What does the HMRC annual report tell us?

HMRC released its annual report for the 2015-16 financial year last month, demonstrating a 3.7% rise in revenue from the previous year to £536.8 billion. It marks the sixth year in a row that HMRC has increased its tax revenues, and has been put down to the department’s success in stemming tax avoidance, evasion and fraud.

In a breakdown of the individual taxes raised during the last year, income tax delivered 32% of HMRC’s total revenue. National Insurance contributions went up by 3.8% thanks to both levels of employment and wages increasing. VAT provided 22% of the total revenue, an increase of 1.8% from 2014-15, which has been attributed to higher general household spending as well as bigger receipts from the utilities, business services and automotive industries. Corporation tax saw an increase of 9.9% on the previous year, making up 8% of the total revenue. Hydrocarbon oils provided 5% of the total, up 1.8%, which suggests that although petrol prices are generally going down, these are encouraging an increase in purchases.

The report also confirms that HMRC’s accounts were qualified by the National Audit Office (NAO) for the sixteenth consecutive year due to a lack of evidence substantiating the department’s estimates for errors and fraud in tax credits. The NAO states that the time taken by HMRC to finalise awards means that its best estimates for fraud and error become out of date by up to a year. There was no evidence for a lower estimate for 2015-16, so a net overpayment of up to £1.26 billion was calculated by looking back to 2014-15.

The report also addresses HMRC’s aim to become “one of the most digitally advanced tax administrations in the world”, with the department’s Making Tax Digital mechanism placed front and centre in doing this. There are plans to spend £2 billion to transform the UK’s tax system from paper-based to digital, with an aim to reduce running costs by £700 million and increase tax revenues by £1 billion by 2021.

It seems that many in the civil service are hoping that a digital tax system will be able to fix many of the problems HMRC are facing. However, the NAO is quick to point out that any benefits hoped to be felt through the digital transformation will only work if the necessary solid groundwork is done by the department beforehand.