Yesterday HMRC released its accounts and annual report for the 2013/14 tax year. Tucked away in the report’s performance review section was a small note on HMRC’s much-celebrated compliance revenues. Compliance revenue is owed tax clawed back from those seeking to avoid or evade payments, and Chancellor George Osborne has been bullish in his promotion of HMRC’s performance in this area. The report notes, rather embarrassingly, that HMRC has been misreporting its own performance to the tune of £1.9 billion.

The report states:

“The National Audit Office (NAO) also identified that we should have increased our 2010-11 baseline by £1.9 billion more than we did, as a result of our actual performance and to make it consistent with the methodology introduced in the SR10 period. As a result of the NAO’s findings, we have made this adjustment.”

As a result of this adjustment HMRC’s compliance yields are looking rather less exciting. Instead of exceeding their targets by £1.9 billion in 2011/12, HMRC actually saw no improvement in performance. Its reported revenues of £2 billion in 2012/13 stand at just £100 million after the adjustment.

As a result of the error HMRC’s future reports will be subject to NAO scrutiny before publication.

Margaret Hodge MP, Chair of the Commons Public Accounts Committee, was critical of the error, saying HMRC had misled ministers, Parliament, and the public.

The revelation comes in the same week that Chancellor George Osborne, who has repeatedly increased HMRC’s compliance budgets during his tenure, was widely ridiculed for failing to answer a simple arithmetic question posed by a seven year old schoolboy.

Photo by Horia Varlan