Committee of Public Accounts


Press Notice No. 29 of Session 2002-03, dated 2 July 2003


TWENTY-NINTH REPORT: INLAND REVENUE: TAX CREDITS AND TAX DEBT MANAGEMENT (HC 332)

Mr Edward Leigh MP, Chairman of the Committee of Public Accounts, today urged the Inland Revenue to be more ambitious in seeking to reduce tax debts.

Mr Leigh was speaking as the Committee published its 29th Report of this Session, which examined the Inland Revenue's control of Tax Credits, management of tax debt, and the need to improve management information for control over tax systems. In 2001-02, the Inland Revenue collected £148.7 billion in taxes and duties, and £65.3 billion in National Insurance contributions. They paid out £5.7 billion of Tax Credits which are available to people with children, or disabled people who work 16 or more hours a week.

The Committee found that the Department's special reconciliation of Tax Credit payments via employers to the amounts authorised for 2002-03 will need to demonstrate that payments made were in accordance with authorisations. From 2003-04 the Inland Revenue need to be able to reconcile automatically the total amount paid by each employer under the new Tax Credits systems with what the Department has authorised for their employees in total.

The new Tax Credit schemes operating from April 2003 are very different in scale and scope from the previous schemes and the systems developed by the Department have been informed to an extent by the lessons of past schemes, including deficiencies pointed out by the C&AG. The Department are relying on more sophisticated risk management structures to minimise the errors and fraud that have characterised comparable benefit schemes in the past, and will need to demonstrate their effectiveness.

The Department have had some early successes with their tax debt management initiatives but they still do not have routinely generated data on the level of debt for each tax stream to help manage the debt overall. Furthermore, the Department's target for half of employers to pay over to the Exchequer by the statutory date the tax they deduct from their employees' earnings is insufficiently challenging for a flow of funds amounting to two thirds of all Revenue tax receipts and National Insurance contributions.

Mr Leigh said today:

"The new Tax Credits scheme is intended to encourage people to work and lift those that do out of poverty. I am pleased therefore that the Inland Revenue has drawn on past lessons to develop sophisticated risk management which should minimise the risk of funds being wasted through fraud and error. The Inland Revenue must now demonstrate that the systems are effective.

The Inland Revenue has had some success in encouraging large employers to meet their obligations to pay PAYE and National Insurance Contributions on time, saving £2 million in interest. I urge them to extend this initiative and to set much more ambitious targets for tax debt management."


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