Tax breakdown

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MESSAGE 1 [outgoing]
HEADER: Julian
23 January 2012
Delivered
--------------------------------------------------------------------------------
Dear HM Revenue and Customs,
Can you provide  a breakdown of waht my tax pays for ?
Yours faithfully,
Julian

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MESSAGE 2 [incoming]
HEADER: HM Revenue and Customs
23 January 2012
--------------------------------------------------------------------------------
1 Attachment
FOI 1120 12 Acknowledgement Letter.pdf
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<<FOI 1120-12 Acknowledgement Letter.pdf>>
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If you are not the intended recipient, please notify the sender
immediately.
HM Revenue & Customs computer systems will be monitored and communications
carried on them recorded, to secure the effective operation of the system
and for lawful purposes.
The Commissioners for HM Revenue and Customs are not liable for any
personal views of the sender.
This e-mail may have been intercepted and its information altered.
show quoted sections
Communications via the GSi may be automatically logged, monitored and/or
recorded for legal purposes.

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MESSAGE 3 [incoming]
HEADER: HM Revenue and Customs
1 February 2012
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Dear Julian,
Thank you for your email dated 23 January 2012. You asked for a
breakdown of what your taxes pay for.
HMRC publishes details of revenue collected each year. This can be
found in the Departmental Annual Report and Accounts. The latest
published figures are available for 2010/11 at the link below. I have
also attached a copy to be helpful.
http://www.hmrc.gov.uk/about/annual-repo...
The money collected by HMRC is transferred to HM Treasury where it is
used to meet general Government Expenditure. My understanding is that
it is not possible to look at an individual's contributions and analyse
that across the whole range of expenditure. HM Treasury publishes
Consolidated Funds accounts which set out its income and expenditure.
Below is a link to the 2010/11 accounts. I have also attached a copy to
be helpful.
http://www.official-documents.gov.uk/doc...
If you are not happy with this reply you may request a review by writing
to HMRC FOI Team, Room 1C/25, 100 Parliament Street London SWIA 2BQ or
email [
email address
]. You must request a review within 2
months of the date of this letter. It would assist our review if you set
out which aspects of the reply concern you and why you are dissatisfied.
If you are not content with the outcome of the internal review, you have
the right to apply directly to the Information Commissioner for a
decision. The Information Commissioner can be contacted at: Information
Commissioner's Office, Wycliffe House, Water Lane, Wilmslow, Cheshire,
SK9 5AF
Yours sincerely
Teresa Chance
Teresa Chance
FOI Policy Adviser
Central Policy
Rm 1C/25
100 Parliament Street
London
SW1A 2BQ
Tel: 020 7147 3253
Fax: 020 7147 0666
The information in this e-mail and any attachments is confidential and may be subject to legal professional privilege. Unless you are the intended recipient or his/her representative you are not authorised to, and must not, read, copy, distribute, use or retain this message or any part of it. If you are not the intended recipient, please notify the sender immediately.
HM Revenue & Customs computer systems will be monitored and communications carried on them recorded, to secure the effective operation of the system and for lawful purposes.
The Commissioners for HM Revenue and Customs are not liable for any personal views of the sender.
This e-mail may have been intercepted and its information altered.
show quoted sections

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ATTACHMENT: 1290.pdf
TEXT_FILE: 1290.pdf.txt
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PAGES: 34
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--- PDF page 1 ---
Presented to Parliament pursuant to Section 21(1) of the National Loans Act 1968
Consolidated Fund Account 2010-2011
LONDON: The Stationery Office
HC 1290
£10.25

--- PDF page 2 ---
Presented to Parliament pursuant to Section 21(1) of the National Loans Act 1968
Consolidated Fund Account 2010-2011
ORDERED BY THE HOUSE OF COMMONS TO BE PRINTED ON 18 JULY 2011
LONDON: The Stationery Office
18 July 2011
HC 1290
£10.25

--- PDF page 3 ---
The National Audit Office scrutinises public spending on behalf of Parliament.
The Comptroller and Auditor General, Amyas Morse,
is an Officer of the House of Commons.
He is the head of the NAO, which employs some 880 staff.
He and the NAO are totally independent of government.
He certifies the accounts of all government departments
and a wide range of other public sector bodies;
and he has statutory authority to report to Parliament
on the economy, efficiency and effectiveness with which departments
and other bodies have used their resources.
Our work led to savings and other efficiency gains worth more than £1 billion in 2010-11.
This account can be found on The Stationery Office’s
website at www.tsoshop.co.uk
© Crown copyright 2011
You may re-use this information (excluding logos)
free of charge in any format or medium,
under the terms of the Open Government Licence.
To view this licence, visit
http://www.nationalarchives.gov.uk/doc/open-government-licence/
or email psi@nationalarchives.gsi.gov.uk.
Where we have identified any third party copyright information you will need to obtain permission
from the copyright holders concerned.
This publication is available for download at www.official-documents.gov.uk.
ISBN: 9780102970227
Printed in the UK for The Stationery Oﬃce Limited
on behalf of the Controller of Her Majesty’s Stationery Oﬃce
07/11

--- PDF page 4 ---
Consolidated Fund Account 2010-11
1
Contents
Page
Foreword
2
Statement of Accounting Oﬃcer’s responsibilities
6
Statement on Internal Control
7
Certiﬁcate and Report of the Comptroller and Auditor General
11
Receipts and Payments Account
13
Notes to the Account
14

--- PDF page 5 ---
Consolidated Fund Account 2010-11
2
Foreword
1
The Consolidated Fund (CF) was ﬁrst set up in 1787 as‘one fund into which shall ﬂow every stream of public
revenue and from which shall come the supply for every service’. The basis of the ﬁnancial mechanism by
which the CF is operated is governed by the Exchequer and Audit Departments Act 1866.
2
In order to separate government revenue and expenditure on the one hand and government borrowing and
lending on the other, the National Loans Fund (NLF) was established on 1 April 1968 by the National Loans
Act 1968 to account for government borrowing and lending, which were until then accounted for within the
CF. The accounts for the CF and NLF are now published separately.
3
Both the CF and NLF are administered by the Treasury, with the bank accounts maintained at the Bank of
England. The CF can therefore be regarded as central government’s current account, whereas the NLF can
be regarded as central government’s main borrowing and lending account. By virtue of section 19(1) of the
National Loans Act 1968, the net liabilities of the NLF are a liability of the CF.
Scope of the Consolidated Fund Account
4
The CF receives the proceeds of taxation and certain other government receipts, makes issues to ﬁnance
Supply Services, meets the Standing Services directly charged by statute, and reimburses the NLF for net
interest costs. The CF ﬁnishes every day with a nil balance on its bank account because any surpluses or
deﬁcits are oﬀset by transfers to or from the NLF.
5
The receipts of the CF mainly consist of:
■
tax revenues such as those collected by Her Majesty’s Revenue and Customs (HMRC);
■
other receipts paid over by departments known as Consolidated Fund Extra Receipts (CFERs);
■
repayments from the Contingencies Fund; and
■
balancing payments from the NLF when daily payments by the CF exceed its receipts.
6
The payments from the CF are mainly for:
■
Supply Services, which are payments issued to Government departments to ﬁnance their expenditure. These
are approved annually by Parliament in a vote on the spending Estimates submitted to it by the Government.
The departments then use the cash for the purposes approved by Parliament;
■
Standing Services, which are charges exempt from any need to be voted annually by Parliament because it
has, by statute, permanently authorised the payments. These include, for example, the salaries of members
of the judiciary, expenses of holding general elections, United Kingdom contributions to the budget of the
European Union and for ﬁnancial assistance payments (see below);
■
Standing Service payments for Political and Public salaries and pensions include Speakers, Opposition
Leaders, Whips and the oﬃces of high ranking oﬃcials, which include the Comptroller and Auditor General,
Parliamentary Ombudsman and Information Commissioner;
■
issues to the Contingencies Fund; and
■
balancing payments to the NLF when daily receipts into the CF exceed its payments.
The National Audit Oﬃce (NAO) bears the cost of all external audit work performed on the Consolidated Fund.

--- PDF page 6 ---
Consolidated Fund Account 2010-11
3
Standing Service for ﬁnancial assistance
7
TheBankingAct2009givespowertotheConsolidatedFundaspartoftheTreasurytosupportbankslegislated
in the Act. The Treasury can make a payment in respect of providing ﬁnancial assistance to or in respect of a
bank or other ﬁnancial institution directly from the Consolidated Fund if theTreasury is satisﬁed that the need
for expenditure is too urgent to permit arrangements to be made for the provision of money by Parliament,
although Parliament must be informed as soon as is reasonably practicable. During 2010-11 and 2009-10 no
payments were issued.
Clear Line of Sight
8
In the July 2007 Green Paper‘The Governance of Britain’, the Prime Minister announced that the Government
would simplify its ﬁnancial reporting to Parliament by ensuring that it reports public spending in a more
consistent fashion. On 5 July 2010, a debate and vote on a motion approved the‘Clear Line of Sight’alignment
reforms and they were successfully passed in the House of Commons.
9
Clear Line of Sight simpliﬁes the Government’s spending controls and ﬁnancial reporting to Parliament. The
aims of the proposed changes are therefore to increase the transparency of public spending information, to
improve accountability and to provide a more eﬃcient control framework that builds in the right incentives
to deliver better value for money.
10
The impact of these reforms include changes to the treatment of income so that departments will be able
to retain income in budgets provided it is of a type reported to Parliament in their Estimate, but will put tax
type collections (e.g. ﬁnes, penalties, certain licence fees) through a separate trust statement. As a result, the
impact on the CF is that CFER receipts will begin to drop, either because they are no longer headed under the
general CFER category, or because departments are retaining them. The change in treatment will be seen in
the CF’s accounts in note 3 next year. Further information on Clear Line of Sight project can be found at www.
hm-treasury.gov.uk/psr_clear_line_of_sight_intro.htm
Eurozone Interventions
11
The UK is a member of the European Financial Stabilisation Mechanism (EFSM), which provides support to all
EU Member States. The Consolidated Fund is responsible for the United Kingdom’s contribution to the EFSM.
Details can be found in note 11. The UK has also continued to support the IMF through the NLF in 2010-11, in
line with our commitments as a member of the IMF. Through the NLF, the UK has provided support through
both quota shareholding and a bilateral loan to the Fund. The UK’s agreed bilateral loan to Ireland of £3.2
billion will be funded by HM Treasury’s Vote, which will receive its funding from the Consolidated Fund.
Outturn
12
The outturn for the year shows payments and receipts of £523.1 billion (2009-10: £549.6 billion), including
£139.7 billion (2009-10: £195.6 billion) from the NLF to cover what would have been the deﬁcit for the year.
13
Advances to HMRC to cover daily revenue shortfalls as described in note 2, and transactions with the
Contingencies Fund, artiﬁcially inﬂate both receipts and payments. After adjusting for these, and for the
deﬁcit funding from the NLF, total underlying receipts increased by 8% from £344.0 billion to £373.1 billion
and underlying payments decreased by 5% from £539.6 billion to £512.8 billion. As a result, the net deﬁcit
on the CF, which was ﬁnanced by transfers from the NLF, decreased from £195.6 billion to £139.7 billion, a
decrease of £55.9 billion, or 29%.

--- PDF page 7 ---
Consolidated Fund Account 2010-11
4
Receipts
14
The decrease in the deﬁcit of £55.9 billion was largely the result of an increase in net tax receipts paid to the
Consolidated Fund of £35.6 billion.
15
Miscellaneous receipts decreased by £6.2 billion principally due to lower receipts paid from the Treasury to
the Consolidated Fund of £5.9 billion (2009-10: £11.8 billion) which has been generated from interventions
in the ﬁnancial sector and are included in the CFERs balance of £18.2 billion (2009-10: £23.8 billion). Further
information on these interventions can be found in the Treasury’s Departmental Annual Reports & Accounts.
Payments
16
Supply payments to government departments fell in 2010-11, which is mostly due to a fall in Supply payments
to HM Treasury, which decreased by £45.1 billion in 2010-11. This was due to ﬁnancial sector interventions in
2009-10 including HM Treasury acquiring shares in RBS and Lloyds Banking Group, and the split of Northern
Rock into Northern Rock plc and Northern Rock (Asset Management) plc. Further details of how HM Treasury
used the cash issued to it from the CF can be found on its website at www.hm-treasury.gov.uk and in its
Departmental Annual Reports & Accounts for 2010-11 and 2009-10. There were no such interventions in
2010-11.
17
The fall in Supply payments to HM Treasury has been partly oﬀset by other government departments’
Supply payments generally increasing. Signiﬁcant year-on-year increases in Supply issued to government
departments include £4.1 billion for the Department of Health, £3.7 billion for the Department for Work and
Pensions, £2.2 billion for the Department for Education (formerly known as the Department for Children,
Schools and Families). Further details of how Supply has been spent can be found in each of the Departmental
Annual Reports & Accounts.
18
The UK’s contribution as a Member State to the EU budget varies from year to year. In 2010-11, total UK
contributions to the EU were £12.9 billion (2009-10: £9.5 billion).The increase can be attributed to two factors.
First, the disapplication of the UK Abatement to non-agricultural spending in New Member States, which was
phased in between 2008 and 2010 and has its full impact only from 2011. Second, the sterling depreciation
at the end of 2008, which meant that the UK had to pay higher contributions until the GNI/VAT bases were
revised in May 2009. Once the bases were updated, the UK then paid lower contributions for the rest of 2009-
10 to make up for what it had paid in excess contributions.
19
Payments to the NLF for net interest payments are £1.6 billion higher in 2010-11 compared with 2009-10,
reﬂecting the increase in gilts issued by the NLF.
Preparation of the Account
20
The Account is prepared under section 21(1) of the National Loans Act 1968. The Act requires the Treasury
to prepare an account for the CF for each ﬁnancial year in such form and containing such information as the
Treasury considers appropriate.
21
The CF Account remains on a cash basis, as an account of payments and receipts. Notes to the Account provide
detail on receipts and Standing Service payments. Certain transactions, balances and contingent liabilities,
borne directly by the CF, cannot be brought to account in other statutory accounts and are disclosed more
appropriately in notes accompanying the CF Account. These items include liabilities in respect of pensions
paid directly from the CF, coinage issued and redeemed, the UK’s capital subscription to the European
Investment Bank, the Public Dividend Capital (PDC) of the Land Registry and some contingent liabilities. This
additional information is disclosed on an accruals basis in Notes 7-12 to the CF Account to assist preparation
of Whole of Government Accounts.
22
There is no direct read-across between the accruals-based Notes 7-12 and the cash-based CF receipts and
payments account.

--- PDF page 8 ---
Consolidated Fund Account 2010-11
5
Audit
23
As the Accounting Oﬃcer, I have taken all the steps that I ought to have taken to make myself aware of
any relevant audit information and to establish that the Consolidated Fund’s auditors are aware of that
information. So far as I am aware, there is no relevant audit information of which the Consolidated Fund’s
auditors are unaware.
24
The Account is audited by the Comptroller and Auditor General under the requirements of the National Loans
Act 1968.
Nicholas Macpherson
12 July 2011
Accounting Oﬃcer
HM Treasury

--- PDF page 9 ---
Consolidated Fund Account 2010-11
6
Statement of Accounting Oﬃcer’s responsibilities
Under section 21(1) of the National Loans Act 1968 the Treasury is required to prepare an account relating to the
Consolidated Fund for each ﬁnancial year in such form and containing such information as the Treasury
considers appropriate.
The Consolidated Fund Account is prepared on a cash basis and must properly present the receipts and payments
fortheﬁnancialyear.Asexplainedinparagraph21oftheForeword,Notes7-12accompanyingtheAccountdisclose
certain information relating to the Consolidated Fund on an accruals basis, to assist preparation of Whole of
Government Accounts.
The Treasury has appointed Nicholas Macpherson, its Permanent Secretary, as Accounting Oﬃcer for the Fund,
withoverallresponsibilityforitsoperation,forpreparingtheannualaccountandforsubmittingittotheComptroller
and Auditor General for audit.
In preparing the Account the Accounting Oﬃcer is required to observe the relevant accounting and disclosure
requirements in so far as they are relevant to the Account, and apply suitable accounting policies on a
consistent basis.
The responsibilities of an Accounting Oﬃcer, including responsibility for the propriety and regularity of the public
ﬁnances for which he is answerable, and for the keeping of proper records, are set out in the Accounting Oﬃcers’
Memorandum issued by the Treasury and published in‘Managing Public Money’.

