5. Supplementary written evidence from
HM Revenue and Customs (06)
Following my letter dated 28 October, in which
I responded to a number of issues raised at the Committee of Public
Accounts hearing on 12th October, and our subsequent telephone
conversation, I am writing to offer some additional information
about our legacy open cases.
At the hearing on 12 October 2010 you questioned
me on the impact of the Spending Review on my undertaking of clearing
open cases by 2012. Following the Chancellor's spending review
announcements on 20th October, we are working through the details
of the settlement. I can confirm that it is still my intention
to have cleared the open cases by the end of 2012, subject to
the successful implementation of a technical IT solution that
I also mentioned at the hearing which will allow a substantial
amount of the work to be done automatically.
As the Committee is aware, the cases go back
a number of years and we intend to repay all cases where there
is an overpayment of tax and to date we have been prioritising
these cases. However, I have to take a view now on what underpayments
to prioritise and there are time limits in collecting tax from
previous years. Finance Act 2008 reduced the relevant time limit
from six years to four years as part of a wider alignment of time
limits across all the taxes which aimed to simplify the system
and reduce customer burdens. This took effect from April 2010
which meant that income tax due for 2004-05 and 2005-06 became
uncollectible at that point although even without the deadline
in practice very little would have been recoverable.
The deadline for working the underpayment cases
for 2006-07 is 5 April 2011, but in practice we do not have that
length of time or resources to establish a legally enforceable
debt. We are therefore continuing to prioritise our resources
to work overpayments, but we have decided that, in relation to
end of year reconciliation work, we will devote our remaining
available resources to recovering 2007-08 underpayments, to maximise
the return to the Exchequer. We intend to focus first on the higher
value cases by working these clerically, again to maximise the
return to the Exchequer.
For the tax year 2006-07 the estimated number
of underpayment cases was 1.92 million. If we applied the same
£300 tolerance as we have applied to the current reconciliation
exercise we estimate that the number of underpayments would fall
to less than half a million. After taking into account those who
would be impossible to trace and those who are likely to be entitled
to the benefit of the extra statutory concession A19 this estimate
falls to around 170,000.
Had we been able to start working these cases
in April 2010, the maximum amount we might have recovered would
have been less than £100 million. However, as we have already
discussed with you we had diverted staff to the annual coding
exercise and we also prioritised repayments. We think the amount
now recoverable from an estimated notional value of £500
million at April 2007 would have been around £25 million.
This is very much a legacy issue. For 2008-09 and later years
the NPS system will be able to do the reconciliation exercise
automatically for the vast majority of the cases. It is that functionality
we will also be utilising to clear the remaining open cases once
we have implemented the technical solution.
The end of year exercise for 2008-09 and 2009-10
continues to progress well. I can give an up to date position
at the hearing if that would be helpful. I am of course happy
to answer any questions you may have in advance of hearing and
we will continue to keep the Committee updated on our progress.
12 November 2010
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