Editor in Chief (interim) AccountingWEB
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NAO highlights HMRC transformation risks

21st Jul 2017
Editor in Chief (interim) AccountingWEB
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HMRC headquarters

HMRC’s annual accounts for 2016-17, released last week, cast new light on the challenges and risks the tax department faces in overhauling its processes.

To start with the headline figures, HMRC generated £574.9bn in tax revenues in 2016-17, up £38.1bn (7.1%) on 2015-16. It paid out £38.8bn in benefits and credits, which accounted for roughly a fifth of government benefit expenditure. The annual admin costs were £3.8bn in 2016-17, up from £3.58bn last year.

For the 17th year in a row, HMRC’s accounts were qualified due to material errors and fraud in tax credit accounting figures. HMRC can only provide estimates for the previous year in its annual accounts, and showed overpayment levels of 5.5% for 2015-16 compared to 4.8% in the previous year. This equates to overpayments of £1.57bn and underpayments of £0.21bn.

The tax credits situation is improving, the auditors noted, but remains a festering sore that compromises HMRC’s reputation for financial competence. It is also a known unknown, to borrow Donald Rumsfeld’s timeless phrase.

The NAO report is most interesting for what it reveals about HMRC’s digital transformation programme. Given the circumstances, the auditor’s conclusions may have influenced Treasury ministers to lessen the pressure on HMRC to go live with Making Tax Digital in April 2018.

“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,” said National Audit Office head Amyas Morse in his overview of the accounts.

The audit office appreciated that HMRC had a strong rationale for using technology to modernise services and reduce costs, but had already warned in last year’s accounts that the plans “carried a significant delivery risk” and were based on questionable assumptions about taxv id="AWUK_Iy-in cla_banad a ,cly" ,ed £5tionable assumption-ex'' s); vUpril 2018.

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