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Watchdog finds taxman misled ministers, Parliament and public on targets

HM Revenue and Customs wrongly boasted it was generating billions of pounds in additional tax income for the Exchequer when there was little or no improvement in compliance rates, the Whitehall spending watchdog has revealed.

The National Audit Office (NAO) said that errors in the way HMRC's performance targets were set meant that it repeatedly overstated the improvements in the amount of extra tax revenues that it was bringing in.

While the NAO acknowledged the mistakes had been made "inadvertently", the chair of the Commons Public Accounts Committee, Margaret Hodge, said they had resulted in HMRC misleading ministers, Parliament and the public.

The NAO said that its inquiries had shown that when HMRC agreed its performance targets for tax compliance yield with the Treasury in 2010-11, they had been set £1.9 billion lower than they should have been.

It meant that it 2011-12, HMRC was able to claim it had brought in an additional £1.9 billion when in fact there had been no improvement in performance. The following year it claimed to have brought in an extra £2 billion when the actual increase was just £100 million.

Mrs Hodge said: "The fact HMRC did not know about this serious error in its calculations until the National Audit Office pointed it out paints a worrying picture.

"Put simply: it has not been able to track its performance accurately which is absolutely crucial to long-term success. If HMRC can't get its own numbers right, how can it ask the same of others? It is truly depressing that HMRC's failure to take appropriate action has led to its unwittingly misleading ministers, Parliament and the taxpayer."

Amyas Morse, the head of the NAO, said he was "concerned" HMRC could make an error of £1.9 billion in its "baseline calculation".

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