--- PDF page 10 ---
Consolidated Fund Account 2010-11
7
Statement on Internal Control
1
Scope of responsibility
As Accounting Oﬃcer for the Consolidated Fund, I have responsibility for maintaining a sound system of internal
control that supports the achievement of the Fund’s policies, aims and objectives, whilst safeguarding the public
funds and assets for which I am personally responsible, in accordance with the responsibilities assigned to me in
‘Managing Public Money’.
I am also obliged to conduct a review of the eﬀectiveness of the system of internal control. This review covers all
controls, including ﬁnancial, operational and compliance controls and risk management. The Consolidated Fund
is managed generally within the framework of the Treasury’s system of internal control. This framework includes
resourcingtheadministrationoftheConsolidatedFund,security,andthemanagementofrisksacrosstheTreasury’s
business. In addition, there are further controls that are speciﬁc to the management of the Consolidated Fund, as
detailed below.
The Consolidated Fund is managed by theTreasury Accountant and his managers within the Exchequer Funds and
Accounts (EFA) Team of HM Treasury.
2
The purpose of the system of internal control
The system of internal control is designed to manage risk to an acceptable level, balancing the impact of potential
risks with the resources required to manage them, rather than eliminate all risk. It can therefore only provide
reasonable and not absolute assurance of eﬀectiveness. The system of internal control is based on an ongoing
process designed to identify and prioritise the risks to the achievement of the Consolidated Fund’s policies, aims,
and objectives, to evaluate the likelihood of those risks being realised and the impact should they be realised, and
to manage them eﬃciently, eﬀectively and economically.
The system of internal control has been in place throughout the year ended 31 March 2011 and up to the date of
approval of the ﬁnancial statements, and accords with Treasury guidance.
3
Capacity to handle risk
EFA is managed within HM Treasury’s departmental risk management framework, which is set out in HMT’s
Departmental Annual Report & Accounts.TheTreasury Accountant has overall responsibility on a day-to-day basis
for risk management of those funds managed by EFA, and for ensuring that my ﬁnancial, regularity and propriety
responsibilities as Accounting Oﬃcer of the Consolidated Fund are discharged appropriately. He is supported by
EFA management who are responsible for ensuring that the tasks in their area are compliant with operational
policies and procedures, and legislation. EFA management now provide me with a quarterly risks and controls
report updating me on changes to the control environment and changes in risk exposure. I received the ﬁrst
report in January 2011.
EFA management ensure that staﬀworking on the Consolidated Fund are trained and equipped to manage risk in
a way appropriate to their authority and duties. Training on risk awareness and management is provided as
required, either by management or by attending appropriate courses. Individuals’ objectives reﬂect the need to
manage risks. Training is also provided to staﬀto build the team’s capability and to increase its resilience. EFA
members are encouraged to obtain professional qualiﬁcations in areas that are relevant to their roles.
Business continuity resilience is regularly tested locally and with business partners, and lessons learned feed into
improved business continuity processes.

--- PDF page 11 ---
Consolidated Fund Account 2010-11
8
4
The risk and control framework
Risk management is key to all processes within EFA, including business continuity resilience planning for those
public funds for which EFA is responsible. The risk management strategy includes periodic horizon scanning to
identify any changes in risk exposure, to evaluate the change and to identify appropriate mitigating actions.
Signiﬁcant risk issues are recorded in a risk register and are assessed by likelihood and impact. A risk owner, who
is responsible for managing the risk, is assigned to each risk. The risk register is regularly reviewed by EFA
management, and is circulated to me alongside the quarterly risks and controls report.
During the year, there were two signiﬁcant changes to the control environment:
Modernisation of the Treasury’s IT infrastructure and services: During 2009-10 Fujitsu took over the
provision of IT services to the Treasury under the‘Fast Forward’programme. This was rolled out during 2010-
11. EFA were migrated to Fujitsu laptops in October/November 2010.Testing was carried out to ensure that all
applications worked correctly on the laptops. Migration of the Consolidated Fund’s accounting system to the
Fujitsu data centre servers took place in February 2011 after successful User Acceptance Testing and parallel
running.The responsibility for maintaining the accounting system remains with EFA’s Business Continuity and
Systems Support.
Migration of Government Banking Service (GBS) bank accounts to Citigroup and Royal Bank of
Scotland: The Government Banking Service has changed its main provider of banking transaction services
from the Bank of England to Citigroup and the Royal Bank of Scotland Group. This project was completed
during 2010-11. The CF main bank account remains at the Bank of England. However, there are a number of
sub-accounts used by EFA in connection with the CF, to allow easier monitoring and validation of CF payments
and receipts, which were migrated in October 2010. In addition, a large number of entities paying into and
receiving funds from the CF have also migrated. The project was managed carefully to ensure that new bank
accounts were set up correctly, that the accounting system was updated correctly with new account details
for counterparties, and that the new payments and receipts processes would function correctly. New controls
are now in place and job instructions have been revised.
The key risks in managing the Consolidated Fund and their associated controls are:
Irregularity of transactions, including fraudulent or erroneous payments: Clear separation of duties is
enforced by appropriate user permissions within the accounting system and payment approval panels. Up-
to-date policy and procedures manuals including job instructions are readily accessible to all operational
staﬀ. Payment instructions are computer-generated and are derived from underlying transaction records
which minimises the risk of keying errors. Supply issued to departments to ﬁnance expenditure is approved
annually by Parliament through the annual Appropriation Acts. EFA input these limits onto the accounting
system, which ensure these limits are adhered to. Separately, under the Exchequer and Audit Department Act
1866. The Comptroller and Auditor General, through the National Audit Oﬃce Exchequer Section, authorises
Consolidated Fund payments in advance and reconciles Fund transactions on a daily basis. There is a clear
and comprehensive audit trail in the IT system, to which the NAO has real-time access.
Incorrect accounting: Application controls exist within the IT system used to manage ﬁnancial transactions
and account for receipts and payments on the Fund. Cash-based accounting entries are generated from pre-
deﬁned templates. New general ledger accounts are authorised by the Deputy Treasury Accountant before
being set up. Monthly management accounts for the Fund are also produced and reviewed by the Treasury
Accountant, and are provided to me.
Failure of IT systems: The Fujitsu data centre oﬀers the highest level of resilience available as prescribed by
Telecommunications Industry Standard TIA-942 with availability set to 99.995%. A disaster recovery site is
also provided under the terms of Flex.
Failure to provide an eﬀective service in adverse circumstances, including disaster situations:To ensure
operational resilience in key areas in the event of a business continuity situation, staﬀwithin EFA are trained to
provide cover for times when other staﬀmembers are absent. Measures are in place to facilitate the National
Audit Oﬃce Exchequer Section’s normal payments approval process in the event of disruption to enable the
essential payments business to continue. The risks that impact upon EFA’s key stakeholders are managed
by their involvement in business continuity planning and testing. Business continuity arrangements are
regularly reviewed and tested within the framework of the Treasury’s corporate Business Continuity Plan. The
Consolidated Fund’s operations were not aﬀected by the severe winter weather.

--- PDF page 12 ---
Consolidated Fund Account 2010-11
9
Failure of principal counterparties to provide agreed services: Well-developed Service Level Agreements
for the provision of services from all principal counterparties are in place.They cover details of the monitoring
and control arrangements that both parties are expected to observe. Quarterly meetings are held with
managers at the Bank of England where service levels are discussed. A monthly report of any failure to meet
the service requirements is also sent to the Bank of England by EFA. A monthly meeting is held with GBS
management where service levels are discussed.
Loss of personal data: Data and information risk are managed in accordance with HMT’s policies which
involve a range of controls to prevent unauthorised disclosures. These include encryption, and physical and
IT security. HMT adheres to Cabinet Oﬃce guidelines. EFA’s own Data Handling Policy identiﬁes risks speciﬁc
to EFA. This policy is reviewed on a six-monthly basis or as required.
The Treasury Audit Committee is tasked with supporting me, as Principal Accounting Oﬃcer, and the Treasury’s
AdditionalandotherAccountingOﬃcersintheirresponsibilitiesformanagingrisk,internalcontrolandgovernance
related to the:
■
Treasury Group’s Annual Report & Account;
■
Consolidated Fund;
■
Contingencies Fund;
■
National Loans Fund; and,
■
Exchange Equalisation Account.
I appoint members of the Committee for periods of up to three years, extendable by no more than two additional
three-year period. The Chair of the Committee reports directly to me and presents a regular report to the Treasury
Board. The membership of the Committee is:
■
Michael O’Higgins (Chair) – Non Executive Board Member, HM Treasury; Chairman of the Audit Commission;
Chairman of the Pensions Regulator; Non Executive Director, Investec-Calculus Venture Capital Trust;
■
Mike Ashley – Head of Quality and Risk Management, KPMG Europe LLP; Board Member, KPMG Europe LLP;
■
Zenna Atkins – Chief Executive Oﬃcer, Wey Education PLC; Managing Director, Zail Enterprises Ltd; Chair,
Royal Navy Audit Committee; Non Executive Director, Royal Navy Board;
■
Janet Baker – Non Executive Director and Commissioner of the Audit Commission; Non Executive Director,
Defence Support Group, MoD; Non Executive Director, Rural Payments Agency;
■
Bradley Fried – Managing Partner, Grovepoint Capital LLP; Non Executive Director of the Group Board, Investec
plc and former CEO, Investec Bank plc, and
■
Avinash Persaud – Chairman, Intelligence Capital.
The Treasury Audit Committee has a robust Conﬂicts of Interest Policy, which requires members to excuse
themselves from discussions where potential conﬂicts may occur.
Members are required to inform me about any potential conﬂicts and highlight these at the start of each meeting
as appropriate.
In addition to the independent members, the appropriate Accounting Oﬃcers, HM Treasury’s Group Director of
Finance, Director of Corporate Services, the Chief Executives of the Debt Management Oﬃce and Asset Protection
Agency and theTreasury Accountant also attend Committee meetings as required. Members have the opportunity
for a pre-committee discussion with the National Audit Oﬃce, Group Head of Internal Audit for HM Treasury and
Head of Internal Audit for the Exchequer Funds.

--- PDF page 13 ---
Consolidated Fund Account 2010-11
10
The Treasury Audit Committee met ﬁve times in 2010-11.
An annual risk-based internal audit programme is performed by Exchequer Funds Internal Audit. The programme
is agreed with the Treasury Accountant in advance of the Audit Committee’s approval. The work programme
always includes a review of the receipts and payments process within EFA, due to the perceived level of risk. The
Audit Committee reviews the risk-based work programme and is kept informed of progress and amendments.
The external auditor is the Comptroller and Auditor General and the National Audit Oﬃce attend all Audit
Committee meetings on his behalf.
5
Review of eﬀectiveness
As Accounting Oﬃcer, I have responsibility for reviewing the eﬀectiveness of the system of internal control. My
review of the eﬀectiveness of the system of internal control is informed by the work of Exchequer Funds Internal
Audit who provided positive assurance as to the management and control of the CF in 2010-11 and the executive
managers within EFA who have responsibility for the development and maintenance of the internal control
framework, as well as comments made by external auditors in their management letter and other reports. I have
been supported by the Treasury Audit Committee and risk owners in addressing weaknesses and ensuring
continuous improvement of the system is in place.
The Treasury Audit Committee considered the 2010-11 accounts in draft and provided me with its views before I
formally signed the accounts. In my opinion, the system of internal control was eﬀective with no signiﬁcant control
issues identiﬁed in 2010-11.
Nicholas Macpherson
12 July 2011
Accounting Oﬃcer
HM Treasury

--- PDF page 14 ---
Consolidated Fund Account 2010-11
11
The Certiﬁcate and Report of the Comptroller and Auditor
General to the Houses of Parliament
I certify that I have audited the ﬁnancial statements of the Consolidated Fund for the year ended 31 March 2011
under the National Loans Act 1968. These comprise the Receipts and Payments Account and supporting Notes 1
to 6, and the accruals based disclosures in Notes 7 to 14.These ﬁnancial statements have been prepared under the
accounting policies set out within them.
Respective responsibilities of the Accounting Oﬃcer and Auditor
As explained more fully in the Statement of Accounting Oﬃcer’s Responsibilities, the Treasury and Accounting
Oﬃcer are responsible for the preparation of the ﬁnancial statements in accordance with the National Loans Act
1968 and in the form prescribed by HM Treasury. My responsibility is to audit, certify, and report on the ﬁnancial
statements in accordance with the National Loans Act 1968. I conducted my audit in accordance with International
Standards on Auditing (UK and Ireland). Those standards require me and my staﬀto comply with the Auditing
Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the ﬁnancial statements
An audit involves obtaining evidence about the amounts and disclosures in the ﬁnancial statements suﬃcient to
give reasonable assurance that the ﬁnancial statements are free from material misstatement, whether caused by
fraud or error.This includes an assessment of: whether the accounting policies are appropriate to the Consolidated
Fund’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of
signiﬁcant accounting estimates made by the Accounting Oﬃcer; and the overall presentation of the
ﬁnancial statements.
I read all the ﬁnancial and non-ﬁnancial information in the Foreword, Statement of Accounting Oﬃcer’s
responsibilitiesandtheStatementonInternalControltoidentifymaterialinconsistencieswiththeauditedﬁnancial
statements.IfIbecomeawareofanyapparentmaterialmisstatementsorinconsistenciesIconsidertheimplications
for my certiﬁcate.
Inaddition,Iamrequiredtoobtainevidencesuﬃcienttogivereasonableassurancethatthereceiptsandpayments
reported in the ﬁnancial statements have been applied to the purposes intended by Parliament and the ﬁnancial
transactions conform to the authorities which govern them.
Opinion on Regularity
In my opinion, in all material respects, the receipts and payments have been applied to the purposes intended by
Parliament and the ﬁnancial transactions conform to the authorities which govern them.
Opinion on ﬁnancial statements
In my opinion:
■
the ﬁnancial statements, which comprise the Receipts and Payments Account and supporting Notes 1 to 6,
properly present, in accordance with the National Loans Act 1968 and the form prescribed by HM Treasury,
the receipts and payments of the Consolidated Fund for the year then ended;
■
the information contained within Notes 7 to 14, in relation to certain statutory pension arrangements,
coinage issued and redeemed, non-current investments and contingent liabilities as at 31 March 2011, is not
materially misstated and has been prepared in accordance with the accounting policies set out in the Notes;
and
■
the ﬁnancial statements have been properly prepared in accordance with the National Loans Act 1968 and in
the form prescribed by HM Treasury.

