Source · Select Committees · Public Accounts Committee
Recommendation 22
22
Accepted
HMRC unable to reliably estimate the overall extent of compliance yield errors and overcharges.
Conclusion
HMRC 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. HMRC explained that it designed its sampling process to examine quality in all areas of its casework, rather than to provide assurance on the overall estimate. Its approach means it cannot accurately extrapolate the errors or overcharges it finds to produce an overall estimate of their impact. HMRC told us it expects compliance yield to be materially correct but it cannot provide assurance that this is the case. Errors should be rare, and finding a lot of them in a sample may indicate a bigger problem that merits further testing. HMRC told us that it is reviewing how it can update its testing approach so that it can better estimate the extent of errors it makes, based on suggestions from the National Audit Office.37 Stopping the tax gap from growing
Government Response Summary
The government accepts the recommendation and commits to designing a new sampling approach by June 2024 that allows for extrapolation of errors from reviewed cases to the annual compliance yield estimate. Once established, HMRC will develop a mechanism to estimate the impact of official error on taxpayers.
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.