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Is the Public Accounts Committee deliberately steering clear of over-complicating tax matters, asks TW Ed.

I suspect I am not the first person to have questioned the extent of the Public Accounts Committee’s (PAC’s) knowledge or appreciation of tax matters. One might wonder how its members can have sat through hour after hour of debate with some of the finest minds in the world of tax and accounting but still be asking the same obvious questions they were last month and the month before that. They just don’t “get” it, do they?.

And yet they appear perfectly capable of taking HMRC to task over Tax Credits.

By way of background, in 2008 HMRC set itself the task of reducing the value of the losses in the Tax Credits regime due to error and fraud, to no more than 5% of the total benefit paid. HMRC originally announced that steps it had taken to prevent fraud and error had saved the country £1.4 billion in 2010/11 – but later had to revise that estimate down to just £480 million. No surprise then that, as the current Chief Executive of HMRC, Ms Homer found herself on the receiving end of some sharp criticism in a hearing on 6 March, the details of which were published last week.

Parliament TV be praised, I was able to sit through the whole thing this Bank Holiday. But I wasn’t particularly impressed by HMRC, when they claimed that their advisors were responsible for only a negligible 2.5% of errors. This claim is very hard to reconcile with personal experience and anecdotal evidence from advisors who deal with Tax Credits. It is also difficult to reconcile with HMRC’s admission in the hearing that, if a Tax Credit claimant takes an appeal to tribunal, then roughly 40% of the time it is upheld in the claimant’s favour.

Having said that, section 1.8 of the NAO’s full report advises that errors in favour of HMRC are excluded from the ‘errors and fraud’ count. So as long as HMRC’s Tax Credits advisors are erring on the side of HMRC, then they will not count as “errors”!

Although the requirement to reduce losses from error and or fraud is imposed by government on HMRC, it should perhaps come as no surprise that a taxing authority might give more priority to restricting payments, than to ensuring that all claimants get their full entitlement. To the credit of the PAC, its members did on several occasions query the issue of HMRC error, highlighting its perceived prevalence in MPs' surgeries and in-trays.

I’d rather have missed the part where some PAC member had a bee in his bonnet about questionable claims for overseas children, on the basis that from a monetary perspective it had one or two too few zeros at the end to be relevant: one might as well have demanded that HMRC furnish him with the number of claimants who wear blue ties on a Monday. I sensed political motivation behind the point.

But then that is the point: the PAC has an eye to the crowd when it holds hearings into tax avoidance, etc., which is perhaps why its members fight shy of technical arguments – they don’t want to lose the wider audience. So, while they might be accused of over-simplification, it may not be accidental and, to the PAC's credit, the public are interested and engaged. On reflection, the clue’s in the name.

Regards all,

TW Ed