--- PDF page 15 ---
Consolidated Fund Account 2010-11
12
Opinion on other matters
In my opinion, the information given in the Foreword, for the ﬁnancial year for which the ﬁnancial statements are
prepared, is consistent with the ﬁnancial statements.
Matters for which I report by exception
I have nothing to report in respect of the following matters which I report to you if, in my opinion:
■
adequate accounting records have not been kept; or
■
the ﬁnancial statements are not in agreement with the accounting records or returns; or
■
I have not received all of the information and explanations I require for my audit; or
■
the Statement on Internal Control does not reﬂect compliance with HM Treasury’s guidance.
Report
I have no observations to make on these ﬁnancial statements.
Amyas C E Morse
National Audit Oﬃce
Comptroller and Auditor General
157-197 Buckingham Palace Road
Victoria
14 July 2011
London, SW1W 9SP

--- PDF page 16 ---
Consolidated Fund Account 2010-11
13
Receipts and Payments Account for the year ended
31 March 2011
Receipts
Notes
2010-11
£ million
2009-10
£ million
Tax Revenue
HMRC
(2)
336,924
300,856
Vehicle Excise Duty
(2)
5,808
5,637
National Non-Domestic Rates
(2)
20,833
21,494
363,565
327,987
Other Receipts
Repayments from the Contingencies Fund
1,000
1,000
Miscellaneous receipts
(3)
18,839
25,006
Deﬁcit funded from the National Loans Fund
139,681
195,600
Total receipts
523,085
549,593
Payments
Supply Services
(4)
459,088
494,553
Standing Services
Payments to the National Loans Fund for net interest payments
36,770
35,213
Payments to the budget of the European Union
(5)
12,915
9,515
Other Standing Services
(6a)
13,312
9,312
522,085
548,593
Issues to the Contingencies Fund
1,000
1,000
Total payments
523,085
549,593
Nicholas Macpherson
12 July 2011
Accounting Oﬃcer
HM Treasury
The notes on pages 14 to 29 form part of this account

--- PDF page 17 ---
Consolidated Fund Account 2010-11
14
Notes to the Account
1
Statement of Accounting Policies
The Consolidated Fund (CF) was ﬁrst set up in 1787 as ‘one fund into which shall ﬂow every stream of public
revenue and from which shall come the supply for every service’. The basis of the ﬁnancial mechanism by which
the CF is operated is governed by the Exchequer and Audit Departments Act 1866.
The CF is administered by the Treasury, with the bank account maintained at the Bank of England.
These accounts are prepared on a cash basis under section 21(1) of the National Loans Act 1968. In addition,
accruals-based disclosures are made at Notes 7-12 to assist preparation of Whole of Government Accounts. They
are restricted to those items not disclosed in departmental Annual Reports & Accounts or elsewhere.These include
pensions paid directly from the CF, coinage issued and redeemed, the UK’s capital subscription to the European
Investment Bank, the Public Dividend Capital (PDC) of the Land Registry and some contingent liabilities. These
disclosures have been prepared on an accruals basis under the historical cost convention modiﬁed to account for
the revaluation of investments. There is no direct read-across between Notes 7-12 and the Consolidated Fund
receipts and payments account.
The Receipts and Payments Account and some other notes are stated in millions of pounds sterling (£m). The
remainder of the notes are stated in thousands of pounds sterling (£000).
2
Tax Revenue
Detailed breakdowns of tax revenues paid into the Consolidated Fund are set out in Trust Statements prepared by
the receiving departments. These departments are Her Majesty’s Revenue and Customs (HMRC), the Driver and
Vehicle Licensing Agency (DVLA) and the Department for Communities and Local Government (DCLG).Tax receipts
from HMRC are derived from an estimation process applied by HMRC to diﬀerentiate between taxation receipts
and national insurance contributions, which are collected by HMRC. Any cash paid over to the CF by HMRC in any
reporting period, may include amounts later identiﬁed as national insurance contributions which, when identiﬁed,
are subsequently repaid to the National Insurance Fund.
HMRC is empowered to receive funding from the CF to meet its cash needs on days when its revenue-related
outﬂows exceeded its receipts. Some £9.3 billion was advanced from the CF for this purpose in 2010-11 (£9.0
billion in 2009-10). These advances do not have to be repaid and are reported in note 6a.

--- PDF page 18 ---
Consolidated Fund Account 2010-11
15
3
Miscellaneous receipts
2010-11
£000
2009-10
£000
Consolidated Fund Extra Receipts (CFER)1
18,221,973
23,839,037
OFGEM revenue in respect of the Fossil Fuel Levy
89,811
129,000
United Kingdom coinage issued (Note 9)
155,127
111,823
Crown Estate surplus revenue
232,000
208,000
Broadcasting additional receipts and penalties
5,088
24,417
Crown’s share of the Crown’s Nominee Fund
25,000
40,000
Share of surplus accrued from securities for National Savings Bank
–
25,026
Capital surplus from National Savings Bank securities
–
593,522
Land Registry – dividend on public dividend capital
15,279
18,573
National Savings Bank Ordinary Account contribution for management expenses
–
353
Prior year over-issues of Supply repaid (Note 4)
1,960
1,378
Court Funds Investment Account – surplus income
641
4,732
Insolvency Service – unclaimed dividends
4,334
3,567
DVLA – public dividend capital
19,048
–
Financial Assistance Scheme Asset Transfer
49,498
–
Miscellaneous
12,913
6,509
Receipts subsequently repaid
5,900
81
Total
18,838,572
25,006,018
The decrease in CFERs is predominantly due to a decrease in the Treasury’s receipts of £5.9 billion paid into the
Consolidated Fund (2009-10: £11.8 billion) which have been generated from interventions in the ﬁnancial sector.
FurtherinformationontheseinterventionscanbefoundintheTreasury’sDepartmentalAnnualReport&Accounts.
In 2010-11 there has been a small increase in other departments’ CFERs received in 2010-11 from £12.0 billion in
2009-10, to £12.3 billion in 2010-11.
Under Clear Line of Sight reforms, DVLA revoked their trading fund status on 1 April 2011 and adopted executive
agency status. As part of this process, £19.1 million was paid into the CF in 2010-11 to extinguish their Public
Dividend Capital.
The Financial Assistance Scheme (FAS) came into force on 2 April 2010. The FAS is managed by the Board of the
Pension Protection Fund, a statutory corporation established under the provisions of the Pensions Act 2004.
Included within these regulations is a requirement to transfer revenue associated with asset transfers from
qualifying Financial Assistance Schemes to Government. In 2010-11, £49.5 million was received into the CF from
the Department for Work and Pensions. The Department for Work and Pensions is required to prepare a Trust
Statement in relation to this revenue. Further information on this can be found at: http://www.dwp.gov.uk/policy/
pensions-reform/fas-review-of-scheme-assets/
As a result of National Savings & Investments’ (NS&I) decision to rationalise its product range, Ordinary Accounts
were taken oﬀsale in 2004, and all accounts closed in 2008. Between 2004 and 2008, depositors were given the
option of either withdrawing the amount they had deposited in full, or transferring the balance to other NS&I
products. When the accounts were closed in 2008-09, funds held with the Commissioners for the Reduction of the
National Debt (CRND) in relation to Ordinary Accounts were transferred to the Residual Account with the National
Loans Fund. A residual account was established to manage investments which NS&I has been unable to return to
customers. This reduced the NS&I liability to Ordinary Account Depositors to nil. The Finance Act 2009 made
provision for the remaining funds of £593.5 million held within CRND to be transferred to the Consolidated Fund
in 2009-10.
1
2010-11 is a transitional year for Clear Line of Sight reforms, and the CFERs total will include amounts which are now accounted for in
separate trust statements. Known amounts included in the above CFERs balance are BBC licence fee revenue (£3,068 million), Petroleum
licences and EU Emissions Trading Scheme (£476 million), Companies House (£99 million) and Merger Fees and Competition Act 1998
penalties (£95 million). The CF’s accounts will be fully restated in 2011-12 when ﬁnal values and classiﬁcations have been agreed.

--- PDF page 19 ---
Consolidated Fund Account 2010-11
16
4
Analysis of Supply Services
a)
Supply Services issues and repayments
2010-11
2009-10
£ million
£ million
Supply Issues
For current year
458,524
494,487
For previous years
564
66
Gross Supply Services issued
459,088
494,553
Prior year over-issues surrendered in cash
(Note 3)
(2)
(1)
Net Supply Services issued
459,086
494,552
Note 4a shows receipts and payments of Supply in a ﬁnancial year.
b)
Supply Services analysed by period
2010–11
£ million
2009–10
£ million
2008–09
£ million
Year for which Supply granted:
Cash Supply granted by Parliament (as reported)
488,866
518,147
516,449
Cash Excess Vote
n.a.
–
–
Revised Cash Supply granted by Parliament
488,866
518,147
516,449
Surplus not required (as reported)
n.a.
(20,330)
(11,155)
Revised Total Net Cash Requirement outturns reported by government
departments
n.a.
497,817
505,294
Year of Payment/(Receipt):
2008–09 Issues made in year
–
–
506,331
Prior year issues applied to a subsequent year
–
–
5,884
Supply returned to CF due to Machinery of Government
change
–
–
(1,361)
2009–10 Issues made in year
–
494,487
65
Prior year issues applied to a subsequent year
–
5,624
(5,624)
Prior year over–issues surrendered in cash
–
–
(1)
2010–11 Issues made in year
458,524
564
–
Prior year issues applied to a subsequent year
2,856
(2,856)
–
Prior year over–issues surrendered in cash
n.a.
(2)
–
Total
n.a.
497,817
505,294
Note 4b analyses the receipts and payments of Supply according to the year for which the Supply was granted.The
Net Cash Requirement for 2010-11 will not be ﬁnalised until all Government departments have published their
accounts.Therefore this ﬁgure and the subsequent analysis is noted as not yet available (n.a.).This will be published
in the 2011-12 Consolidated Fund Account. Excess Votes are always approved in March of the following year,
therefore any adjustments to Supply in respect of Excess Votes will always be recorded as an adjustment to the
previous year’s ﬁgures. In 2010-11 the amount approved by Parliament and paid from the Consolidated Fund in
respect of cash excess votes incurred during 2009-10 was £251,000 for the Statistics Board and £67,000 for the
Government Actuary’s Department.

--- PDF page 20 ---
Consolidated Fund Account 2010-11
17
c)
Departmental Drawings
The following analysis sets out the cash supplied to the 10 highest drawing departments during 2010-11. Details
of how Supply has been spent can be found in each of the departmental Annual Reports & Accounts.
Cash Supplied by the Consolidated Fund
Department
2010-11
£ million
2009-10
£ million
1.
Department of Health
84,400
80,350
2.
Department for Work and Pensions
82,462
78,805
3.
Department for Education
57,989
55,819
4.
Ministry of Justice
48,895
49,320
5.
Ministry of Defence
37,757
37,064
6.
Department for Communities and Local Government
37,627
39,299
7.
Department for Business, Innovation and Skills
24,052
23,592
8.
HM Revenue and Customs
16,164
16,355
9.
Northern Ireland Oﬃce
13,666
12,928
10.
Department for Transport
12,914
13,786
415,926
407,318
Other
43,162
87,235
Total
459,088
494,553
In 2009-10, HM Treasury was included in the above list, with cash supplied of £45,452 million. In 2010-11 its cash
drawings were £388 million.

--- PDF page 21 ---
Consolidated Fund Account 2010-11
18
5
United Kingdom contributions to the Budget of the European Union
Member States’contributions to the Budget of the European Union are made on the basis of the ﬁnancing system
set out in the Own Resources Decision (ORD) which was agreed by all Member States and incorporated into UK law
by virtue of the European Communities (Finance) Act 2008. The current ORD was agreed in June 2007 and has
been applied since 1 June 2009. However, there was a one-oﬀcost, which was made on 1 June 2009, of £683
million to cover the retrospective eﬀect of the ORD.
Contributions relate to calendar years and are formula based using factors that are in many cases subject to
periodic revision over a number of years as better information becomes available – for example, Gross National
Income (GNI). Revisions to a Member State’s contributions for a given year may therefore be made for several years.
Payments are made based on the amount estimated to be payable for the ﬁnancial year plus an adjustment for
earlier years based on the latest estimate of the contribution for those years.
The Own Resources Decision provides for the Budget of the European Union to be ﬁnanced by own resources
consisting of:
(i)
customs duties, including those on agricultural products;
(ii)
sugar levies;
(iii) VAT, which is the product of the application of a uniform rate, not exceeding 1 per cent, to a harmonised
expenditure base, which must not, for any Member State, exceed 0.5% of its GNI; and,
(iv) a“fourth”resource based on Member States’shares in Community GNI. The rate of this GNI based resource is
whatever is required, given all other revenue, to balance the Budget.
The UK’s abatement is calculated in accordance with the formula set out in the Own Resources Decision. It is equal
to approximately 66% of the diﬀerence in the previous year between what the UK would have paid if the Budget
of the European Union had been ﬁnanced entirely by VAT (but excluding the UK’s contribution to expenditure
outside the Community, mainly aid) and the UK’s receipts from the Budget of the European Union.
2010-11
2009-10
Contribution for
year ended
31 March 2011
Adjustment of prior
years’contributions
Total
Total
£ million
£ million
£ million
£ million
Customs duties
2,226
-
2,226
1,966
Sugar levies
8
-
8
9
VAT contribution (before abatement)
2,186
81
2,267
1,121
Fourth resource contributions
11,020
72
11,092
10,637
15,440
153
15,593
13,733
UK abatement
(2,757)
79
(2,678)
(4,218)
UK’s total contribution to EU Budget
12,683
232
12,915
9,515
Contingent liabilities relating to the Budget of the European Union are described in Note 11.
TheUK’scontributionasaMemberStatetotheEUbudgetvariesfromyeartoyear.In2010-11,totalUKcontributions
to the EU were £12.9 billion (2009-10: £9.5 billion). The increase can be attributed to two factors. First, the
disapplication of the UK Abatement to non-agricultural spending in New Member States, which was phased in
between 2008 and 2010 and has its full impact only from 2011. Second, the sterling depreciation at the end of
2008, which meant that the UK had to pay higher contributions until the GNI/VAT bases were revised in May 2009.
Once the bases were updated, the UK then paid lower contributions for the rest of 2009-10 to make up for what it
had paid in excess contributions.

--- PDF page 22 ---
Consolidated Fund Account 2010-11
19
6a
Other Consolidated Fund Standing Services payments
2010-11
2009-10
Notes
£000
£000
Civil List, Annuities and Pensions
Civil List payments
9,513
9,513
Royal Household Pension Scheme
(7d)
3,861
3,694
Pensions for Judicial Services
(8)
49,349
44,733
MEPs’pensions
(7d)
1,763
2,086
Political and Public Service pensions
(8)
524
545
Civil List pensions
(8)
133
132
Salaries and Allowances
Courts of Justice
153,714
157,747
Members of the European Parliament
434
2,822
Political & Public
(6b)
1,358
1,426
Miscellaneous Services
Election and referendum expenses
115,594
111,160
Advances to HMRC in support of revenue
(2)
9,334,000
8,972,000
Royal Mint
(9)
6,552
6,551
Miscellaneous refunds
5,913
84
HMRC repayment
3,627,040
–
Other
2,195
2
Total
13,311,943
9,312,495
The increase in Standing Service payments of £4.0 billion is largely due to a refund of £3.6 billion in respect of
underfunding of the National Insurance Fund (NIF) in previous years by HMRC. HMRC uses an estimation process
to allocate gross receipts between Income Tax and National Insurance until information to make a more accurate
split is available from PAYE schemes’ end of year returns. Recent analysis has shown that in 2007-08, 2008-09 &
2009-10 adjustments to the estimates were not implemented and so this payment was made to correct
the position.
6b
Political and Public Service Payments
Political and Public Service Payments reported in Note 6a comprise payments to the holders of political posts or
public oﬃces for which speciﬁc statutory powers exist enabling the CF to make such payments, and the associated
employers’national insurance contributions.
The payments to oﬃce holders are shown below and do not include employers’national insurance contributions.
In line with the rest of the CF accounts, these are reported on a payments basis. Any backdated payments are
included in the year they are paid. Full Year Equivalents are also reported for information where the oﬃce holder
only served for part of the year.

