Memorandum submitted by the Inland Revenue
I thought it might be helpful if I provided
you with some more recent information relating to particular tax
credits issues in advance of the hearing on 24 January.
Key developments since the period covered by the
Comptroller and Auditor General's Report are:
EDS COMPENSATION
[STANDARD REPORT
2.9]
The structured negotiations, facilitated by
a neutral arbiter, have now come to an end to be replaced by direct
negotiations between IR and EDS. These are continuing at present
but it is far from certain that litigation will be avoided.
INCORRECT AWARD
CALCULATIONS [STANDARD
REPORT 2.10]
In addition to the software error referred to in
the C&AG's Report, an isolated system problem which meant
some income figures were erroneously omitted from entitlement
calculations resulted in some 60,000 households receiving incorrect
(higher) payments for 2003-04 or 2004-05 or for both years in
some instances. The system problem has been fixed successfully
and no new cases have arisen.
The overpayments total some £80 million.
We are asking for repayment of the overpayment, although
we expect some claimants will be able to show that they should
not have to repay their overpayment, in accordance with our Code
of Practice 26, What happens if we have paid you too much tax
credit?
FURTHER WRITE-OFFS
The C&AG's Standard Report mentioned that we
have written off £37 million in respect of low value payments
made in error to some claimants in the Spring of 2003. The Report
also advised that further write-offs would be made as claims for
official error relief are agreed.
Whilst the exact figures are difficult to quantify
at this stage, it looks likely that we will make some further
write-offs in respect of payments made during 2003-04. These relate
to manual payments made during that year where it was not possible
to record some payments on the records of the recipients due to
processing delays. There will also be some further amounts to
be written off when official error relief is granted in cases
other than those mentioned in the Standard Report.
ACCOUNTING AND
RECONCILIATION [STANDARD
REPORT 2.17]
As trailed in the C&AG's Standard Report,
we introduced a further interim reconciliation mechanism in August
2004. This still involves considerable clerical input, but is
working as planned, providing an early identification of any payment
problems that might occur. We expect to introduce an automated
arrangement, allowing quicker reconciliation in the autumn of
2005.We are bringing the reconciliation for 2004-05 up to date
by May 2005 to ensure that all payments made in the year are taken
into account when the awards for that year are finalised.
PROCESSING ACCURACY
[STANDARD REPORT
2.19]
In 2003-04, we accurately processed 78.6% of
new claims and changes of circumstances against a target of 90%.
That target was challenging, and remains so for this year, which
includes renewals for the first time. However we have been working
very hard to improve performance against our accuracy target.
Checking undertaken so far this year indicates that a significant
improvement has been achieved, although we are still likely to
fall short of the target over the year as a whole.
To make further improvements we are:
— Reviewing once more those cases
where we had made a processing error in 2003-04 to see what the
final financial effect was following finalisation of the case
(we expect that the renewals process will have repaired a number
of the errors).
— Piloting a new method of checking
processing accuracy in 2004-05, including the financial effect
of processing errors (with a view to adopting the new method in
2005-06 in place of our existing checking regime).
ORGANISED FRAUD
[STANDARD REPORT
2.20]
We are aware of the potential attractions tax credits
hold for organised fraudsters. We have detected some activity
to target tax credits and have taken action to prevent further
loss. We are keeping current procedures under constant review
to ensure, by identifying suspicious activity at an early stage,
that we can continue to deter and detect attempts to defraud the
system.
SOFTWARE RELEASES
6 AND 7 [STANDARD
REPORT 2.27]
Release 6 (April 2005) is planned to include some
essential improvements to the annual renewals process, including
an adaptation of the Annual Declaration form to handle customers
who need to declare two years' income.
There will also be a new version of the claim form
to include an ethnicity survey. (Currently this is only included
on the Annual Declaration form, which does not need to be completed
in some one-third of renewals cases.)
The functionality enhancements planned for Release
7 (October 2005) will enable us to take account of civil partnerships
and gender recognition issues, improve the clarity of the Award
Notice and facilitate payment reconciliation at customer account
level.
RENEWALS [STANDARD
REPORT 2.30]
The renewals process has been going well and the
vast majority of claimants have successfully renewed their awards.
We stopped making payments to a total of 200,000
households who were previously receiving tax credits. These are
the people who either failed to return the renewals notice or
failed to report details of a change of circumstances they had
indicated had occurred when they sent their renewal back.
PAYMENT VIA
EMPLOYER (PVE) [STANDARD
REPORT 2.33]
The Chancellor announced in Budget 2004 that
payment of Working Tax Credit via employers (PVE) would in due
course be phased out and replaced by direct payment by the Revenue.
PVE has been a success in reinforcing the message that work pays
more than welfare. However, the Government accepts that the benefits
to business now justify moving to direct payment in due course,
thus reducing the cost of payroll administration and addressing
a key area of business concern.
We are consulting representatives of employers and
other interested parties on the detail of implementation. In particular,
we want to ensure that claimants are well prepared for the change
in payment method and that mechanisms are in place to show that
the Government is still supporting those in low-paid work.
IS/JSA MIGRATION
In a statement on 22 October, the Paymaster General
announced that the phased transfer on to Child Tax Credit (CTC)
of the remaining families with children in receipt of Income Support/Job
Seekers Allowance, planned to begin from October 2004 would be
deferred until 2005. This is to allow a full cycle of tax credits
activity to be completed before these families are transferred
in.
David Varney
Chief Executive
20 December 2004
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