UK: £5bn in lost revenue is written off by taxman because of fraud and error
29 June 2012
Posted by: SAIT Technical
By Sam Dunn (Daily Mail)
Tax officials were forced to write off more than £5billion they were owed last year.
An annual report of HM Revenue & Customs accounts by the National Audit Office also revealed it overpaid £2.5billion in tax credits because of fraud and error.
It also underpaid nearly £300million in tax credits, short-changing many families who rely on the relief to pay household bills.
The write-offs for the year ending March 31, 2012, include £756million in lost income tax from HMRC's botched effort to introduce a new PAYE tax collection system in 2010.
The report found the total amount of tax debts being pursued stood at £13.3billion at the end of March, down from £15billion last year.
But auditors found the tax credit fraud rate was rising to between 7.5 and 8.8 per cent, missing a target of 5 per cent.
Margaret Hodge, chairman of the House of Commons Public Accounts Committee said she was stunned by the size of the losses.
She said: ‘The sheer scale of waste and mismanagement at HMRC never ceases to shock.
‘It wrote off a staggering £5.2 billion of tax owed, overpaid nearly £2.5 billion in tax credits due to fraud and error and underpaid around £290 million.
‘This year has seen a litany of tax errors and scandals come to light with mistakes made at the most senior level from the Permanent Secretary for Tax downwards.
HMRC needs to get a grip before it introduces its new real time Pay-As-You-Earn information systems and begins the high-risk move from tax credits to the universal credit.'
Every year, HMRC matches up all its files to ensure people have paid the correct tax, called an ‘end of year reconciliation'.
This used to be a fiendishly complex task as the UK had 12 different computer systems.
After their merger, it was hoped this would smooth out discrepancies and allow PAYE taxpayers to pay the correct samount of income tax and National Insurance.
However, two years ago, the Government conceded the new computer had found 5.8 million people who had paid the wrong tax between 2008 and 2010.
The resulting chaos saw millions hit with tax bills they couldn't afford, in particular hitting many pensioners who had no idea they even owed money going back several years.
As it struggled to deal with the backlog, HMRC decided to cut its workload by simply writing off much of this revenue.
The NAO report also found the total amount of tax debts being pursued stood at £13.3 billion at the end of March, down from £15 billion last year.
Of this, some £4bn is owed in tax credit payments.
But HMRC was also forced to write off old tax credit debts worth £1.7bn and admit a further £2.3bn is unlikely to ever be recovered.
Its target of cutting the level of tax credit fraud and error to 5 per cent was missed.
In fact, the fraud rate was rising to between 7.5 and 8.8 per cent, the auditors found.