--- PDF page 23 ---
Consolidated Fund Account 2010-11
20
6bi) Payments to holders of Political Posts
2010-11
Salary and full
year equivalent
(FYE) £
2009-10
Salary and full
year equivalent
(FYE) £
The Rt Hon David Cameron MP 1
Leader of the Opposition – HOC (to 12 April 2010)
2,411
(FYE 72,326)
72,326
The Rt Hon Harriet Harman MP 2, 3
Leader of the Opposition – HOC (from 12 May 2010 to 24 September 2010)
40,200
(FYE 63,098)
–
The Rt Hon Edward Miliband MP 2
Leader of the Opposition – HOC (from 25 September 2010)
32,601
(FYE 63,098)
–
The Rt Hon Lord Strathclyde 1, 4
Leader of the Opposition – HOL (to 12 April 2010)
3,687
(FYE 110,606)
114,052
The Rt Hon Baroness Royall of Blaisdon 5
Leader of the Opposition – HOL (from 12 May 2010)
95,521
(FYE 105,076)
–
The Rt Hon Patrick McLoughlin MP 1
Opposition Chief Whip – HOC (to 12 April 2010)
1,355
(FYE 40,646)
40,646
The Rt Hon Nicholas Brown MP 3
Opposition Chief Whip – HOC (from 12 May 2010 to 7 Oct 2010)
27,136
(FYE 41,370)
–
The Rt Hon Rosie Winterton MP 2
Opposition Chief Whip – HOC (from 8 Oct 2010)
15,880
(FYE 33,002)
–
Andrew Robathan MP 1
Deputy Opposition Chief Whip – HOC (to 12 April 2010)
872
(FYE 26,158)
26,158
The Rt Hon John Spellar MP 3
Deputy Opposition Chief Whip – HOC (from 12 May 2010 to 8 Oct 2010)
17,535
(FYE 26,624)
–
The Rt Hon Alan Campbell MP 2
Deputy Opposition Chief Whip – HOC (from 9 Oct 2010)
9,206
(FYE 19,239)
–
Baroness Anelay of St Johns 1, 4
Opposition Chief Whip – HOL (to 12 April 2010)
3,505
(FYE 105,161)
108,497
Lord Bassam of Brighton 5
Opposition Chief Whip – HOL (from 12 May 2010)
90,758
(FYE 99,903)
-
John Randall MP 1
Assistant Opposition Chief Whip – HOC (to 12 April 2010)
872
(FYE 26,158)
26,158
Tony Cunningham MP 6
Assistant Opposition Chief Whip – HOC (from 12 May 2010)
20,541
(FYE 19,239)
–
The Rt Hon Michael Martin MP
Speaker – HOC (to 21 June 2009)
–
18,163
(FYE 79,754)
The Rt Hon John Bercow MP 1, 7
Speaker – HOC (from 22 June 2009)
78,140
(FYE 75,766)
60,725
(FYE 78,356)

--- PDF page 24 ---
Consolidated Fund Account 2010-11
21
2010-11
Salary and full
year equivalent
(FYE) £
2009-10
Salary and full
year equivalent
(FYE) £
The Rt Hon Jack Straw 8, 3
Lord Chancellor (to 13 May 2010)
28,857
(FYE 78,356)
78,356
The Rt Hon Kenneth Clarke 2
Lord Chancellor (from 14 May 2010)
60,686
(FYE 68,827)
–
1 The above salaries were paid at the 1 November 2007 salary rate, rather than the entitled salary, each individual waived their entitled pay
increase for the year 2009-10. There was no entitled pay increase in 2010-11.
2 The above political oﬃces have agreed under the current government to take an overall 5% pay cut in their claimed annual salaries.
3 The above oﬃce holders received a severance payment equal to one quarter of the annual oﬃce holder’s salary under the Ministerial and
Other Pensions and Salaries Act 1991. No other severance payments were made.This payment is included in the ﬁgures above.The payments
made to each individual were; H Harman – £15,775; N Brown – £10,343; J Spellar – £6,656 and J Straw – £19,589.
4 The salary ﬁgures include a night time subsistence allowance, payable under legislation to the value of £38,280 per annum from 1 August
2009. The ﬁgures for 2009-10 also include backdated increases to the annual allowance.
5 The above oﬃces were appointed in May 2010 at the full rate due to their appropriate oﬃce, however in November 2010 they agreed to take
a 5% pay cut and this is reﬂected in the FYE ﬁgure above. The ﬁgure also includes the Lords night-time allowance at a rate of £36,366 p.a.
which is a 5% reduction of the entitled night-time allowance of £38,280.
6 The above oﬃce holder was appointed in May 2010 at the full rate due to his appropriate oﬃce, however in November 2010 he agreed to
take a 5% pay cut in claimed salary and this is reﬂected in the FYE ﬁgure above.
7 In 2009-10 John Bercow waived a portion of his entitled salary to take an annual salary (FYE) of £78,356. For the majority of 2010-11 this rate
continued. In February 2011 John Bercow agreed to take the 5% pay cut (on his claimed salary) in line with the rest of government. This
reduced his annual salary (FYE) to £75,766 with eﬀect from 1 March 2011.
8 The previous Lord Chancellor had chosen to limit his salary to the same level as that received by a Secretary of State in the Commons. He was
paid at the 31 March 2008 rate until 13 May 2010. Details for the Lord Chancellor are also disclosed in the Ministry of Justice’s Annual Reports
& Accounts. The Lord Chancellor’s payments are made as part of the Courts of Justice payroll in Note 6 but are included here to give a
complete report of payments to politicians from the CF.
Former Prime Ministers, Speakers and Lord Chancellors are entitled to a pension from the CF in accordance with
legislation.The entitled pension is half of the entitled salary per year, irrespective of length of service, payable from
leaving oﬃce for life. Two of the current post holders, David Cameron and Kenneth Clarke, have waived their
legislative pension and have agreed instead to take a pension in line with Parliamentary Contributory Pension
Fund (PCPF) as did their immediate predecessors. With the exception of the pension commencement lump sum,
any severance payment on leaving oﬃce and any death in service beneﬁts, the pension payments received under
the PCPF will be lower than the legislative pension that has been waived. This will be paid from the CF. No other
position in Parliament has entitlement to a pension from the CF.
The Consolidated Fund does not pay any other expenses or allowances or make any other payments to MPs.

--- PDF page 25 ---
Consolidated Fund Account 2010-11
22
6bii) Payments to Public Oﬃce holders
2010-11
Salary and full
year equivalent
(FYE) £
2009-10
Salary and full
year equivalent
(FYE) £
Tim Burr 1
Comptroller and Auditor General (to 31 May 2009)
–
28,792
(FYE 172,753)
Amyas Morse 1
Comptroller and Auditor General (from 1 June 2009)
210,000
175,000
(FYE 210,000)
Ann Abraham 2
Parliamentary and Health Service Ombudsman
172,753
172,753
Douglas Bain 3
Northern Ireland Chief Electoral Oﬃcer (to 8 Oct 2010)
49,471
(FYE 94,860)
94,860
Graham Shields 3
Northern Ireland Chief Electoral Oﬃcer (from 11 Oct 2010)
27,535
(FYE 58,200)
–
Richard Thomas 4
Information Commissioner (to 28 June 2009)
–
34,222
(FYE 140,000)
Christopher Graham 4
Information Commissioner (from 29 June 2009)
140,000
105,777
(FYE 140,000)
Jenny Watson 5
Senior Electoral Commissioner
101,500
(FYE 101,500)
100,374
(FYE 100,374)
Ian Kelsall 5
Electoral Commissioner (fee based)
15,813
13,275
Karamjit Singh5
Electoral Commissioner (fee based)
–
6,803
Max Caller 5
Electoral Commissioner (fee based)
23,722
40,899
Henrietta Campbell 5
Electoral Commissioner (fee based)
14,373
24,768
John McCormick5
Electoral Commissioner (fee based)
23,522
24,372
Baroness Angela Browning5
Electoral Commissioner (fee based) (from 1 Oct 2010)
3,055
–
Counsellor George Reid 5
Electoral Commissioner (fee based) (from 1 Oct 2010)
2,334
–
Lord Roy Kennedy of Southwark 5
Electoral Commissioner (fee based)(from 1 Oct 2010)
2,876
–
David Howarth 5
Electoral Commissioner (fee based)(from 1 Oct 2010)
4,494
–
1 details of the Comptroller and Auditor General salary are also disclosed in the National Audit Oﬃce Annual Report & Accounts
2 details of the Parliamentary and Health Service Ombudsman salary are also disclosed in the Parliamentary and Health Service Ombudsman
Annual Report & Accounts

--- PDF page 26 ---
Consolidated Fund Account 2010-11
23
3 details of the Northern Ireland Chief Electoral Oﬃcer salary are also disclosed in the Northern Ireland Chief Electoral Oﬃcers Report
4 details of the Information Commissioners salary are also disclosed in the Information Commissioners Annual Report & Accounts
5 details of the Senior Electoral Commissioner and Electoral Commissioners salaries are also disclosed in the Electoral Commissions Annual
Report & Accounts
The CF makes payments in relation to pensions for former Comptroller and Auditor Generals, Parliamentary
Commissioners, Information Commissioners, Northern Ireland Chief Electoral Oﬃcers and Senior Electoral
Commissioners. The pension entitlement at retirement is calculated in accordance with the Principal Civil Service
Pension Scheme rules and will be paid by the CF. Subsequent increases in pensions are paid by the Civil Service
Superannuation vote, not by the CF.
7
Unfunded pension arrangements
The Consolidated Fund pays as a Standing Service the pension beneﬁts of those Royal Household (RH) employees
who entered employment before 31 March 2001 under the Royal Household Pension Scheme (RHPS), and the
pension beneﬁts of Members of the European Parliament (MEPs) under the European Parliament (UK
Representatives) Pension Scheme. Pension beneﬁts are based on ﬁnal pensionable salary. The following data for
pension liabilities, which are accounted for as unfunded deﬁned beneﬁt arrangements, is in accordance with IAS
19 – Employee Beneﬁts. The liabilities are measured on an actuarial basis using the projected unit method and
discounted using the yield available on AA corporate bonds. The rate to use is advised by HM Treasury each year
in accordance with chapter 12 of the Government’s Financial Reporting Manual. Actuarial gains and losses are
recognised in full as they occur.
(a)
Actuarial assessment assumptions
A full actuarial assessment was carried out for the Royal Household Pension Scheme as at 31 March 2011. A roll-
forward actuarial assessment was carried out for the MEPs under the European Parliament (UK Representatives)
Pension Scheme, as at 31 March 2011. Both actuarial assessments were performed by the Government Actuary’s
Department. The major assumptions used by the actuary for both schemes were:
At 31 March
2011
% per annum
At 31 March
2010
% per annum
Rate of increase in salaries
4.90
4.30
Discount rate
5.60
4.60
Life Expectancy
The assumed life expectancy at age 65 of MEP pensioners retiring in normal health was as follows:
At 31 March 2011
At 31 March 2010
Men
(years)
Women
(years)
Men
(years)
Women
(years)
Current pensioners
24.4
25.0
24.3
24.9
Future pensioners
26.3
26.7
26.2
26.6
The assumed life expectancy at age 60 of Royal Household pensioners retiring in normal health was as follows:
At 31 March 2011
At 31 March 2010
Men
(years)
Women
(years)
Men
(years)
Women
(years)
Current pensioners
29.2
32.5
29.1
32.3
Future pensioners
30.7
33.9
30.6
33.8

--- PDF page 27 ---
Consolidated Fund Account 2010-11
24
In addition, two further assumptions were used by the actuary for the Royal Household Pension Scheme:
At 31 March
2011
% per annum
At 31 March
2010
% per annum
Rate of increase in pension payments
2.65
2.75
Inﬂation assumption
2.65
2.75
(b)
2010-11 Expenditure and income
2010-11
RH
£000
2010-11
MEPs
£000
2010-11
Total
£000
2009-10
Total
£000
Expenditure
Current service costs (including employee contributions)
1,454
100
1,554
1,752
Interest on scheme liability
4,403
1,400
5,803
6,531
Total expenditure
5,857
1,500
7,357
8,283
Income
Pension contributions receivable:
Employers’contributions
930
–
930
986
Employees’contributions
111
41
152
397
Past service cost
9,562
–
9,562
–
Total income
10,603
41
10,644
1,383
Net (income)/expenditure
(4,746)
1,459
(3,287)
6,900
In the UK Budget Statement of 22 June 2010, the Chancellor of the Exchequer announced that, with eﬀect from 1
April 2011, the Government would use the Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI) for
the price indexation of beneﬁts and tax credits; and this would also apply to public service pensions through the
statutory link to the indexation of the Second State Pension. The change from RPI to CPI for the purposes of
uprating index-linked features of post employment beneﬁts has been recognised as a negative past service cost
in accordance with IAS 19. This accounting treatment has been adopted by all central Government reporting
entities where RPI has been used for inﬂation indexing for many years.
The question of whether, as regards the main public service pensions schemes, there is a legitimate expectation
that RPI will be used for inﬂation indexing is currently before the courts in judicial review proceedings. The
Government case is that no legitimate expectation exists and that, in any event, even if there was a legitimate
expectation this was overridden by the clear public interest in making very substantial savings at a time when the
Government had adjudged that deﬁcit reduction was a fundamental objective for the country. If the Government’s
case is proven, there would be no change to the accounting treatment adopted in these accounts.

--- PDF page 28 ---
Consolidated Fund Account 2010-11
25
(c)
Movement in liabilities during the year
2010-11
2010-11
2010-11
2009-10
RH
£000
MEPs
£000
Total
£000
Total
£000
Scheme Liability at beginning of the year
(105,098)
(32,004)
(137,102)
(110,442)
Current service costs
(1,343)
(59)
(1,402)
(1,355)
Employee contributions
(111)
(41)
(152)
(397)
Beneﬁt payments (Note 6a)
3,861
1,763
5,624
5,780
Net individual pension transfers
16
–
16
18
Other ﬁnance charges – interest
(4,403)
(1,400)
(5,803)
(6,531)
Past service cost
9,562
–
9,562
–
Total
(97,516)
(31,741)
(129,257)
(112,927)
Actuarial gain / (loss)
8,899
3,900
12,799
(24,175)
Liability at end of year
(88,617)
(27,841)
(116,458)
(137,102)
The above movement in liabilities is based on the actuarial assessments at 31 March 2011. The decrease in liability
is mainly due to the increase in the discount rate used.
(d)
Analysis of pension beneﬁts paid by the Consolidated Fund
This table provides details of the cash payments paid by the Consolidated Fund in relation to Royal Household and
MEPs’ pensions as disclosed above. The pension increase element of MEPs’ pensions is borne on the Civil Service
Superannuation Annual Report & Account.
2010-11
2010-11
2010-11
2009-10
RH
£000
MEPs
£000
Total
£000
Total
£000
Total pension paid
3,280
1,532
4,812
4,687
Commutation and lump sum beneﬁts
581
563
1,144
1,442
Total pension beneﬁts paid
3,861
2,095
5,956
6,129
Less: increase element of MEPs’pensions borne by the Civil
Service Superannuation Annual Report & Account
–
(332)
(332)
(349)
Total borne by the Consolidated Fund
3,861
1,763
5,624
5,780
(e)
Analysis of actuarial (gains)/losses on unfunded pension schemes
2010-11
2010-11
2010-11
2009-10
RH
£000
MEPs
£000
Total
£000
Total
£000
(Gains)/Losses arising on scheme liabilities
(3,769)
–
(3,769)
(4,358)
Changes in assumptions underlying the present value
of liabilities
(5,130)
(3,900)
(9,030)
28,533
Total
(8,899)
(3,900)
(12,799)
24,175

--- PDF page 29 ---
Consolidated Fund Account 2010-11
26
8
Other pensions
In addition to the pensions described in Note 7, the Consolidated Fund also makes payments in relation to (i)
pensions in respect of judicial services; (ii) pensions for Parliamentary Oﬃcers for political and civil services
provided; and (iii) Civil List pensions. IAS 19 disclosures have not been provided for these payments for the reasons
given below.
Pensions for judicial services – Liabilities in respect of this scheme are included in the Judicial Pension Scheme
Annual Report & Account. Payments from the Consolidated Fund in respect of this scheme in 2010-11 amounted
to £49.3 million (£44.7 million in 2009-10).
Pensions for Parliamentary Oﬃcers for political and civil services provided – relate to pensions for former Prime
Ministers, Speakers, Comptroller and Auditor Generals, Parliamentary Commissioners, Information Commissioners,
Northern Ireland Chief Electoral Oﬃcers and Senior Electoral Commissioners. In total, a sum of £524,000 was paid
from the Consolidated Fund in 2010-11 in respect of these pensions (£545,000 in 2009-10). The actuarial liability
falling on the Consolidated Fund, across all these schemes, has been assessed at £7.6 million at 31 March 2011
(£8.3 million at 31 March 2010) and is not material to the Consolidated Fund. The decrease is mainly due to an
increase in the discount rate used.
Civil List ‘pensions’ – these are not pensions in the accepted sense.They represent‘awards’for distinguished service
to the arts and science and are payable for the life of the recipient. In total, a sum of £133,000 was paid from the
Consolidated Fund in 2010-11 in respect of these pensions (£132,000 in 2009-10). This is not material to the
Consolidated Fund.
9
Coinage issued and redeemed
The face value of coins issued by the Royal Mint is payable to the Consolidated Fund and the face value of coins
redeemed by the Royal Mint is a charge on the Consolidated Fund. The cost of minting the coinage is charged to
the Treasury’s Annual Report & Accounts (£28.5 million in 2010-11 and £22.9 million in 2009-10).
Sums due to the Consolidated Fund:
2010-11
£000
2009-10
£000
Balance at 1 April
5,530
7,896
Coins issued
151,429
107,899
Cash received by Consolidated Fund (Note 3)
(155,127)
(111,823)
Coins redeemed
(6,490)
(4,954)
Cash paid by Consolidated Fund (Note 6a)
6,552
6,551
Bank receipts / (other charges)
36
(39)
Balance at 31 March
1,930
5,530

