Source · Select Committees · Public Accounts Committee
Recommendation 5
5
Accepted
Develop robust estimates of compliance yield errors and ensure correction and compensation for overcharged taxpayers.
Recommendation
We are concerned that HMRC may be overstating the impact of its compliance work, and that it is overcharging some taxpayers. HMRC tests 400 of its completed compliance cases each year. In 2021–22, 80 of these cases had errors in the compliance yield recorded, which were skewed towards overstating yield. HMRC’s testing also found seven cases where it had overcharged the taxpayers by a total of £32 million. HMRC says that it has controls in place to prevent over-recording of yield but acknowledges that it does not know to what extent the errors identified are representative of compliance yield as a whole being overstated. HMRC also cannot estimate how many taxpayers it is overcharging following compliance enquiries, or by how much. It says that there has been a slight improvement in the quality of its casework in the past year but acknowledges that the number of overcharges identified in its sample testing is too high. HMRC has agreed to update its testing approach so that it can better estimate the extent of errors it makes. Recommendation 5: a) HMRC should develop statistically robust estimates of the level of error in its compliance yield measure, and how far taxpayers are overcharged. Managing tax compliance following the pandemic 7 b) HMRC should demonstrate it has taken all proportionate steps to identify and correct overcharges. It should make clear what compensation is available if taxpayers are overcharged.
Government Response Summary
The government accepts the recommendation, committing to design a new sampling approach by June 2024 to develop statistically robust estimates of compliance yield error and the extent of taxpayer overcharging. They also clarify existing mechanisms for addressing overcharges, including complaints, reviews, reimbursement of costs, and payment of interest on overpayments.
Government Response
Accepted
HM Government
Accepted
5.1 The government agrees with the Committee’s recommendation. Target implementation date: June 2024 5.2 HMRC has robust processes in place to record yield. HMRC conducts an annual review which evaluates the quality of its compliance casework – the Tax Settlement Assurance Programme (TSAP) and which also provides assurance over yield recording. Where this identifies measurement issues on cases tested these are corrected. HMRC considers whether or not these errors might have a wider impact on the yield total, and adjust if needed. While HMRC considers the current approach provides an appropriate view of the impact of its compliance work, HMRC accepts it could do more to enhance our sample selection to further improve our measurement assurance. HMRC will design a sampling approach that allows for extrapolation of errors from cases reviewed as part of the TSAP to the annual estimate of compliance yield. HMRC will consider how best to do this, taking a proportionate approach, which will involve considering the merits of different options such as the following: • moving TSAP annual reporting to financial year reporting; • better aligning TSAP sampling to reflect the value profile of compliance yield; and/or • continue with the current approach to sample selection, and where a large compliance yield error is found, test further cases in that stratum to determine the extent of likely error. 5.3 TSAP is an annual review programme and it will take at least a transition year to fully incorporate any changes. Once an appropriate sampling framework has been established HMRC will develop a mechanism for estimating the impact of official error on taxpayers. 5.4 The government agrees with the Committee’s recommendation. Target implementation date: March 2024 5.5 HMRC carefully considers the relevant information available and will always aim to work with the customer to identify their correct tax position. Any changes in liability are calculated and quality assured. This quality assurance can include manager/technical specialist reviews and/or spot-checks to prevent and correct under/ overcharging. 5.6 Tax decisions can be appealed and when a compliance check is settled HMRC writes to taxpayers to explain any change in liability and the appeal process. When taxpayers appeal, they can also ask for a review of the case by HMRC before it proceeds to the Tax Tribunal. Reviews are undertaken by someone independent of the original decision maker. 5.7 Taxpayers can appoint a representative to act on their behalf. Where needed, HMRC will also provide extra support in helping them meet their compliance obligations. 5.8 Where taxpayers feel that HMRC has not met the standards of the HMRC Charter they can make a complaint. HMRC will reimburse reasonable costs directly caused by any departmental mistake/ delay. Costs can include postage, phone charges and professional fees. If taxpayers are not satisfied with the outcome of their complaint, they can ask for this to be reviewed a second time, by a different person. Taxpayers who disagree with the second complaint review outcome can ask the independent Adjudicator to review their complaint. Taxpayers who disagree with the review outcome can also ask their Member of Parliament to refer the complaint to the Parliamentary and Health Service Ombudsman. 5.9 HMRC will pay interest on overpayments of tax.