in 2016-17 and improved its service levels for taxpayers,” Morse said. “However, error and fraud is rising within tax credits and HMRC needs to make it easier for claimants to get help.

“HMRC is part-way through an ambitious programme to bring in digital services and reduce its costs. In doing so HMRC must ensure it maintains adequate services if it is to protect revenue and tackle error and fraud.”

In the years prior to 2015-16, HMRC made great strides in reducing error and fraud in tax credits. But HMRC’s most recent analysis shows that this trend is now being reversed and is likely to get worse for 2016-17 because of the impact of introducing the “commercial with a view to a profit” self-employed test, plus the knock-on effect of ending the Concentrix contract.

The NAO also points out that the department will face further challenges in the administration of tax credits while claimants transfer to universal credit between now and 2022. Although a small number (62,000) have migrated already, it is too early to draw any conclusions about how great those challenges will be.

HMRC will also face challenges in complying with its efficiency commitments relating to the transformation programme it is currently undergoing. The overall programme has been underway for a year and HMRC has already fallen behind on the efficiencies that its 15 transformation plans were supposed to produce.

Its expected target for 2016-17 was £189m but it only achieved £78m savings. It then made other operational savings and on-off cost reductions totalling £254m which compensated for the shortfall, but only £181m of them were sustainable. “Hence HMNRC will need to make additional savings in future years,” the NAO adds.

As far as managing the transformation is concerned, the NAO has seen improvements in the last year through development of leadership capacity, accountability arrangements and financial forecasting.

However, the department is finding it hard to stay within its £457m budget for 2017-18 because many of the programmes are interdependent and, in the case of the new customs system, necessary.

It has managed to cut back the projected overspend from £253m to £60m but the NAO warns that it must ensure any changes it makes to scope or timing of programmes does not jeopardise the delivery of benefits.

On a more positive note, the auditors applaud HMRC’s significant improvement in customer service in 2016-17 through deployment of 800 new staff and using its workforce more flexibly.

During the year, its telephone advisers handled 34 million calls (eight million more than forecast), yet it was able to report its best performance for five years against both its key telephony measures.

The percentage of calls to its helplines that it handled rose from 72% in 2015-16 to 92% in 2016-17 and the time callers had to wait before being answered went down from an average 12 minutes in 2015-16 to an average four minutes in 2016-17.