--- PDF page 30 ---
Consolidated Fund Account 2010-11
27
10
Investments
(a)
European Investment Bank
Section 2 paragraph 3 of the European Communities Act 1972 provides for payments in respect of the capital or
reserves of the European Investment Bank (the‘EIB’), or in respect of loans to the European Investment Bank, to be
made from the Consolidated Fund.
The UK’s interest in the EIB is a non-current investment. The EIB’s capital has been provided through subscriptions
by EU Member States, broadly in proportion to the Gross National Product of the individual countries. The aim of
the EIB is to further the objectives of the European Union by making long-term ﬁnance available for
investment projects.
The UK’s investment in the EIB, based on its 16.17% share of subscribed capital, was worth €6,498,047,000 as at
31March2011(16.17%worth€6,155,786,000at31March2010).Theinvestmentisrevaluedeachyearinproportion
to the UK’s share of the net assets of the EIB as reported in the EIB’s accounts to 31 December of the previous year
converted using the euro/sterling exchange rate at 31 March. No new cash was invested in 2010-11 or
in 2009-10.
2010-11
£ million
2009-10
£ million
European Investment Bank
At 1 April
5,492
5,422
Change due to exchange rate movements
(43)
(200)
Change due to increase in EIB net assets
303
270
At 31 March
5,752
5,492
(b)
Land Registry Public Dividend Capital
When the Land Registry was established as a trading fund it was deemed to have received Public Dividend Capital
from the Consolidated Fund.
2010-11
£ million
2009-10
£ million
Land Registry Public Dividend Capital
At 31 March
62
62
Total non-current investments at end of year
5,814
5,554

--- PDF page 31 ---
Consolidated Fund Account 2010-11
28
11
Contingent liabilities
Contingent Liabilities
The normal convention is for contingent liabilities that would fall on the Consolidated Fund to be reported in the
appropriate departmental Annual Report & Accounts. However, some contingent liabilities have been identiﬁed
that fall outside these arrangements, so they are reported here instead. All the following contingent liabilities fall
outside the scope of IAS 37 as the possibility of an outﬂow of resources is remote. However, disclosure of these
liabilities is necessary under Parliamentary accountability requirements. These are as follows:
At 31 March
2011
£ million
At 31 March
2010
£ million
EU Budget: Guarantees on borrowing and lending operations
4,059
2,843
European Financial Stabilisation Mechanism
European Investment Bank: Callable capital subscription
1,047
31,600
–
31,851
Value of UK coins in circulation
4,020
3,949
Loans Guaranteed by the EU Budget
The ﬁrst item above represents the UK’s maximum liability from current outstanding loans to EU Member States
and Third Countries. Guaranteed loans to EU Member States include outstanding support under the Balance of
PaymentsFacility,whichoﬀersmedium-termﬁnancialassistanceforEUcountriesoutsidetheeuroarea.Guarantees
to Third Countries includes support to Bosnia-Herzegovina, Georgia and Serbia and Montenegro for Macro
Financial assistance purposes and other speciﬁc projects. The loans are guaranteed by the EU Budget and the
liability will only crystallise if the loans are defaulted on. The European Commission periodically prepares reports
showing the total capital outstanding. The latest report is at June 2010, which shows total capital outstanding at
€32,563 million (June 2009: €23,450 million). The UK share of this total liability is estimated at 14.08% (€4,585
million) which has been converted to sterling (£4,059 million) at the exchange rate of 1.1297 prevailing at
31 March 2011 (2009-10: £2,843 million, being €3,186 million (13.59%) using the exchange rate 1.1208 prevailing
at 31 March 2010).
The ceiling for the maximum amount of loans granted to non euro-area Member States under the EU’s Balance of
Payments facility stands at €50 billion. If any of these loans were drawn and, in turn, defaulted, it will impact the EU
budget. The precise UK share of this liability is determined by the Own Resources Decision on ﬁnancing the EU
budget (Note 5). As a maximum, however, it is estimated the UK’s liability would be around 14.08% (€7,040 million)
of the total, which has been converted to sterling (£6,232 million) at the exchange rate of 1.1297 prevailing at
31 March 2011 (2009-10: £6,063 million, being €6,795 million (13.59%) using the exchange rate 1.1208 prevailing
at 31 March 2010).
European Financial Stabilisation Mechanism
Provision for ﬁnancial support to all EU Member States, under Article 122 of the Treaty on the Functioning of the
European Union, of up to a total of €60 billion came into force in May 2010 to enable the EU to expand its lending
volume as part of its anti-crisis measures. As with the Balance of Payments facility, this European Financial
Stabilisation Mechanism is guaranteed by the EU Budget and the liability will only crystallise if the loans are
defaulted on. The precise UK share of this liability is determined by the Own Resources Decision on ﬁnancing the
EU budget (Note 5). As a maximum, however, we have estimated the UK’s liability would be around 14.08% of the
total drawdown of €8.4 billion at 31 March 2011 (€1,183 million), which has been converted to sterling
(£1,047 million) at the exchange rate of 1.1297 prevailing at 31 March 2011. The total drawdown is in respect of
Ireland. A further €14.1 billion is available to Ireland. We have estimated the UK’s liability would be around 14.08%
which has been converted to sterling (£1,757 million) at the exchange rate of 1.1297 prevailing at 31 March 2011.

--- PDF page 32 ---
Consolidated Fund Account 2010-11
29
European Investment Bank Callable Capital Subscription
The latest EIB ﬁnancial statements at 31 December 2010, show the UK is liable for €35,699 million of callable capital
to the EIB, which has been converted to £31,600 million using the exchange rate of 1.1297 prevailing at 31 March
2011 (£31,851 million as at 31 December 2009 being €35,699 million using the exchange rate 1.1208 prevailing at
31 March 2010). Under Article 5 of the EIB’s Statute the Board of Directors may call upon each Member State to pay
its share of the balance of the subscribed capital should the Bank have to meet its obligations. The current market
circumstances notwithstanding, it is unlikely that Member States will be called upon to pay the remaining capital.
UK Coins in Circulation
As at 31 March 2010, the estimated value of coins in circulation was £3,949 million. This increased by £71 million
to£4,020millionat31March2011.Thecontingentliabilityof£4,020millionrepresentstheCF’spotentialobligation
in respect of returned coins. During 2010-11, £6.6 million was redeemed from the Consolidated Fund as a standing
service payment (Note 6a) (2009-10: £6.6 million).
12
Events after the Reporting Period
In May 2011 EU ﬁnance ministers agreed a three year international ﬁnancial assistance package for Portugal of
which €26 billion will be provided through the European Financial Stabilisation Mechanism. The precise UK share
of this liability is determined by the Own Resources Decision on ﬁnancing the EU budget (Note 5). As a maximum,
however, it is estimated the UK’s liability would be around 14.08% of the total drawdown of €26 billion
(€3,661 million), which has been converted to sterling (£3,241 million) at the exchange rate of 1.1297 prevailing at
31 March 2011.
13
Related Parties
The CF has transactions with most government departments and central government bodies. The Treasury has a
custodian role with the Consolidated Fund, which is outside the scope of IAS 24.
14
Date of Authorisation for Issue of Account
The Account was authorised for issue 14 July 2011.

--- PDF page 33 ---
Consolidated Fund Account 2010-11
30
For further information about the National Audit Oﬃce please contact:
National Audit Oﬃce
Press Oﬃce
157-197 Buckingham Palace Road
Victoria
London
SW1W 9SP
Tel: 020 7798 7400
Email: enquiries@nao.gsi.gov.uk
DG Ref: 009634

--- PDF page 34 ---
9
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--- PDF page 1 ---
Annual Report and 
Accounts 2010-11
HC 981 
£28.00HM Revenue & Customs Logo

--- PDF page 2 ---
HM Revenue & Customs
Annual Report and Accounts 2010-11
(For the year ended 31 March 2011)
Accounts presented to the House of Commons pursuant to Section 6(4) of the Government Resources 
and Accounts Act 2000 and Section 2 of the Exchequer and Audit Departments Act 1921
Annual Report presented to the House of Commons by Command of Her Majesty
Annual Report and Accounts presented to the House of Lords by Command of Her Majesty
Ordered by the House of Commons to be printed on 7 July 2011
HC 981 
LONDON: The Stationery Office 
£28.00

--- PDF page 3 ---
4 
 
HM Revenue & Customs Annual Report and Accounts 2010–11
This is part of a series of Annual Reports and 
Accounts which, along with the Main Estimates 2011-
12 and the document Public Expenditure: Statistical 
Analyses 2011, present the Government’s outturn and 
planned expenditure for 2011-12.
© Crown copyright 2011
You may re-use this information (excluding logos) free 
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Any enquiries regarding this document/publication 
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This publication is also available for download at 
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ISBN: 978 0 10 297256 6
Printed in the UK by The Stationery Office Limited 
on behalf of the Controller of Her Majesty’s Stationery Office
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Printed on paper containing 75% recycled fibre content minimum.

--- PDF page 4 ---
HM Revenue & Customs Annual Report and Accounts 2010–11 
 
5
Contents

--- PDF page 5 ---
6 
 
HM Revenue & Customs Annual Report and Accounts 2010–11
Chief Executive’s foreword
Last year marked five years since the creation of HM Revenue & Customs (HMRC). In that time HMRC 
has become increasingly effective; almost doubling compliance yields to £13.9 billion and making significant 
efficiency savings of £1.4 billion.
In 2010-11 alone HMRC had a number of notable successes. I am pleased to report we collected over £468 
billion in revenue and paid out more than £40 billion in benefits and payments. HMRC also prevented more 
than £1 billion in benefits and credits payments being lost to error and fraud; we continued to close the net on 
offshore tax evaders and organised criminals; and record numbers of almost seven million people filed their Self 
Assessment returns online.
However 2010-11 was undoubtedly challenging and we did not give the service we wanted to for our PAYE 
customers. The reconciliation of two tax years at the same time following the introduction of the National 
Insurance and PAYE Service, led to unexpected tax bills and the issue of a large number of incorrect tax codes. 
This was stressful for customers and our people. But we are making real improvements. PAYE is working more 
accurately than it has been for 10 years and we are improving services to customers.
Looking ahead, I fully expect that HMRC will continue to face significant challenges. We are transforming 
HMRC to deliver our Spending Review 2010 (SR10) commitments. We will make further savings of 25 per cent, 
reinvest £917 million of those savings into our work against evasion, avoidance and criminal attacks, and deliver 
£20 billion additional revenues a year by 2014-15. We will stabilise and further improve the new PAYE system 
and are on track to clear backlogs of work from the old system by 2013. We are also set to deliver Real Time 
Information to support the introduction of the Universal Credit. 
Our people are key to our success in responding to these challenges. We will take further steps to engage 
our people, including by investing in skills and opening up opportunities for careers within HMRC, and by 
completing work that is underway to ensure HMRC is organised and led in a way which ensures success. 
We have an extremely challenging year ahead, but I am confident that we are building strong foundations that 
will enable us to deliver better services to the public and to increase revenues at a sustainably low cost.
Lesley Strathie 
Chief Executive and Permanent SecretaryLesley Strathie Signature

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HM Revenue & Customs Annual Report and Accounts 2010–11 
 
7
Our Purpose
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We make sure that the money is available to fund the UK’s public services 
We also help families and individuals with targeted financial support 
Our Vision
• We will close the tax gap, our customers will feel that the tax system is simple for them and even-handed, 
and we will be seen as a highly professional and efficient organisation
Our Way
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We understand our customers and their needs 
We make it easy for our customers to get things right 
We believe that most of our customers are honest and we treat everyone with respect 
We are passionate in helping those who need it and relentless in pursuing those who bend or break the 
rules
We recognise that we have privileged access to information and we will protect it 
We behave professionally and with integrity 
We do our own jobs well and take pride in helping our colleagues to succeed 
We develop the skills and tools we need to do our jobs well 
We drive continuous improvement in everything we do
What we are aiming to achieve
HMRC Purpose, Vision and Way

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HM Revenue & Customs Annual Report and Accounts 2010–11
Section 1: What we collected and 
paid out in 2010-11
Collecting revenue
We collected £468.9 billion in 2010-11
Revenue collected (£bn)
Income Tax 
157.2
National Insurance Contributions 
96.9
VAT 
90.3
Corporation Tax 
45.9
Hydrocarbon Oils 
27.2
Alcohols 
9.5
Tobacco 
9.3
Stamp Taxes 
9.0
Other taxes & duties 
23.6
Paying entitlements 
We paid out over £40 billion in 2010-11.
Entitlements paid 2010-11 (£m)
Tax Credits 
28,091.3
Child Benefit 
12,048.4
Child Trust Fund Endowments 
226.7
Health in Pregnancy Grant 
104.3
For further information please refer to the 
Resource Accounts and Trust Statement
Collecting Re
venue P
ie Cha
rt
Paying Entitlemen
ts Pi
e Chart

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HM Revenue & Customs Annual Report and Accounts 2010–11 
 
9
Section 2: Highlights of 2010-11
Improving compliance yield
Between 2005 and 2011 we have almost doubled 
compliance yields. Last year the total yield from all 
our compliance activities was a record £13.9 billion an 
increase of over £1 billion on 2009-10. 
Our disclosure regime, which requires promoters of 
avoidance schemes to tell us so that we can respond 
to threats quickly, was extended and strengthened in 
January 2011, including higher penalties for failure to 
disclose. 
We also won a number of key legal cases. These 
included a Supreme Court ruling on 15 December 2010 
in our favour that will prevent us from having to make 
repayments of up to £70 million in Corporation Tax. 
The case against DCC Holdings concerned repos (sale 
and re-purchase of securities) financial transactions.
Stabilising and improving customer service
We improved the rate of accuracy for annual PAYE 
coding from 80 per cent to 99 per cent. In addition, 
98.5 per cent of end of year reconciliation was 
completed for 2008-09 and 2009-10 cases where we 
had all the information we needed. 
Online services are also helping customers to get things
right and reducing the cost of unnecessary contact for 
HMRC and the customer. A record 6,907,410 people 
filed their Self Assessment returns online by the 
31 January deadline, up more than 7 per cent on last 
year’s figure. 78 per cent of customers filed online and 
at its peak we handled 14 submissions every second. 
By the end of 2010 more than three quarters of 
VAT registered businesses had registered for online 
filing which is simpler and cheaper for HMRC and 
customers. 
We also extended our relationship-management 
approach to large business, introducing customer 
coordinators to act as the single point of contact for 
the 8,400 large business customers who do not have a 
customer relationship manager.
Tax Credit error and fraud
Each year we lose money due to error and fraud in the 
tax credits system. In 2009-10, annual revenue losses 
due to error and fraud were estimated to be £1.95 billion 
or 7.4 per cent of the entitlement, down from 8.9 per 
cent in 2008-09. Of this, £1.57 billion was estimated 
to be down to customer error and £0.38 billion as a 
result of fraud. 
At the end of March 2011, we announced that we had 
exceeded our target by around 5 per cent identifying 
and preventing total losses of £1.054 billion, 
undertaking nearly 1.8 million interventions compared 
to just over 1 million in 2009-10. Given that as recently 
as 2008-09 we identified additional yield of only 
£253 million, this means we have seen an increase in 
excess of 300 per cent in the two years of the strategy.
Dealing with fraud
Two members of a 21 strong criminal gang were 
ordered to repay over £92 million to HMRC after 
being convicted of Missing Trader Intra-Community 
(MTIC) fraud, the biggest ever confiscation orders 
awarded to the Department.
Improving the collection of debt
Debt levels have decreased steadily over the past 
three years from £25.6 billion in March 2009, £22.1 
billion in March 2010, to £18.6 billion in 2011. 
This reduction has been achieved through improved 
operational performance but also as a result of work to 
clean up our debt book and improve its accuracy.
During 2010-11 we collected over £400 million more 
VAT debt compared to the previous year. We continued 
to assist taxpayers by providing faster access to time 
to pay decisions and through our Business Payment 
Support Service we agreed over 428,000 time to pay 
arrangements valued at approximately £7.37 billion.
We have increased the use of campaigns, where 
taxpayers are segmented according to previous 
behaviour, likely ability to pay and the size of the debt. 
Individually designed collection strategies are applied 
to those debts.
We upgraded our telephone equipment to enable 
us to handle more calls and we are continuing to 
invest in our people through professional operational 
development.

