HMRC Memorandum to the 2014-15 Main Estimate Introduction 1. The HMRC Main Estimate for 2014-15 seeks the necessary resources and cash to enable the Department to meet its objectives for the coming year. 2. HMRC is an effective, efficient and impartial tax and payments authority. Our purpose is to collect the money that pays for the UK s public services and help families and individuals with targeted financial support. We help those with tax liabilities to get their tax right and make it hard for those who seek to cheat the system. 3. HMRC is responsible for collecting the bulk of tax revenue. We manage and administer a range of direct and indirect taxes, International Tax Cooperation Agreements, Excise and Customs duties, Statutory Payments, Bank Levy, tax credits, Child Benefit, while operating the enforcement of the National Minimum Wage, recovery of Student Loan repayments, statutory payments, providing the Contracts Finder portal and other functions. HMRCs Executive Agency the Valuation Office Agency (VOA) is responsible for providing valuations and property advice to support taxation, benefits, and other clients where public funds are involved. The Estimate provision facilitates these responsibilities. 4. The Departmental Expenditure Limits (DEL) to support HMRC s operating costs and investment are: Resource DEL Capital DEL 3,654.5m 173.1m 5. Annually Managed Expenditure (AME) includes payment of Tax Credits, Child Benefits and other reliefs and entitlements to cover the raising and utilisation of provisions. The AME limits are: Resource AME Capital AME 43,554.9m 1.0m Ambit changes 6. Our ambit is split between expenditure and income within DEL and AME. We have made some changes to the scope of the ambit compared to 2013-14 and we have revised some of the wording to improve clarity and ensure that out ambit is fully inclusive and up to date. The changes are as follows: Introduction The introduction has been revised to better reflect HMRCs roles and responsibilities and outline our commitment to our customers, these changes include: Individual taxes have been reclassified as groups to make the introduction more succinct; We have added a section to provide clarity of HMRCs top 3 priorities as set out by government; The section of the introduction allocated to the VOA has been condensed; with greater clarity of their role and responsibilities summarised in the main body of the ambit. Departmental Expenditure Limit The formatting of the DEL section of the ambit has been revised to brigade taxes, reliefs, allowances, and other entitlements into the following groups: Direct taxes; Indirect taxes; International tax cooperation agreements; Duties, levies and statutory repayments; Entitlements including tax credits, Child Benefit, Tax Free Childcare; Reliefs, regulatory regimes, verifications schemes, and the National Insurance Fund for GB and Northern Ireland. Enforcement and collection activities; Page 1
Provisions of resources to independent investigatory bodies; Payments, grants, and services provided by HMRC; Services to support the Welfare Reform Agenda; Tax administration services, and the introduction of new taxes such as Universal Credit; Shared services provided to other government departments; Overseas tax administration; VOA administration and non-cash items. The following items from the DEL section of the ambit have been removed: Next generation HR programme has been replaced with our role of hosting Civil Service Resourcing; Trial to expand capacity by using private sector to make more tax credit error and fraud interventions to deliver losses prevented. This is now covered under our administration costs for tax credits; Child Trust Fund endowments ended in 2011, there are very small residual payments going through for this now, therefore this is now captured in the other reliefs and payments group; Health in Pregnancy Grant is removed as the scheme is now closed. Annually Managed Expenditure The formatting of the AME section of the ambit has also been revised to brigade taxes, reliefs, allowances, and other entitlements into the following groups: Payments of reliefs, allowances and entitlements; Debt remittance, and losses; Income and expenditure arising from rates paid; The following item has been added to the AME section of the ambit: Adding capacity to the recovery of tax credits debt; The following items have been removed from the AME section of the ambit: Child Trust Fund endowments; Health in Pregnancy Grant; Not for budget expenditure This is a new section of the ambit to allow a new area of spend. Payments to the National Insurance Fund as required by section 2 of the Social Security Act 1993. 1 1 Full details found at paragraph 13 Page 2
