Jessica Fino 2 Nov 2018 02:11pm

Cracks showing at HMRC, says PAC

The Public Accounts Committee (PAC) has criticised HMRC for its lack of action in fighting fraud and error

In its report into HMRC’s performance in 2017/18, the Committee said “cracks are showing” in areas where the Revenue is currently under pressure.

It found the tax authority’s customer service targets are “too narrow”, and recommended its performance measures should be broaden.

The PAC said it was “very disappointing” that HMRC expects the rate of overpayments to increase and exceed its target to keep error and fraud below 5% of tax credit payments, adding it “remained concerned” about the Revenue’s management of tax reliefs.

Error and fraud led to overpayments equal to 4.9% of spending on tax credits in 2016-17, a reduction from the 7% to 8% it had forecast. But HMRC now expects the error rate to rise to 5.5% in 2017-18, and to 6% in 2018-19.

The Committee said HMRC should explain the impacts of terminating the Concentrix contract and de-prioritising improvements to the tax credits system in its next annual report, and explain the different causes of error and fraud.

By April next year, HMRC should also report to the Committee on what actions it is taking to help claimants avoid errors and what impact these actions are expected to have on overpayments and underpayments.

Moreover, it should write to the Committee setting out what actions it has taken to secure the opportunities provided by the register to tackle tax avoidance and evasion arising from properties owned by overseas companies.

In its report, the PAC said HMRC faces a “daunting task” as it prepares for Brexit, “in whichever form that takes”.

While recognising the challenges, the Committee said it remains concerned about the risks to customs and borders post-Brexit.

Meg Hillier, PAC chair, said, “HMRC is under pressure and in some areas the cracks are showing. The authority expects fraud and errors in tax credits to exceed its target in successive years, driven in part by policy changes that have effectively removed HMRC’s incentive to bring fraud and errors under control.

“HMRC’s customer service targets do not fully reflect the customer experience, undermining its ability to plan and deliver these services effectively.

“And, as we have recorded elsewhere, serious concerns remain over the new customs declaration service and operations at the border after Brexit.”

Hillier said that the potential consequences of no-deal are “extremely serious”.

“Our Committee recognises the scale of the challenges facing HMRC and the time-critical nature of its Brexit work. But the authority must not lose sight of its wider responsibilities to UK taxpayers.

“There are practical steps HMRC can take to better safeguard public money and we encourage it to respond positively to our recommendations.”

Responding to the report’s findings, an HMRC spokesperson said, “In the face of unprecedented challenges we have secured a record £605bn to pay for our hospitals, schools and other vital public services.

“That includes £30.3bn from enforcing the rules against the minority of firms and individuals who try to get round them – this could fund the NHS across the whole of England for three months.”

HMRC’s permanent secretary Jon Thompson is due to appear before the Committee on Monday to discuss Brexit and the UK border’s future.