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HM Revenue & Customs Annual Report and Accounts 2010–11
We also expect our performance to be improved 
through increased analytical capability. This will help 
us understand our customers better and tailor our 
approaches more accurately.
Reducing costs
During the year we reduced the size of our workforce 
from 69,300 to 66,900 and reduced the cost of 
running our property estate by giving up over 73,000 
square metres.
Improving professionalism
We developed our Foundation Level Tax Professional 
Qualifications, which cover key skills and knowledge 
that the majority of our 17,000 tax professionals need, 
and launched three externally accredited foundation 
level tax qualification awards: Core Award; Certificate; 
and Diploma.
Our people were among the first civil servants to 
start working towards a new operational delivery 
qualification recognised across government and 
registered by the Qualification and Credit Framework, 
the new name for NVQs.
New Information Technology system success
We successfully launched the ‘Connect’ IT system 
which joins a billion pieces of data from across our tax 
regimes to help identify fraud. A total of 99 per cent of 
our 200 plus IT projects were delivered to time, cost 
and quality performance measures.
Corporate responsibilities recognition
HMRC won the More for Less Award and the 
Sustainability Award at the Civil Service Awards 
2010 which celebrate excellence in public service. The 
awards were presented by Her Majesty the Queen at 
Buckingham Palace. 
HMRC was also placed in the top 10 on the Workplace 
Equality Index of Stonewall, the organisation that 
promotes equality for lesbians, gay men and bisexual 
people. Last year HMRC was 45th. Our first place in 
the Civil Service Trans Equality Index recognises the 
advances we have made in embedding trans equality in 
our polices and processes. 
We introduced a power saving capability to almost all 
our workstations which automatically puts desktops 
into an energy saving ‘sleep mode’. This has saved 
nearly £0.5 million a year in electricity costs and 
reduced emissions by almost 3,000 carbon tonnes.

--- PDF page 10 ---
HM Revenue & Customs Annual Report and Accounts 2010–11 
 
11
Section 3: Who we are and how
we are organised
HM Revenue and Customs (HMRC) was formed on 18 April 2005, following the merger of 
the Inland Revenue and HM Customs and Excise.
We collect and administer:
Direct taxes:
Capital Gains Tax
Corporation Tax
Income Tax
Inheritance Tax
National Insurance Contributions
Indirect taxes:
Customs duties
Excise duties
Insurance Premium Tax
Petroleum Revenue Tax
Stamp Duty
Stamp Duty Land Tax
Stamp Duty Reserve Tax
VAT
We pay and administer:
Child Benefit
Child Trust Fund Endowment payments 
(for children born up to 2 January 2011)
Health in Pregnancy Grant 
(ceased 1 December 2010)
Tax Credits
Other responsibilities:
Bank Payroll Tax/Bank Levy
Environmental taxes
Money Laundering Regulations
National Minimum Wage
Recovery of Student Loans
Border responsibilities
During 2009, the UK Border Agency took 
responsibility for protecting the United Kingdom’s 
borders against illicit and harmful trade, including 
illegal import or export of drugs, counterfeit or illicit 
alcohol, tobacco and other illicit goods. 
HMRC retains responsibility for policies and activities 
associated with collecting duties at the frontier and 
processing information about international trade.
How we are organised 
HMRC is a non-ministerial department established 
by the Commissioners for Revenue and Customs Act 
2005. Mike Clasper is the non-executive Chairman 
and Lesley Strathie is the Chief Executive. As part of 
the senior team Dave Hartnett is Permanent Secretary 
for Tax. 
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• 
Strategic direction and standards lie with the non-
executive Chairman, who with the Board (attended 
by HMRC’s non-executive Directors) is responsible 
for effective governance of HMRC. 
Delivery and expenditure lie with the Chief 
Executive, who with her Executive Committee 
(ExCom) of senior leaders is responsible for running 
HMRC. 
The Permanent Secretary for Tax is the senior tax 
professional in HMRC and Deputy Chief Executive.
Both the Board and ExCom are supported by a 
number of sub-committees charged with specific 
responsibilities. For further information please see 
the Department’s Corporate Governance Report at 
page 59.
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12 
 
HM Revenue & Customs Annual Report and Accounts 2010–11
Section 4: Customer Strategy
Customer Strategy
Our customer strategy is centred on understanding and 
segmenting our customers so that we design and deliver 
our services and interventions in a way that meets their 
needs but also influences their future behaviours. 
This strategy formed the basis of our discussions 
with Ministers during our 2010 Spending Review 
settlement, enabling us to reinvest £917 million to 
transform our compliance activities. It underpins our 
priorities for the Review period:
• maximise additional revenues to the Exchequer: 
£20 billion a year by 2014-15;
• stabilise and improve our customers’ experience of 
dealing with us;
• create sustainable net cost reductions of 15 per cent 
by 2014-15; 
• stabilise National Insurance and PAYE service; and
• reduce fraud and error in the tax credit system by 
£2 billion per year by 2014-15. 
Improving our on-line customer services and reducing 
unnecessary contact with HMRC will create the right 
experience at the right cost for most of our customers, 
and will enable us to refocus our resources to those 
who still need our help or who choose not to comply.

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HM Revenue & Customs Annual Report and Accounts 2010–11 
 
13
Section 5: How we performed 
Introduction
This section sets out an annualised summary of our 
performance based on HMRC’s published Business 
Plan (http://www.number10.gov.uk/wp-content/
uploads/HMRC -Business-Plan1.pdf).
Since many of the indicators in the Business Plan are 
new from 2011-12, the amount of information in this 
transitional year is restricted to the following items:
• progress against HMRC’s Structural Reform Plan; 
•
•
 input and impact indicators where possible to 
report including:
•
•
•
•
 unit costs;
 the additional liabilities from tackling non-
compliance, though this measure will change in 
2011-12 to report additional revenues collected;
 the revenue losses prevented by successfully 
tackling criminal attacks;
 the level of tax credit error and fraud based on the 
latest published statistics for 2009-10; and
 other relevant information that demonstrates a fuller 
picture of HMRC’s performance.
Structural Reform Plans
Structur
al Reform Ta
ble
Input indicators
Input I
ndicato
rs Table
1 Although HMRC developed high level Real-Time Information (RTI) specification for software developers to the deadline of the end of 
November 2010, it was published on 3 December 2010 alongside the consultation documents.
2 Unit cost represents the cost (in pence) per £1 of tax collected or benefit paid. It is the total administration costs including depreciation 
net of Appropriations in Aid. The calculation includes expenditure extracted from HMRC Resource Accounts (plus adjustments) which is 
then divided by receipts collected or payments made, as published in the HMRC Trust Statement.

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HM Revenue & Customs Annual Report and Accounts 2010–11
Impact indicators
Impact 
Indicat
ors Table
3 The 2009-10 figure includes exceptional items of £1.5 billion from environmental taxes that will not recur in the future.
4 The figure is a provisional figure and is subject to audit. Finalised figures are intended to be published in the autumn. The figure includes 
exceptional items of £504 million relating to VAT repayment claims for gaming machines and £170 million yield relating to VAT treatment 
of pension funds that will not recur in the future.
5 The figure includes £1.22 billion for MTIC. It includes exceptional items of £0.6 billion that are not expected to recur in the future.
6 The figure includes £1.23 billion for MTIC. It includes exceptional items of £0.66 billion that are not expected to recur in the future.
7 These figures relate to refused repayment claims under ‘Fleming’ and are not expected to recur in the future. These are claims for under-
deducted or overpaid VAT, potentially going back as far as the inception of VAT in 1973.
8 Debt balance is an internal management figure (not audited by the NAO) which represents the total of amounts overdue for payment and 
which are collectible now. It is a more accurate indication of the value of debt that we have available to collect (it includes sums in ‘Time 
to Pay’ arrangements). The debt balance is heavily influenced by the amount of new debt we receive so it is not a performance measure; 
however it is useful in terms of understanding outstanding and collectible debt. NOTE: The receivables figures, as reported in the Trust 
Statement, represent all liabilities from taxpayers or traders that have been established irrespective of whether due or overdue, for which 
payments have not been received, such as VAT returns received at the end of the financial year but not due until early April.
9 Margins of error +/-1.6%. The proportion of UK taxpayers who are willing and able to pay their taxes at the right time has increased 
from the 2008 baseline of 49.1 per cent to 52 per cent as at the latest measurement point in March 2011. This means there are 
approximately 1.4 million more people willing and able to pay their taxes at the right time than three years ago.
10 These indicators are measured by large scale quarterly HMRC customer surveys of individuals, SME businesses and agents. The scores 
shown are for the six months to the year end. It is a composite score made up of 12 separate survey results (four results each for individuals, 
SME businesses and agents). The scores shown are for six months to the year end. For further information about the composition of the 
customer experience score see http://www.hmrc.gov.uk/research/customerexperience.
11 Margins of error +/-1.9%
12 Margin of error +/- 2.3%

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HM Revenue & Customs Annual Report and Accounts 2010–11 
 
15
Better Regulation reporting 
Since 2006, we have implemented measures which 
have delivered savings for business of £584 million per 
annum (up from £564 million in 2010). Contributory 
measures include new online services for Corporation 
Tax, Self Assessment (SA) and VAT and improvements 
to the Excise Movement and Control System.
Following extensive engagement and consultation we 
have introduced a new approach to tax policy making, 
together with the Treasury. This improves the way we 
make tax policy, focusing on predictability, stability 
and simplicity in the tax system with consultation on 
policy design and scrutiny of draft legislation as the 
cornerstones.
This approach is underpinned by a new Tax 
Consultation Framework and a tailored impact 
assessment process for tax policy changes. Impacts 
are summarised in Tax Information and Impact Notes 
(TIINs) published alongside the Budget and draft 
Finance Bill that clearly set out the policy rationale and 
relevant impacts. 
We are also working closely with the Office of Tax 
Simplification (OTS) to identify simplifications to the 
tax system, particularly in relation to small business 
taxation.
Sustainability
HMRC is working hard to meet the Government 
environmental targets. We are well positioned to 
achieve the milestones set for energy usage, recycling, 
waste and travel, as well as the target to reduce 
carbon emissions from our estate by 10 per cent. 
As the Department responsible for administering 
environmental taxes, we have a direct role to play 
in combating climate change and protecting the 
environment. We have extended this role into our day-
to-day operations by:
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reducing our paper usage through the provision 
of online filing for tax returns and encouraging 
customers to take the paperless route when seeking 
information; 
introducing recycling arrangements for office waste;
promoting telephone and video conferencing as 
alternatives to business travel; 
• 
• 
implementing a range of measures to make our IT 
‘greener’; and 
reducing carbon emissions through better 
management of our large estate. 
We have also developed a ‘Carbon Calculator’ 
that encourages our employees to work in an 
environmentally responsible way by enabling them to 
calculate the environmental impact of different travel 
options, paper consumption, stationery and the use of 
office equipment.
Against our own target to reduce carbon emissions 
from air travel by 20 per cent and road travel by 10 per 
cent, we achieved reductions for 2010-11 of 38.80 per 
cent and 25.59 per cent respectively.
We have continued to develop more sophisticated 
environmental management systems to increase the 
accuracy of our energy consumption. Energy from IT 
equipment has been reduced through the introduction 
of new software to put machines into low power mode 
overnight. We also want to be sure that the carbon 
emissions in our supply chain are kept to a minimum. 
Our work piloting the online tool CAESER (Corporate 
Assessment of Environment, Social and Economic 
Responsibility), which assesses the environmental 
commitment of our supply chain, was recognised by 
our success in the 2010 Civil Service Sustainability 
Awards. 
Our employees play an active role in achieving these 
targets through the creation of green teams at many 
of our sites and by the support and encouragement 
provided by our Executive Committee Environment 
Champion. These 450 ‘green volunteers’ are actively 
engaged in promoting initiatives such as our ‘10 steps’ 
campaign, which encourages people to take small steps 
to reduce their personal carbon footprint, for example 
by cutting down on travel, energy use and printing.
Section 6: Other data and core 
tables

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16 
 
HM Revenue & Customs Annual Report and Accounts 2010–11
Valuation Office Agency
The Valuation Office Agency (VOA) is an Executive 
Agency of HMRC. Over the last year it has developed 
a new strategy to underpin our work over the next 
four years and beyond. In doing so, the VOA has 
established and set out its core purpose. It is ‘to 
provide the valuations and property advice required to 
support taxation and benefits.’
This core purpose led to the development of four 
strategic objectives which are:
• 
• 
target and achieve customer trust;
drive quality and consistency through improved 
processes;
• 
• 
develop and sustain the right capabilities; and
sustainably reduce costs and improve value for 
money.
In 2010-11 the VOA started to change how it operates, 
including how it is structured, to enable it to better 
meet its strategic objectives and core purpose. At the 
same time, the VOA has maintained a strong focus 
on continuing to deliver its operational business 
targets. The results below show an overview of their 
performance against key operational performance 
indicators.
Valuation Office Agency Table

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HM Revenue & Customs Annual Report and Accounts 2010–11 
 
17
HMRC has accepted many PAC recommendations that have now been fully implemented. 
Below are details of PAC recommendations that we have accepted but are still to be 
finalised.
Name of Report: 2009-10 2nd Report (HC 97): Improving the Processing and Collection of Tax: Income Tax, 
Corporation Tax, Stamp Duty Land Tax and Tax Credits published on 10 December 2009. Treasury Minute 
11 March 2010.
Recommendation:
At March 2009 large Corporation Tax assessments 
amounting to over £10 billion, and in some cases over 
16 years old, were ‘postponed’ awaiting resolution. 
Cases can be complex and difficult to resolve and the 
Department is reviewing how it handles them. As 
part of this work, the Department should analyse and 
prioritise postponements to establish a clear action 
plan to resolve them. The action plan should include 
targets to allow monitoring of progress in managing 
high value cases and reducing the existing volume of 
lower value cases.
HMRC Action:
An annual review of large Corporation Tax 
postponements has been established to provide 
assurance of the amounts shown in the Trust 
Statement. This covers aggregate amounts of over £25 
million per company in the Large Business Service 
and over £10 million elsewhere. Implementation 
of a process for all new postponements, including 
smaller cases, will begin in the autumn of 2011 and 
will be completed at the latest by March 2012. The 
responsible officer for each new case will be identified 
and all outstanding cases will be reviewed by that 
officer at least every six months, with a manager’s 
review at 18 and 48 months.
The Department has already written off £1.3 billion in 
Tax Credit debt where it believes there is no possibility 
of recovery. As a priority, the Department should 
identify all debt that is either uncollectable or not cost-
effective to collect and decide by March 2010 what 
should be written-off. It should ensure that all Tax 
Credit debt remaining on its books at 31 March 2010 
is being actively pursued. 
In 2010-11 we recorded losses of £0.625 billion in Tax 
Credit debt that was either uncollectible or did not 
offer value for money to collect. At the end of March 
2011, the Tax Credit debt balance was £4.7 billion, 
with £2.7 billion available for direct recovery. During 
February/March 2011 we identified 2,400 cases to 
test how successful we might be in pursuing inactive 
Tax Credit debts and we are considering the results. 
Debt Management and Banking began a trial of the 
collection of Tax Credit debts in February 2011 using 
a number of Debt Collection Agencies (DCAs) that we 
have used previously. An evaluation of the pilot will 
commence in August 2011. We will also be discussing 
with Treasury officials what options could be pursued 
to facilitate a much larger proportion of Tax Credit 
debts being passed to DCAs, should the pilot prove 
successful.
Committee of Public Accounts 
(PAC) recommendations

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HM Revenue & Customs Annual Report and Accounts 2010–11
Name of Report: 2009-10 32nd Report (HC 312): HM Revenue and Customs’ estate private finance deal eight 
years on published 08 April 2010. Treasury Minute 15 July 2010.
Recommendation:
Even though the Committee highlighted in 2005 
the need to establish an effective partnership, the 
Department and Mapeley have not achieved this. The 
Department must establish an effective partnership 
with Mapeley.
HMRC Action:
Steps have been made towards this, including Board to 
Board and joint management meetings but establishing 
a strategic working partnership with Mapeley was 
hampered by delay in providing financial transparency. 
Full transparency has since been provided and 
Mapeley have committed to its ongoing provision. 
HMRC and Mapeley, have made significant progress 
towards resolving the outstanding commercial 
negotiations, reaffirming their commitment to work 
together, including developing a joint estate strategy.