Ring-fenced budgets 7. Following the announcement in Spending Round 13 (SR13) that all existing ring-fenced budgets, except depreciation, would be relaxed to allow budget flexibility 2, the ring-fences that remain in place for 14/15 are those announced subsequently at Autumn Statement (AS13), and Budget 2014. These total 311.2m Resource DEL (RDEL) and 26.8m Capital DEL (CDEL). The most significant of these are as follows. Depreciation 252.0m RDEL A2.7 This ring-fence is common to all departments. 2013 - Autumn Statement Announcements 36.0m RDEL 7.2 Funding to implement commissioning costs for external providers 36.0m RDEL This funding enables the expansion of the collection of tax credits debt and an initiative to add capacity to tax credits error and fraud reduction. Each measure is facilitated through close working with a private sector partner, consequently the ring-fenced element of the funding is limited to the private sector commissioning costs of the respective programmes. 2014 - Budget Announcements 23.2m RDEL and 26.8m CDEL 7.3 Funding to implement various Budget 14 measures inclusive of 23.2m RDEL and 26.8m CDEL. This funding will allow us to implement a tax-free childcare voucher system for basic rate taxpayers, where both parent works replacing Employer supported childcare. It shall also enable us to implement changes to the tax system in recognition of marriage, and provide funding to strengthen anti-avoidance measures. Changes to budgetary limits since 2013-14 and SR13 ( m) 8. The table below represents HMRC s Final Estimate for 2013-14 and the movement of the 2014-15 funding position from the SR13 settlement to the Main Estimate. m 2013-14 Final Estimate 2014-15 SR13 settlement 2014-15 Main Estimate Resource DEL 3,654.7 3,496.0 3,654.5 Of which: Admin DEL 880.3 806.8 828.6 Programme DEL 2,774.4 2,689.2 2,825.9 Capital DEL 230.7 144 173.1 Resource AME 43,746.2 44,060.1 3 43,554.9 Capital AME 2.0 1.0 1.0 2 A list of the ring-fences relaxed at SR13 may be found in the annex. 3 There are no total AME figures quoted in the SR13 settlement letter, the RAME and CAME figures quoted are derived from the main estimate 2013. Page 3
Resource DEL 9. HMRC s 2014-15 Resource DEL control totals have increased by 158.5m since the SR13 settlement. The constitution of the 158.5m is detailed as follows: Capital DEL 9.1 55.0m increased RDEL funding announced at AS13 for fraud, error and debt measures including, expanding the use of private sector debt collection agencies; making use of fixed term appointment staff to collect debts; working with a private sector partner to carry out fraud and error checks. As set out previously 36m of these monies are ring-fenced for commissioning costs; 9.2 3.0m additional RDEL funding announced at AS13 to strengthen capacity to disrupt the activities of organised gangs operating in the road fuel market; 9.3 23.2m RDEL funding provided in the Budget 14 announcement as detailed in paragraph 7.4; 9.4 3.5m RDEL funding announced at Budget 14 for strengthening compliance checks for migrants; 9.5 75.4m RDEL to fund the transition to Universal Credit. Universal Credit is set to replace a range of benefits including Tax Credits; 9.6 22.1m RDEL funding for Autumn Statement 2012 (AS12) measures, a detailed list of the measures is provided at paragraph A1.4 of Annex 1; 9.7 1.7m RDEL Budget Cover Transfer from Department for International Development to set up a Developing Country Capability Building Unit; 9.8 These budget increases are offset by 25.2m RDEL arising from transfers to other government departments including: 9.8.1 19.1m Machinery of Government transfer to Cabinet Office for the business link section of the.gov.uk website; 9.8.2 6.1m Budget Cover Transfer to the UK Border Agency for ongoing IT service costs; 9.8.3 0.1m Budget Cover Transfer to Cabinet Office to fund two staff working on digital services; 10. HMRC s 2014-15 Capital DEL control total has increased by 29.1m since the SR13 settlement and includes: 2.1m as announced in the 2013 Autumn Statement; and 26.8m as announced in the 2014 Budget. The remaining balance of 0.2m is attributable to a combination of rounding and minor movements between fiscal events. Move of CDEL budget from HMRC to VOA (net nil impact on CDEL control total) 11. We are transferring 2m of Capital DEL from core HMRC to VOA to support VOA s IT development, Page 4
