There was a huge increase in the figure for taxes written off by the Revenue in 1997, according to the Report of the Comptroller and Auditor General.
Tax write-offs increased from £90.7 million in 1996 to £281 million in 1997. This was because the Revenue decided to delete from its records amounts which were old and regarded as uncollectable, or estimated amounts considered to be overstated. The aim is to have a more realistic and collectable level of tax debt in its accounts. This move to tidy up the books accounted for £194 million of the £281 million written off.
A breakdown of the total 1997 write-off shows that:
£73 million came off value added tax due;
£61.6 million came off PAYE due;
£47.3 million came off income tax due;
£40.8 million came off corporation tax;
£55.2 million came off health and social insurance contributions owed by the self-employed.
Grounds for write-offs included liquidations, receiverships and bankruptcies which accounted for £152 million of the total of £281 million. The Revenue wrote off £77.8 million because it was "uneconomic to pursue" these taxes while £19.6 million was written off because the liability was "unfounded".
Some £5 million was written off because the taxpayers could not be traced or were outside the jurisdiction and just under £3 million was written off on compassionate grounds. Total taxes outstanding at the end of May 1998 stood at £1.3 billion, down from £1.7 billion at the end of May 1997. The amount paid over in 1997 to the Collector-General by the sheriffs who collect from recalcitrant taxpayers fell to £58 million from £60 million. The reduction was attributed to the Active Intervention Management (AIM) system introduced by the Revenue in 1995. This meant that the sheriffs became the final option after all other measures had failed. The former practice of routinely and repeatedly referring cases to sheriffs has been discontinued, the C&AG pointed out.
In his 1997 annual report the C&AG expressed concern about apparent overpayments of Value Added Tax and about the assessment and collection procedures for Capital Acquisitions Tax.
The audit of VAT records showed that for many taxpayers the amount of VAT paid exceeded the liability recorded. This resulted in a surplus in the Revenue accounts of £73.8 million. The C&AG pointed out that many of the overpayments were long standing.
The audit found that a significant proportion of the total was not overpayments but may have been repayments or returns which were not posted to the ledger, accounting adjustments not made or other bookkeeping errors.
When an explanation was sought by the C&AG, the Revenue accounting officer said that the feasibility of a control account to reconcile all input transactions for tax charges and payments to total changes on taxpayer accounts was being examined. The officer said resource levels prevented a systematic review of all apparent overpayments. But he accepted that there was a need to try to identify genuine overpayments more systematically and told the C&AG that he was making the necessary arrangements to carry out a review of procedures to deal with the issue.
While he could not say how much of the apparent overpayment was genuine, he said he was satisfied that the vast majority of cases did not represent actual overpayments.
Capital Acquisitions Tax covers Probate Tax, Inheritance and Gift Tax and Discretionary Trust Tax. CAT brought in £89 million in 1997. But no penalties were imposed in 1997 for not submitting returns or for making incorrect returns. However, the C&AG found a number of shortcomings in the procedures for assessment and collection of the tax. These were:
a lack of supervisory checks on closed cases;
control weaknesses over the refund of tax;
inadequacies in controls over certificates which show that all capital taxes due on particular properties have been paid;
lack of assurance that all receipts issued are in respect of amounts received;
weak controls in area of cash receipts with the post opened by personnel who were also involved in maintaining the taxpayer ledger records.
In answer to the C&AG concerns, the Revenue accounting officer accepted that a more rigorous control and checking procedure at supervisory level was desirable. Random supervisory checks had been carried out but had lapsed due to increased work pressures, he said. But random supervisory checks of closed cases have been reintroduced, he said, and using the computer system to carry out more focused quality control checks will be investigated.
On controls over receipts the accounting officer argued that recording the number and amount of cheques in the post room would impede productivity and delay lodgement to the Exchequer. But, he said, the system would be given further consideration in the proposed review of procedures.
Under-declared CAT (including interest, penalties and surcharges) of £3.4 million was discovered by the three-person audit unit in 1997. The C&AG was not given precise figures but said his staff were informed that there were underpayments in 70 to 80 per cent of the cases audited.