Scottish Public Audit Committee questions National Audit Office on income tax administration report

Discussion focused on the accuracy of data, the effectiveness of methodologies and taxpayers. You can read a summary of key comments below.

Accuracy

Richard Leonard, Convener of the Public Audit Committee, expressed concerns over the expected degree of error in the methodology of the National Audit Office’s report, arguing that the Scottish government should pay a greater fee to HMRC to collect more granular data on tax. He questioned why the fee was £600,000, saying: “If it is a question of paying a bit more to get better-quality data, I think that the view of this committee would be that it would be money well spent”.

Gareth Davies, Comptroller and Auditor General at the National Audit Office, explained the methodology remained broadly similar to last year and highlighted that since the economy faced instability during 2022-23 the impact of the uncertainties in the methodology may have been raised for this year. Davies believed that the methodology was ‘reasonable’ to provide estimates.

Taxpayer Behaviour

Davies highlighted that HMRC is working to understand taxpayer behaviour and see “whether the divergence that already exists is driving different behaviour”. While explaining there was limited evidence of this happening, he noted that divergence was “increasing steadily”.

Stephen Boyle, Auditor General for Scotland, suggested the Scottish government and HMRC should make sure that they had a ‘clear view of what activity’ to undertake to satisfy an understanding of risks and risk management. He acknowledged the ‘progress’ that has been made, but called for greater ‘transparency’ on data concerning taxpayer behaviour.

Tax Compliance

Regarding employers not complying with tax rules, Rebecca Mavin, Senior Analyst at the National Audit Office, mentioned that HMRC confirmed that the number of employers who “persistently get tax codes incorrect was very low”.  She argued that this indicated that HMRC’s activity to rectify errors was ‘effective’.

Davies further added that the tax figures involved in such cases were usually small. He explained that the absence of a legal requirement for individuals to notify HMRC of their address led to significant ‘time and effort’ being invested in verifying taxpayers’ postcodes.

Third-Party Data

Leonard also expressed concerns about reports highlighting that 27% of records analysed by the National Audit Office could not be ‘checked’ by third-party data. Davies clarified that this was because the latest data wasn't “available when we produced the report”, and data protection rules made it hard to find comparable data. He continued that inaccuracy could exist on ‘either side’ of the data being compared.

Mavin further stated that out of the 27% of records that HMRC couldn't match, they successfully linked 83.5% to Scottish taxpayers without tax liability. She stated that “HMRC is confident that it has now matched more than 99 per cent of all records using other data sources”.

Considering the economic instability, Boyle also suggested conducting third-party data assessments more often than the current two-year rotation. He said “We think that it is important for the government to be satisfied about how regularly the exercises are undertaken”.

You can read the debate report here and the NAO report here.