Total AME 12. The SR13 figures were based on forecasts as at spring 2013, since then there has been 505.2m reduction in forecast AME spend. This reduction consists of: 12.1 400.6m reduction in forecast New Tax Credits payments driven by, AME savings derived from tax credits fraud, error and debt programmes announced at AS13 and Budget 14; and revised economic determinants; 12.2 239.2m reduction in forecast Social Benefits and Grants payments as a result of Child Benefit fraud, error and debt programmes announced at AS13 and Budget 14; and measures to increase compliance checks for migrants announced at Budget 14. These reductions are offset by: 12.3 8.0m increased funding provided as part of the SR13 settlement for payments to add capacity. As part of the 2013 Spending Review it was agreed that HMRC would pilot the use of AME to fund the pursuit of Tax Credit overpayments by Debt Collection Agencies (DCAs). The pilot will test the feasibility of using the DCA recoveries to fund debt collection activities, on a payment by result basis, increasing HMRC s debt collection capacity. The DCA recoveries will be paid over to HMRC in full (gross) and their commission costs will be paid from these receipts. The costs are accounted for in the same way as other administrative costs with the exception of being charged to AME. Whilst this particular pilot will conclude in 2014/15, this funding model may be used in the future, subject to the evaluation of the pilot; 12.4 126.6m increase in forecasts for other reliefs and allowances; driven by the extension of policies pursuant to small and large companies R&D relief. Voted Not for Budget section. New line - Payments to the National Insurance Fund (NIF) 13. The Government Actuary s Department 4 have forecast a requirement to transfer 1,287m from the consolidated fund to the National Insurance Fund (NIF) during 14/15. A not for Budget expenditure line has been added to the Estimate to facilitate this payment. Expected outcomes and performance measurement 14. The key outcomes HMRC expects to deliver in 2014-15 are set out below. Maximising Revenues Deliver total additional revenues of 24.5 billion in 2014-15; Aim to reduce losses through error and fraud in the tax credits system towards 5.5 per cent of finalised tax credit entitlement; and Recover 970m of tax credits overpayment debt in 2014-15 Improving Customer Experience Achieve a consistent level of at least 80 per cent call handling across all of our helplines; Deliver a measurable improvement in the customer experience in 2014-15 towards the 2015 target of 75.8 per cent. Deal with 80 per cent of post in 15 working days and 95 per cent within 40 working days. 4 Report by the Government Actuary on: The draft Social Security Benefits Up-rating Order 2014; The Welfare Benefits Up-rating Order 2014; and The draft Social Security (Contributions) (Re-rating and National Insurance Fund Payments) Order 2014 Presented to Parliament pursuant to 142(1), 150(8) and 150A(5) of the Social Security Administration Act 1992 as amended by the Social Security Contributions (Transfer of Functions, etc.) Act 1999 and section 1(4) of the Welfare Benefits Up-rating Act 2013. Page 5
Process UK Tax Credit and Child Benefit claims and changes in an average of 22 calendar days, and international claims and changes in an average of 92 calendar days; while maintaining 97 per cent processing accuracy. Sustainable Cost Reductions Deliver efficiency savings of 198 million in 2014-15. HMRC Performance is reported regularly on HMRC s internet site - https://www.gov.uk/government/publications/business-plan-indicators Changes to Budgetary limits 15. The tables below outline the plans and outturn for the previous four years compared to plans for the Spending Review period. All figures are in millions. Outturn figures for 2013-14 are based on actuals as at period 12 and are subject to period 13 adjustments. Resource DEL 5 Nonvoted Voted Total Outturn Variance 2011-12 3,419.0 347.4 3,766.4 3,705.6-1.6% 2012-13 3,358.0 333.0 3,691.0 3,663.1-0.8% 2013-14 3,341.1 313.6 3,654.7 [3,646.6] -0.2% 2014-15 3,352.4 302.1 3,654.5 Administration DEL Voted Nonvoted Total Outturn variance 2011-12 927.0 47.8 974.8 961.6-1.4% 2012-13 889.4 73.6 963.0 947.4-1.6% 2013-14 809.8 70.5 880.3 [870.1] -1.2% 2014-15 761.4 67.3 828.6 Programme DEL Voted Non-voted Total Outturn variance 2011-12 2,492.0 299.6 2,791.6 2,744.0-1.7% 2012-13 2,468.6 259.4 2,728.0 2,715.7-0.5% 2013-14 2,531.3 243.2 2,774.5 [2,776.6] 0.1% 2014-15 2,591.1 234.8 2,825.9 Capital DEL Voted Nonvoted Total Outturn Variance 2011-12 261.6 261.6 220.2-15.8% 2012-13 203.9 203.9 194.0-5.0% 2013-14 230.7 230.7 [210.0] -9.0% 2014-15 173.1 173.1 Programme 6 AME Voted Nonvoted Total Outturn Variance 2011-12 12,389.5 31,240.4 43,629.9 42,867.4-1.7% 2012-13 12,397.6 31,116.0 43,513.6 43,100.6-1.0% 2013-14 11,976.2 31,772.0 43,748.2 [42,894.1] -2.0% 2014-15 11,946.9 31,609.0 43,555.9 Approval of Memorandum This memorandum has been prepared with reference to guidance in the Estimates Manual provided by HM Treasury. The memorandum has been approved by the Principal Accounting Officer of HMRC, Lin Homer. 5 Resource DEL is the sum of Admin DEL and Programme DEL. 6 Programme AME is the sum of Resource AME and Capital AME. Page 6