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HM Revenue & Customs Annual Report and Accounts 2010–11 
 
19
Name of Report: 2009-10 24th Report (HC 389): Handling Telephone Enquiries published 25 March 2010. 
Treasury Minute 15 July 2010.
Recommendation:
The Department could make more efficient use of 
contact centre staff time and thereby improve the 
service it provides. The Department should match 
staffing levels more closely to the fluctuating levels of 
demand throughout the year.
HMRC Action:
We improved efficiency in 2010-11 by significantly 
increasing the percentage of time advisers actually 
spend handling calls. We have also made good 
progress in better matching resources to demand. As 
part of this we will employ 1,000 additional contact 
centre advisers between April and September 2011, 
which is a particularly busy period.
The Department uses 139 telephone numbers. It plans 
to reduce these, but it could do more by reducing the 
costs of contacting the Department by telephone. It 
should review and rationalise its helplines, textphone 
and orderline numbers and decide which helplines 
should be free to call. It should also move new and 
existing services to price-capped ‘03’ numbers unless 
there is an overriding case for not doing so.
As a result of the introduction of the new NPS PAYE 
computer system, we were able to reduce 61 separate 
customer facing 0845 helplines that deal with PAYE 
tax queries to just one. The reduction in telephone 
numbers represents a real improvement in customer 
service as the majority of PAYE customers and agents 
will only need to locate and use a single number to 
contact us. 
We recognise that the cost of calling our 0845 lines 
can be an issue for some customers and we are 
reviewing our numbering strategy. However, following 
the launch of a public consultation by OfCom 
‘Simplifying Non-Geographic Numbers’ we have 
decided to await OfCom’s findings before concluding 
our review.
The Department does not know how often it gives 
correct advice by telephone. The Department should 
reduce the number of calls that fail its accuracy 
standards. It should also identify how often incorrect 
advice is actually given, its consequences and how to 
prevent this happening.
We are currently revising the quality assurance process 
which highlights failure to follow departmental 
guidance or procedures and failure to provide 
correct advice. It is hoped a new process will be fully 
implemented by April 2012.

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HM Revenue & Customs Annual Report and Accounts 2010–11
Name of Report: 2009-10 33rd Report (HC 520): Review of errors in Guaranteed Minimum Pension 
Payments published 06 April 2010. Treasury Minute 17 June 2010.
Recommendation:
There is a risk that pension schemes may be 
underpaying members who left contracted out 
employment early but who have deferred claiming 
state pension. The pension schemes should confirm 
whether members in this category are in receipt of 
state pension, and take action to both correct any 
underpayments that have arisen and to address the risk 
of underpayments in the future.
HMRC Action:
A process has been agreed with representatives of 
public service schemes that will involve the pension 
schemes proactively checking their systems to 
identify members who, based on their records, have 
reached State Pension age with gaps in the amount 
of Guaranteed Minimum Pension (GMP) they hold. 
They will then work with HMRC and DWP to ensure 
complete alignment of records. The process has been 
in place since April 2011 and will be trialled for six 
months to ensure it works successfully. 
HMRC should identify how it can provide greater 
assurance about the completeness of the outputs from 
the National Insurance Recording System. The pension
schemes should implement procedures to identify 
members who have reached, or are soon to reach, state 
pension age, but for whom they do not have GMP 
information recorded on their systems.
 
There are a number of long-standing free services 
already in place to enable public service pension 
schemes to obtain GMP information prior to 
individuals attaining State Pension age. The principal 
service available is HMRC’s Accrued GMP Liability 
Service. A process has also been agreed that will 
involve the pension schemes proactively checking 
their systems to identify members who, based on their 
records, have reached state pension age with apparent 
gaps in the amount of GMP they hold. They will then 
work collaboratively with HMRC and DWP to ensure 
alignment of records. This process has been in place 
since April 2011 and will be trialled for six months to 
ensure it works successfully.
At the earliest opportunity, pension schemes should 
amend contracts to make explicit the extent of their 
contractors’ obligations for securing complete details 
of GMP entitlements, and should subsequently monitor 
the performance of contractors in this regard.
A process has been agreed that will involve the pension 
schemes proactively checking their systems to identify 
members who, based on their records, have reached 
state pension age with apparent gaps in the amount 
of GMP information they hold. Pension schemes will 
then work collaboratively with HMRC and DWP to 
ensure complete alignment of records. The process 
has been agreed by representatives on the Joint GMP 
Advisory Group who have consulted their pension 
administrators/system contractors.

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HM Revenue & Customs Annual Report and Accounts 2010–11 
 
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Pension schemes, HMRC and the Pension, Disability 
and Carers Service should agree and document their 
specific responsibilities, including service standards 
for the provision of timely and complete GMP 
information.
HMRC will use the Joint GMP Advisory Group to 
discuss, determine and document agreed specific 
responsibilities and associated standards for providing 
GMP information in a timely fashion. The monthly 
process agreed to address other recommendations 
and should provide further statistical evidence as to 
where the existing arrangements may be lacking. This 
information will be used to inform the debate as to 
what additional steps may be necessary to bring about 
improvements. It is intended to review the new process 
after six months of operation to confirm that it meets 
requirements and more than that, provides further 
insight into how we can all work in a better informed 
manner, fully understanding and documenting 
respective roles, responsibilities and timescales for 
action by the end of 2011.
Guaranteed Minimum Pensions were earned between 
1978 and 1997 and are no longer accruing, meaning 
that the existence of entitlements is known and will 
not change. While the base for GMP is re-valued each 
year up to state pension age, pension schemes could 
annotate members’ records with GMP information 
in advance of reaching state pension age, rather than 
waiting for HMRC to provide notifications. Pension 
schemes and their administration and payment 
contractors should assess whether prior annotation 
offers a cost-effective way of reducing the risks 
associated with administering GMP.
There are a number of long-standing free services 
already in place to enable public service pension 
schemes to obtain GMP information prior to 
individuals attaining state pension age. The principal 
service available is HMRC’s Accrued GMP Liability 
Service which a number of public service schemes 
are now using and are finding it beneficial. A process 
has also been agreed that will involve the pension 
schemes proactively checking their systems to identify 
members who, based on their records, have reached 
State Pension Age with apparent gaps in the amount of 
GMP they hold. They will then work collaboratively 
with HMRC and DWP to ensure alignment of records. 
This process has been in place since April 2011 and 
will be trialled for six months to ensure it works 
successfully.
The complexity of the existing GMP system increases 
the risk of error and makes it costly to administer. 
A fundamental review should be commissioned to 
consider whether, within the existing legislation, 
there are opportunities to reform and simplify the 
administrative system designed to implement the 
legislation.
HMRC and DWP (with the knowledge of the pension 
scheme representatives on the joint GMP Advisory 
Group) have met to consider the existing legislative 
requirements and to confirm that there is a fully 
shared understanding of both their content and intent.

--- PDF page 21 ---
22 
 
HM Revenue & Customs Annual Report and Accounts 2010–11
Name of Report: 2010-11 18th Report (HC 502): HM Revenue and Customs 2009-10 Accounts published 01 
February 2011. Treasury Minute 24 March 2011
Recommendation:
There were problems in delivering the new National 
Insurance and PAYE Service (NPS), and the 
Department failed to tackle processing backlogs going 
back to 2004-05 and ran out of time to collect tax 
due before April 2007. In addition it has yet to repay 
millions of taxpayers who paid too much PAYE in 
these years. As a result, it has failed to collect tax that 
is properly due, caused uncertainty to taxpayers and 
treated them inequitably.
HMRC Action:
We have reviewed 430,000 underpayments for 2007-
08, with 416,000 being worked to a conclusion. Work 
is ongoing with Aspire to enable the remaining cases to 
be reviewed and cleared before the end of 2012 using 
an automated solution, backed by further manual 
work.
The Department knew in December 2009 that up 
to seven million people had over or underpaid tax 
in 2008-09, but it did not take steps to inform the 
individuals involved until September 2010. In January
2010, it began issuing 25 million coding notices, 
without firstly establishing why the number of codes 
issued was in excess of its forecast and contained 
errors. 
The Department must ensure that coding notices are 
subject to proper quality assurance before issue and 
taxpayers are told of their under or over payments as 
soon as practical.
 
The Department successfully completed the 2011-12 
annual coding exercise and issued 99.4 per cent of 
coding notices by the start of the new tax year. There 
has been a substantial improvement in the accuracy of 
the 2011-12 annual coding notices. Customer contact 
was lower than forecast and we have received positive 
feedback from employers about the accuracy of the 
codes.
The Department plans to have stabilised the NPS 
and PAYE processing by 2012 and to have completed 
the 2008-09 and 2009-10 reconciliations by January 
2011. We look to the Department to be able to clearly 
demonstrate that it has resolved systemic data quality 
issues by the end of 2011 and that NPS is delivering 
the benefits it was intended to bring.
Approximately 99 per cent of the 2008-09 and 
2009-10 reconciliations for cases where we had all 
the information were completed by the end of March 
2011. The small number of those remaining are 
subject to manual work and are expected to be cleared 
by the end of the summer. A successful end-of-year 
reconciliation exercise for 2010-11, which began in 
June 2011, will demonstrate that NPS is delivering its 
intended benefits.
The Department should make succession plans for 
replacement of senior staff well in advance of their 
departure dates.
Last autumn, the Department’s Executive Committee 
confirmed a new operating model to support the 
Department’s customer-centric business strategy. The 
initial phase of populating the Department’s new 
operating model started at Director General level and 
is now complete. The second and third phases covering 
all director and deputy roles is well advanced and on 
schedule for full completion by August 2011.

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HM Revenue & Customs Annual Report and Accounts 2010–11 
 
23
It is unacceptable that so many people have had to 
wait so long for their tax affairs to be resolved. If the 
Department had processed PAYE promptly it should 
have been able to collect nearly all of the estimated 
£650 million underpaid tax for 2004-05 to 2006-07. 
The Department should now set a clear operational 
standard to process all PAYE cases within 12 months 
of the end of the tax year.
The Department has reallocated resources within its 
settlement plans to clear the outstanding backlogs. 
The Department is on course to review automatically 
or manually all legacy open cases by the end of 2012.
The Department was aware that the change in the 
deadline would prevent it collecting underpaid tax for 
2004-05 and 2005-06. However it failed to appreciate 
the deadline on the 1.9 million underpayments in 
2006-07. The Department should ensure that it 
does not miss the deadline for collecting revenue for 
2007-08 and that its assessments of future legislative 
changes take full account of operational impact.
Following the review of 430,000 underpayments for 
2007-08 carried out in the period to 1 April 2011, 
£228 million of underpayments have been identified.
We are not convinced by the Department’s explanation 
of how it decides to allocate resources to maximise 
the collection of PAYE. The Department should assess 
the return on investment of having additional staff 
collecting PAYE and structure its staffing to maximise 
the net revenue collected.
The Department has implemented a more accurate 
approach to recording unit costs from 1 April 2011 
and has developed a plan to tackle current backlogs.

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24 
 
HM Revenue & Customs Annual Report and Accounts 2010–11
Spending on consultancy and temporary 
staff
We engage professional service providers for 
consultancy, contingent labour, learning, legal advice, 
translation, interpretation and research.
External advisers provide us with technological 
expertise to aid delivery of strategic objectives and 
major programmes. Contingent labour is used to 
quickly deploy specialist expertise, drive change and 
deliver increased efficiency with tight resources.
We are supporting the Cabinet Office ‘Centralised 
Category Procurement’ programme taking place across 
central government. This programme, along with 
demand management in line with austerity measures 
since May 2010, has seen a significant reduction in 
spend on consultancy. Spend on consultancy reduced in 
2010-11 to £10.1 million from £46.5 million in 
2009-10. 
Publicity and advertising
Following the formation of the coalition government, 
changes in policy meant that certain campaigns such as 
Child Trust Fund were cancelled, budgets were reduced 
and some campaigns such as Working Tax Credits 
were put on hold while a new approval process was 
introduced by the Efficiency and Reform Group (ERG).
The net effect was that expenditure on paid-for marketing 
campaigns dropped to under £4 million and campaign 
activity was focused on prompting tax credits 
renewals, promoting the Self Assessment deadline, a 
Risk and Intelligence Services (RIS) campaign targeting 
plumbers and some communications promoting tax for 
business help.

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HM Revenue & Customs Annual Report and Accounts 2010–11 
 
25
Complaints to the Ombudsman in 2009-10
Complaints to the Ombudsman in 2009-10 Table
Numbers of Senior Civil Service staff (SCS) by pay band
Numbe
rs of Senior
 Civil Servi
ce Staff Table

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26 
 
HM Revenue & Customs Annual Report and Accounts 2010–11
The number of SCS posts in HMRC has reduced by 6.9 per cent (27 posts) over the last 12 months. 
During 2010-11 we developed a new operating model to support our customer-centric business strategy. 
The associated organisational design of roles in our top three leadership tiers, through to director level, was 
substantially complete by the end of 2010-11. Further post reductions are anticipated with design completion of 
the remainder of SCS roles. 
The overall total of 366 SCS includes 11 posts in the Valuation Office Agency (two at SCS2 and nine at SCS1). 
Performance in responding to correspondence from public
Performance
Our monthly performance in dealing with post was better in each month this year compared to the same period 
in the previous year.
Post turnaround was better in 10 out of 12 months this year compared to the same period in the previous year. 
Definitions
Post Turnaround measures the proportion of post processed within 15 and 40 working days.
Post Quality is the proportion of post (processed within 15 and 40 working days) that meets our quality 
standards.
Post Qu
ality 15 days Chart
Post Tu
rnaround 15 days Chart
Post Tu
rnaround 40 days Chart
Post Qu
ality 40 days Chart

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HM Revenue & Customs Annual Report and Accounts 2010–11 
 
27
Recruitment practice
To support the cross-government recruitment freeze we 
implemented a robust approvals process which resulted 
in a significant reduction in external recruitment 
activity.
There were six external campaigns, successfully filling 
68 generalist and specialist posts, compared with 
32 campaigns in 2009-10 filling 241 posts. No SCS 
recruitment activity has taken place.
The annual departmental audit of the recruitment 
activity demonstrates good compliance with the Civil 
Service Commission recruitment principles.
Redeployment activity 
New measures in place across HMRC identify 
potentially surplus staff who can be redeployed into 
priority work. Effective redeployment of internal 
resources, and minimal recruitment, has helped us to 
exceed efficiency targets, reducing the workforce from 
around 106,000 in 2006 to around 74,300 (66,900 
full time equivalents) at 31 March 2011. 
Approval for external recruitment, both permanent 
and fixed term, is given only where necessary to 
support business performance. The Department 
seeks to achieve the right balance between internal 
deployment and external recruitment to meet business 
resource needs and efficiency targets. We will continue 
this approach, bringing in the resource and skills 
critical to business restructuring and efficient delivery 
of business objectives.
Health and Safety reporting
The HMRC Board has continued its commitment to 
giving a high profile to Health & Safety (H&S). Close 
management of our incident reporting system produced 
a marked improvement in statutory compliance. Our 
Accident Incidence Rate compares favourably against 
other public sector organisations.
We achieved a significant improvement in uptake of 
H&S training by our people at all levels. 
We have found stress and mental wellbeing are the 
major causes of ill-health and have increased the 
capability and awareness of our people to deal with 
these issues. We are also working to improve our 
management of occupational health and wellbeing.
Health and Safety standards at our offices have 
advanced through boosting technical competence 
and an assurance process of certification by senior 
responsible managers.
H&S Accident, Ill-Health & Violence Statistics
RIDDOR*
Fatal injuries 
0
Major injuries 
24
Dangerous Occurrences 
0
Over 3 day injuries 
100
Diseases (e.g. RSI**) 
17
TOTAL 
141
Non – RIDDOR
ULD** 
220 
Stress 
549
Slips/trips/falls 
635
Violence and verbal abuse 
370
Other 
1,897
TOTAL 
3,671
* Incidents reportable to the Health and Safety 
Executive under RIDDOR – Reporting of injuries, 
diseases and dangerous occurrences Regulations 1995
** Repetitive Strain Injury/Upper Limb Disorder
Accident Incidence Rate (HSE reportable Incidents/Av. 
no of employees x 100,000):
H&S Accident
 Ta
ble
Sickness Absences
Commentary regarding Sickness Absences in HMRC 
can be found in the Statement on Internal Control at 
Page 46.

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28 
 
HM Revenue & Customs Annual Report and Accounts 2010–11
Table 1: Total departmental spending (£’000)
T
able 1
Tables 1 to 8 are not subject to audit.

