Huge tax backlog facing HM Revenue & Customs

HMRC is still struggling to deal with its workload, the NAO said

HM Revenue & Customs (HMRC) has been criticised by the National Audit Office (NAO) for failing to deal with its huge backlog of more than 18 million unresolved income tax cases.

The NAO said about half the 18.2 million cases might involve underpayment or overpayment of tax.

It warned that as much as £4.4bn was at stake.

The Revenue acknowledged it had "a lot of work to do".

"Just like every government department we are going to have to do more with less and today's report will help us to focus on those areas of our business that need to improve," said an HMRC spokeswoman.

The Chartered Institute of Taxation (CIOT) blamed the continued backlog on cuts to the Revenue's resources.

"Repeated staffing cuts have stretched HMRC to the limit," said Tina Riches of the CIOT.

"Further cuts are likely to create even more difficulties," she added.

Scrutiny

The accounts of the HMRC are scrutinised every year by the NAO, which looks at the accounts and spending of all government departments and some other public bodies.

"The department has not made enough progress in reducing the backlog of 18.2 million income tax cases where there is potentially overpaid or underpaid tax," said the comptroller and auditor general, Amyas Morse.

"It also needs to improve its collection rate for tax credits debt, which is substantially lower than that for tax debts," he added.

The NAO report, which covers the 2009-10 financial year said:

• tax debt collection improved, with the amount outstanding falling by £1.6bn to £26.1bn

• overpaid income tax last year might amount to £3bn

• underpaid income tax might amount to £1.4bn.

Cutting the backlog was "a very significant challenge", the NAO said.

Tax credits

As well as collecting taxes and other revenues, since 2003 the HMRC has been a major benefits agency, responsible for administering the tax credits system.

Since it started, the system has been plagued with complexity, administrative mistakes and considerable fraud.

Just over £27bn was paid out last year but mistakes and fraud led to a further £1.95bn to £2.27bn in overpayments.

The NAO said a fresh approach to dealing with these problems had prevented further losses of £569m.

But it criticised the Revenue's continued failure to recover past overpaid tax credits, with the total stock of overpayments rising by £100m in the past year to £4.5bn.

"It needs to... pursue debts that can be recovered cost effectively, and write off the others," the NAO added.