Annex 1 The annex details the ring-fences that have been relaxed subsequent to the SR13 announcement to allow for budgetary flexibility. SR10 Settlement Letter relaxed ring-fences Re-investment of 326.0m RDEL A1.1 Our SR10 settlement enables us to recycle savings into additional front line compliance activities. These include increased criminal prosecutions to act as a deterrent; dedicated teams to tackle evasion and cyber-attacks; make more use of debt collection agencies and improvements in in-house collection; investment in detection technology to better tackle alcohol and tobacco smuggling, and increased registration checks to better prevent fraudulent repayment claims. PAYE Real Time Information: 10.0m RDEL A1.2 Real Time Information for PAYE will enable reductions in Tax Credit error and fraud, facilitate implementation of Universal Credit and improve the operation of PAYE for employers and individuals. Universal Credit 75.4m RDEL A1.3 Although not specifically a ring fence, this budget is allocated specifically to manage the introduction of Universal Credit to replace a range of benefits including Tax Credits. The funding is to implement the transition for customers from Tax Credits to Universal Credit. 2012 - Autumn Statement Announcements 22.1m RDEL and 15.2m CDEL A1.4 Funding to implement further investment measures including: A1.4.1 Avoidance & Evasion 21.7m RDEL and 1.0m CDEL This funding enables HMRC to tackle avoidance and evasion through speeding up work on identifying and challenging transfer pricing arrangements, further strengthen risk assessment capability across the large business sector, increase the pace and number of avoidance cases being brought, expand HMRC s Affluent Unit with extra specialist staff, increase specialist personal tax resources to tackle offshore evasion and avoidance of inheritance tax, and establish a centre of excellence on offshore evasion. A1.4.2 Digital Service package -1.5 RDEL and 14.2m CDEL This funding will radically expand the digital services for taxpayers providing an online transaction portal for PAYE taxpayers, transform self-assessment into a complete digital service, and provide a package of digital improvements for Small Medium Enterprises (SME). A1.4.3 Tax Credit Debt, Error & Fraud 1.9m RDEL This funding (i) enables a pilot, set up in 2012-13, to continue aimed at improving debt recovery through outsourcing to the private sector; (ii) helps reduce losses by stopping payments where evidence isn t provided for high childcare allowances; and (iii) recovery of old debts from current awards. Page 7
Annex 2 Glossary of Key Terms Administration Budget a Treasury control on the resources consumed directly by departments in providing those services which are not directly associated with frontline service delivery. This includes such things as: civil service pay, resource expenditure on accommodation, utilities and services. The Administration Budget is part of Resource DEL. Ambit a description of the services or purposes to which expenditure and income is to be put in respect of each of the relevant control limits (voted DEL, voted AME, voted non-budget). Annually Managed Expenditure (AME) a Treasury budgetary control for spending that is generally difficult to control, large as a proportion of the department s budget, and volatile in nature. Consolidated Fund (CF) the government s current account, operated by the Treasury, through which pass most government payments and receipts. Departmental Expenditure Limit (DEL) - a Treasury budgetary control for spending that is within the department s direct control and which can therefore be planned over an extended (Spending Review) period (such as the costs of its own administration, payments to third parties, etc). Departmental Unallocated provision (DUP) a part, usually between 1% and 1.5% of a department s total DEL that is not allocated to particular spending, but held back by the department to meet unforeseen pressures. Estimates a statement of how much money government needs in the coming financial year, and for what purposes, by which Parliamentary authority is sought for the planned level of expenditure and receipts in a department. Estimates Memorandum - an explanation to the relevant department s select committee setting out the links to other spending controls and the contents of a department s Estimate. OBR The Office for Budget Responsibility makes independent assessment of the public finances and the economy, the public sector balance sheet and the long term sustainability of the public finances. VOA Valuation Office Agency Page 8