HMRC writes off £5.2b in uncollected tax

HM Revenue & Customs (HMRC) wrote off taxes totalling almost £5.2 billion last year, official figures have revealed.

The accounts for 2011-12 show that the tax office overpaid between £2 billion and £2.5 billion in tax credits, while underpaying up to £290 million as a result of error and fraud, according to National Audit Office (NAO) report.

Ther figure was lower than the £5.5 billion of tax that went uncollected last year but still represemts more than one per cent of the total possible tax take.

It also missed its target of cutting fraud and error to five per cent of tax credit entitlements. However, overall revenue grew by £4.5 billion, nearly one per cent and there were improvements to the processing of cases under the Pay As You Earn (PAYE) scheme.

The report found there had been a “large increase” over the past two years in the amount of tax which HMRC has decided not to pursue – particularly income tax, which alone came to £756 million in 2011-12.

Total tax debts being pursued stood at £13.3 billion at the end of March, down from £15 billion the year before.

The £5.17 billion in write-offs included £1.9 billion in VAT, £1.5 billion in income tax, £653 million in National Insurance and £503 million in corporation tax.

Chairman of the House of Commons Public Accounts Committee, Margaret Hodge, said she was shocked by “'the sheer scale of waste and mismanagement” at HMRC.

“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,” she said.

“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.”

Amyas Morse, head of the NAO, said HMRC had lessons to learn from the report.

He said: "There are broad lessons here which reinforce the messages in our recent value for money work on tax administration. The department should seek to apply those lessons across the full range of its activities.

"The department should get a better understanding of the costs and benefits of its interventions - such as debt campaigns and initiatives to drive down levels of error and fraud in tax credits.

"Secondly, it should prioritise and target its activities on the basis of a better understanding of risks, such as risk profiling of taxpayers."

"Finally, before implementing significant structural changes, the department needs to be clear about what its future operating model will be. It needs to understand how its business will change following the introduction of real-time information and universal credit."

Free guide to savings and investments

Follow Myfinances.co.uk on Twitter: @news_myfinances

Sign up to the Myfinances.co.uk newsletter to receive the latest financial news direct to your inbox.