Compliance

HMRC Apologises For £1.9 Million Tax Error; Swiss Deal Brings In Far Less Than Expected

Stephen Little Reporter London 9 July 2014

HMRC Apologises For £1.9 Million Tax Error; Swiss Deal Brings In Far Less Than Expected

The head of HM Revenue and Customs has apologised to MPs for an error which led to tax officials incorrectly claiming billions of pounds had been generated in revenue.

The head of HM Revenue and Customs has apologised to MPs for an error which led to tax officials incorrectly claiming billions of pounds had been generated in revenue. Figures also showed that a US-Swiss agreement to recover undisclosed money had brought in far less than originally expected.

Last week, HMRC was heavily criticised by the National Audit Office for incorrectly reporting that it had exceeded revenue targets by £1.9 billion ($3.25 billion), when it had in fact overestimated the amount collected.

HMRC chief executive Lin Homer yesterday apologised to a House of Commons Treasury Select Committee for the error and said that she accepted responsibility for setting the baseline too low.

"I have made clear that when the NAO undertook their audit, we and they did find this error of calculation in the baseline," said Homer.

"Obviously I am very sorry that that error occurred and the reason for making it clear in my annual report is to account for that to Parliament and to apologise," she added.

The NAO report released last week said that errors made by HMRC when agreeing performance targets with the Treasury had led to it setting its baseline £1.9 billion lower than it should have been.

This made targets easier to achieve and resulted in performance targets being exceeded by £1.9 billion in 2011-12 and £2 billion in 2012-13, when in fact it had achieved almost exactly the level of performance anticipated.

Amyas Morse, the NAO comptroller and auditor general, said that while HMRC had been “broadly successful” in meeting its objective of securing additional tax revenue, he was concerned that the error in HMRC’s baseline calculation had led it to report the trend in its performance in a way that "exaggerated the improvement since 2010-11”.

“I welcome HMRC’s decision to invite the National Audit Office to provide independent assurance on the data it publishes on compliance revenue in future, and the greater clarity and transparency about its performance that HMRC has provided in this year’s annual report,” he added.

While the watchdog acknowledged that HMRC had “inadvertently” overstated the extent of the improvement in its performance, Labour MP  Margaret Hodge said it was “truly depressing” that HMRC had unwittingly mislead ministers, Parliament and the taxpayer.

“If HMRC can’t get its own numbers right, how can it ask the same of others?” said Hodge.

Despite the error, HMRC recorded its best-ever performance last year, bringing in £506 billion in tax revenues for the UK, 6.3 per cent higher than in 2012-13, with £23.9 billion of this from compliance revenues.

A spokesperson for HMRC said that it "regretted" the error, but was on track to deliver £18 billion of compliance revenues by March 2015.

"We have corrected this error and even against the corrected baseline we have still exceeded our targets. We will work closely with the NAO to prevent this happening again," the spokesperson for HMRC said.

Switzerland

In addition, the UK-Swiss Tax Agreement, which came into force in January 2013, brought in £1 billion by 31 March 2014, down on the original amount HMRC expected to recover, but in line with its updated forecast of £1.7 billion.

In the 2012 Autumn Statement, UK finance minister George Osborne claimed that the government’s tax deal with Switzerland would recover £3.1 billion during 2013-14 and £5 billion over six years.

Jim Harra, HMRC's director general of business tax, told the Treasury Committee that the forecast had now been lowered and that the reduction in the amount recovered was partly a result of individuals moving their assets elsewhere to avoid the new rules.

"The forecast of how much we would receive under that agreement has reduced substantially. I believe that over the lifetime of the agreement, we now expect it to be £1.7 billion, which is significantly less than we expected,” said Harra.

The tax treaty between the Alpine state and the UK came into as part of an agreement to address the issue of non-payment of tax on assets held or managed in Switzerland.

UK taxpayers with funds deposited in Switzerland were given the option to disclose their account details to their country's tax authorities, or have their accounts taxed by the Swiss government, who would then transfer the funds without naming account holders.

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