Accuracy in processing income tax : HM Revenue & Customs

"Accuracy in Processing Income Tax (HC 605)" examines the accuracy of the Department of HM Revenue and Customs in processing Self Assessment Tax forms and the 'Pay As You Earn' (PAYE) scheme for Income Tax.

In 2006-07, the Department collected GBP 149 billion in Income Tax, dealing with the tax affairs of some 36 million taxpayers.

In total, GBP 125 billion was collected via employers through the PAYE scheme, and GBP 24 billion from self-employed people and others with additional income through the Tax Self Assessment.

The Department needs to spend about GBP 1.7 billion per year in administering Income Tax, with the processing taking place across the Department's 300 offices.This National Audit Office report concludes that correct tax assessment occurs in 95.4 per cent of cases.

It also finds that there is 96.5 per cent accuracy in processing Self Assessment, whilst PAYE cases were 95.1 per cent accurate (but 25 per cent of PAYE cases are more complex, with more processing needed, and so a lower accuracy rate of 82.1 per cent is found in these instances).

The Department itself estimates inaccurate processing has led to 3.6 million errors in Self Assessment and 2.8 million errors on PAYE in 2006-07. Taking all the various processing errors together, just over one million taxpayers in this period had received GBP 125 million in underpayments of tax and GBP 157 million in overpayments.

The most frequent type of error is in the Department's calculation of tax codes, which are used by employers to calculate deductions of income tax from employees' pay, with 63 per cent of the PAYE error rate relating to tax codes.The report recommends that HM Customs & Revenue should: continue with the quality monitoring, identifying specific types of error; facilitate the sharing of good practice across the tax offices; further develop an early warning system, through the analysis of trends in monthly data; and separate out more complex cases to be processed by specialised teams and develop a customer-focused approach by tracking the effect of error rates on the different taxpayer groups.