--- PDF page 28 ---
HM Revenue & Customs Annual Report and Accounts 2010–11 
 
29
T
able 1 
Continu
ed

--- PDF page 29 ---
30 
 
HM Revenue & Customs Annual Report and Accounts 2010–11
T
able 1 
Continu
ed

--- PDF page 30 ---
HM Revenue & Customs Annual Report and Accounts 2010–11 
 
31
Table 2: Public spending control (£’000)
Table 2

--- PDF page 31 ---
32 
 
HM Revenue & Customs Annual Report and Accounts 2010–11
Table 3: Capital employed (£million)
Table 3

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HM Revenue & Customs Annual Report and Accounts 2010–11 
 
33
Table 4: Administration budget (£’000)
Table 4
Table 5: Staff Numbers
Table 5

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34 
 
HM Revenue & Customs Annual Report and Accounts 2010–11
Country and regional analysis
1. Tables 6, 7 and 8 show analyses of the department’s 
spending by country and region, and by function. The 
data presented in these tables are consistent with the 
country and regional analyses (CRA) published by HM 
Treasury in Chapter 9 of Public Expenditure Statistical 
Analyses (PESA) 2011. The figures were taken from the 
HM Treasury public spending database in November 
2010 and the regional distributions were completed 
in early 2011. Therefore the tables may not show the 
latest position and are not consistent with other tables 
in the Annual Report.
2. The analyses are set within the overall framework 
of Total Expenditure on Services (TES). TES broadly 
represents the current and capital expenditure of the 
public sector, with some differences from the national 
accounts measure Total Managed Expenditure. 
The tables show the central government and public 
corporation elements of TES. They include current and 
capital spending by the department and its NDPBs, 
and public corporations’ capital expenditure, but do 
not include capital finance to public corporations. They 
do not include payments to local authorities or local 
authorities own expenditure.
3. TES is a cash equivalent measure of public 
spending. The tables do not include depreciation, cost 
of capital charges, or movements in provisions that 
are in departmental budgets. They do include pay, 
procurement, capital expenditure, and grants and 
subsidies to individuals and private sector enterprises. 
Further information on TES can be found in Appendix 
E of PESA 2011.
4. The data are based on a subset of spending, 
identifiable expenditure on services, which is capable 
of being analysed as being for the benefit of individual 
countries and regions. Expenditure that is incurred for 
the benefit of the UK as a whole is excluded.
5. Across government, most expenditure is not planned 
or allocated on a regional basis. Social security 
payments, for example, are paid to eligible individuals 
irrespective of where they live. Expenditure on other 
programmes is allocated by looking at how all the 
projects across the department’s area of responsibility, 
usually England, compare. So the analyses show the 
regional outcome of spending decisions that on the 
whole have not been made primarily on a regional 
basis.
6. The functional analyses of spending in Table 8 
are based on the United Nations Classification of the 
Functions of Government (COFOG), the international 
standard. The presentations of spending by function 
are consistent with those used in chapter 9 of PESA 
2011. These are not the same as the strategic priorities 
shown elsewhere in the report.

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HM Revenue & Customs Annual Report and Accounts 2010–11 
 
35
Table 6: Total identifiable expenditure on services by country and region, 2005-06 to 2010-11 
(£million)
Table 6
Table 7: Total identifiable expenditure on services by country and region, per head 2005-06 
to 2010-11 (£ per head)
Table 7

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36 
 
HM Revenue & Customs Annual Report and Accounts 2010–11
Table 8: Total identifiable expenditure on services by function, country and region, for 2009-10
Table 8

--- PDF page 36 ---
HM Revenue & Customs Annual Report and Accounts 2010–11 
 
37
Table 8
 Con
tinued

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HM Revenue & Customs Annual Report and Accounts 2010–11 
 
39
realised; and to manage them efficiently, effectively and 
economically. The system of internal control has been 
in place in HMRC for the year ended 31 March 2011 
and up to the date of approval of the accounts, and 
accords with HM Treasury guidance.
3. Governance 
3.1 A detailed description of HMRC’s high-level 
governance, including its senior committee and 
business structure, can be found in the Corporate 
Governance Report, published as a separate section in 
the Accounts.
4. Risk Management
Capacity to handle risk
4.1 Over the past two years HMRC has implemented 
a standardised approach to corporate risk management 
that affirms its commitment to take the right risks and 
opportunities to support the delivery of its business 
objectives. It sets out the roles, responsibilities and 
expected behaviours of all members of the Department 
in doing this, and makes sure they are supported by the 
appropriate tools, training and guidance.
4.2 Each business area of the Department has a Lead 
Risk Champion, who works with the relevant senior 
management team to lead the approach, and a Business 
Risk Partner, who oversees risk management activities. 
These stakeholders come together on a regular basis 
to make sure the approach is implemented consistently 
across the Department, learn from good practice 
and support the Executive Committee in effectively 
identifying and managing risk. A professional 
Corporate Risk Management function provides central 
support to help staff understand their respective roles 
and responsibilities for risk management, acting as a 
challenge function to ensure risk processes are working 
consistently across business areas.
4.3 The National Audit Office has recently issued 
a report on risk management in the 16 largest 
government departments, which includes examples 
of best practice from HMRC. The implementation of 
the Department’s approach to risk management is the 
subject of periodic review by Internal Audit. 
1. Scope of responsibility
1.1 As Principal Accounting Officer, I have 
responsibility for maintaining a sound system of 
internal control that supports the achievement of 
HM Revenue & Customs (HMRC) policies, aims 
and objectives, whilst safeguarding the public funds 
and Departmental assets for which I am personally 
responsible, in accordance with the responsibilities 
assigned to me in Managing Public Money. 
1.2 As Chief Executive of HMRC I am accountable 
to the Chancellor and to the Exchequer Secretary 
to the Treasury, to whom the Chancellor has 
delegated responsibility for the day to day oversight 
of the Department. The Exchequer Secretary is kept 
informed of progress and significant issues facing the 
Department in the course of regular bilateral meetings 
that he has with me and the other Board members. 
1.3 As Principal Accounting Officer for HMRC, 
I have been supported over the period covered 
by this statement by a number of Additional 
Accounting Officers. Each of these has clearly defined 
responsibilities outlined in their appointment letters. 
Their relationship with me is also clearly set out in 
separate Memoranda of Understanding. 
1.4 The Valuation Office Agency (VOA) is an 
Executive Agency of HMRC. The Chief Executive of 
the VOA is an Additional Accounting Officer for the 
resources authorised by Parliament in relation to the 
VOA. The relationship between the VOA and HMRC 
is set out in the VOA’s Framework Document, and in a 
separate Memorandum of Understanding between the 
VOA’s Chief Executive and myself.
2. The purpose of the system of internal 
control
2.1 The system of internal control is designed to 
manage risk to a reasonable level rather than to 
eliminate all risk of failure to achieve policies, aims 
and objectives; it can therefore only provide reasonable 
and not absolute assurance of effectiveness. The 
system of internal control is based on an ongoing 
process designed to identify and prioritise the risks 
to the achievement of Departmental policies, aims 
and objectives; to evaluate the likelihood of those 
risks being realised and the impact should they be

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HM Revenue & Customs Annual Report and Accounts 2010–11
The risk and control framework
4.4 HMRC’s approach to risk management is set out 
in the Corporate Risk Management Strategy, which 
has been endorsed by the Executive Committee and 
the Audit and Risk Committee. The key components 
of the Strategy have been integrated into governance 
arrangements across the organisation, improving its 
risk management capability and bringing it in line with 
industry good practice. 
4.5 HMRC applies a structured framework for 
identifying, assessing, communicating, escalating 
and managing risk consistent with the Committee 
of Sponsoring Organisations (COSO) framework – 
an established methodology for assessing risk and 
evaluating controls used in both the public and private 
sectors. It is also consistent with the guidance on risk 
management set out in HM Treasury’s Orange Book. 
4.6 The framework involves both a top down strategic 
view of risk and upward reporting or escalation of 
risks, with reporting lines established at key levels 
of the organisation. Management teams review their 
key risks, and consider whether any risks need to be 
escalated to the next management level based on pre-
defined escalation criteria. There is also a process for 
‘fast track’ escalation of emerging risks to ExCom. 
Risks must have a clear accountable owner who is 
responsible for reviewing mitigating actions to ensure 
the risk is being managed within acceptable levels.
4.7 The framework is also fully integrated into how 
HMRC manages change. HMRC’s Change Programme 
(see paragraph 5.2) has implemented risk governance 
that is consistent with the framework, and enables a 
clear line of sight between the various projects and 
programmes and core business. The framework has 
also been built into the organisational design work that 
is shaping how HMRC will operate in future. 
Risk appetite
4.8 The HMRC approach to risk management ensures 
the Department identifies the amount and type of risk 
it is carrying; and that senior managers are accountable 
for key risks to business objectives and are aware of 
how they are being dealt with. Tolerance levels for 
individual risks are considered within this context, 
also taking account of the parameters set by statutory 
regulations and Departmental policies, procedures 
and guidance. This ensures that any risks that may be 
above (or below) the corporate appetite are highlighted 
to managers to respond appropriately.
Information Risk
4.9 In September 2010, the Information Commissioner 
lifted, nine months early, the Enforcement Notice 
placed upon HMRC following the Child Benefit data 
loss incident. This recognised the commitment made 
to meet the terms of the notice, and also required 
HMRC to continue to implement the recommendations 
contained in the Poynter Report. 
4.10 The expansion of the Department’s Secure 
Electronic Transfer (SET) service has continued, 
providing enhanced security for high volume electronic 
data transfers. HMRC has met its target of 80 per cent 
of outbound file transfers, via SET. 
4.11 Governance and assurance activities continue to 
improve and particular focus has recently been given to 
the Cyber risks facing HMRC. The Senior Information 
Risk Owner (SIRO) has sponsored a Cyber Oversight 
Group and Cyber Working Group, to ensure cross 
Department stakeholders remain engaged, and 
investment funding focuses on areas of greatest value. 
4.12 HMRC has developed and piloted an enhanced 
security incident capture tool for phased roll out in 
2011-12. It will ensure root causes and trends can 
be assessed and the probability of repeat incidents 
reduced. 
4.13 Engagement with targeted areas of the business, 
Delivery Partners and third party suppliers as part of 
HMRC’s Security Risk Management Overview for the 
Cabinet Office, has enabled the Department to better 
inform its information risk tolerance. It has also helped 
achieve improvements in a number of areas, including 
ownership and accreditation of HMRC’s legacy 
information systems; testing of end-to-end process 
continuity requirements; ongoing recertification of user 
access entitlements; and managing risks to information 
stored and processed in our customer facing on-line 
systems.
4.14 Protecting the confidentiality, availability and 
integrity of our customers’ information remains a 
strategic objective, and HMRC has been pleased

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HM Revenue & Customs Annual Report and Accounts 2010–11 
 
41
by the independent recognition of the progress it 
has made by The National Archives in their recent 
Information Management Assessment. It praises 
senior management’s commitment to information 
management and describes HMRC’s approach to 
information security as best practice saying, “HMRC 
should be proud of its achievements in raising levels of 
understanding, awareness and compliance in relation 
to information security and assurance.” 
4.15 Plans also exist to build on progress to date, to 
drive both immediate improvements and longer term 
change, particularly in the areas of data quality; longer 
term digital continuity, where storage requirements 
and technologies are continually evolving; and a more 
consistent approach to identifying records that no 
longer need to be kept. 
4.16 We will continue to take a risk based approach 
to defining our Security Direction of Travel and 
addressing areas of non-compliance with relevant laws 
and regulations. Such additional measures are reflected 
in planned investments over the remainder of the 
Spending Review period 2011-15.
5. Control
5.1 Key developments during the year included:
HMRC Change Programme
5.2 Over the next four years, we will make overall 
savings of 15 per cent by identifying and making 
savings of 25 per cent and then reinvesting £917 
million of these savings to bring in additional revenues 
of £7 billion a year by 2014-15. This is on top of the 
£13 billion of additional revenues to which we are 
already committed. Taking this reinvestment into 
account (and extra funding for other initiatives such 
as Real Time Information) our overall budget will 
reduce by 15 per cent between 2011 and 2015. We 
will also stabilise the new National Insurance and 
PAYE Service (NPS) and continue to reform the PAYE 
system by collecting tax and earnings information 
from employers more frequently to support the 
Government’s welfare reform agenda; and reduce fraud 
and error in the tax credits system by £2 billion per 
year by 2014-15. We have put in place a major Change 
Programme to make sure the Department meets these 
commitments. I am the Senior Responsible Owner for 
the Programme and have appointed a Director General 
to ensure its successful delivery with the Executive 
Committee.
5.3 The design of the Change Programme is very 
deliberate, marking a new approach. We will manage 
all change in HMRC through one plan, centrally 
managed but locally delivered. The model and 
governance of the Programme will enable an integrated 
and coherent approach to managing change and 
people in operational areas will be ready for it. All the 
changes HMRC is making to the way it operates are 
aligned to our Customer-Centric Business Strategy.
Criminal Attacks against our systems 
5.4 In the last year organised criminals have 
continued to probe and test our defences and look for 
opportunities to attack HMRC regimes, primarily 
with the aim of evading duties or fraudulently claiming 
repayments. We have seen an increasing threat from 
criminals using cyberspace as an enabler to attempt 
industrial scale fraud, for example through the use of 
phishing e-mails and sophisticated software to try to 
steal data from customers. 
5.5 HMRC estimates losses in the region of £5-6 
billion a year as a result of organised criminal attacks 
against our systems. Our latest estimates of losses 
published in our Tax Gap 2010 paper set out a range of 
losses from organised crime and show mid point losses 
of:
• 
• 
• 
• 
£1.5 billion for Missing Trader Intra-Community 
(MTIC) VAT fraud
£2.2 billion for Tobacco 
£600 million for Alcohol 
£800 million for Oils
5.6 We have had considerable success in recent years 
in tackling organised criminals through tailored 
responses to specific threats. In particular HMRC has 
driven down losses from MTIC fraud by deploying 
a range of targeted interventions. Working with 
our partners in the United Kingdom Border Agency 
(UKBA) our regularly refreshed Tobacco strategy has 
cut the size of the illicit cigarette market by almost half 
since 2000 with more than 20 billion cigarettes and

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42 
 
HM Revenue & Customs Annual Report and Accounts 2010–11
over 2,700 tonnes of hand-rolling tobacco seized and 
has also resulted in over 3,300 criminal prosecutions 
for tobacco offences.
5.7 HMRC will be able to re-invest £917 million from 
the savings it makes over the Spending Review period 
to tackle avoidance, evasion and criminal attacks. 
One element of this will be to put in place a dedicated 
Cyber Crime Team. This team will provide a centre of 
expertise for HMRC and take the fight to organised 
criminals, disrupting their activities and making 
HMRC an unattractive target. 
5.8 HMRC uses a range of established verification 
and investigation interventions to tackle repayment 
and payment threats. It also prioritises prevention 
strategies wherever possible. One example in the last 
year concerns HMRC intelligence and operational 
activity which identified a high risk of the UK 
becoming a target for MTIC fraud in connection with 
the wholesale trading of gas and power.
5.9 Early HMRC engagement with genuine businesses 
in the energy sector and other agencies enabled swift 
action to prevent, detect and disrupt the fraud. As a 
result fraudsters are finding it difficult to penetrate 
the energy sector and the threat level has consequently 
been downgraded. This is the first time a serious MTIC 
threat in a specific sector has been prevented in this 
way. HMRC is now using this model of working to 
disrupt attempted MTIC fraud in other commodities.
Internal Fraud and Corruption 
5.10 HMRC has continued to work on a range of 
measures intended to embed an anti fraud culture 
amongst staff and managers. We have improved our 
knowledge of key risks by: 
• Collating data on gross misconduct, grievance and 
security incidents into a comprehensive picture 
of wrongdoing, risks and incidents across the 
Department.
• Undertaking case reviews on criminal cases 
involving internal fraud and corruption to identify 
and address risks and weaknesses in HMRC’s 
procedures, processes and guidance. 
5.11 We work with all HMRC business areas to 
make sure appropriate prevention plans are in place 
to address internal fraud and corruption risks and we 
intend to refresh the 2007 Strategic Risk Assessment 
of internal fraud and corruption to ensure increased 
relevance to managers. 
5.12 Internal Audit reviews the way the Department 
manages both internal and external fraud risks and 
conducted an Internal Fraud Thematic review in 
2010-11. It has introduced a structured approach to 
identifying and reporting its coverage of fraud risks 
which informs the Director of Internal Audit’s annual 
assurance opinion. 
5.13 We monitor the majority of HMRC business 
systems for instances of irregular user activity 
which may indicate internal and collusive fraud. 
HMRC remains unique among central government 
departments in its approach to proactively detecting 
internal fraud.
Debt
5.14 I reported last year on the fundamental changes 
to our strategic approach to debt management and 
enforcement. That work has continued and been 
successfully consolidated in 2010-11. All the internal 
indicators show that we are collecting debt faster and 
more efficiently than in previous years and the amount of 
debt on our books is continuing to fall. Once again this 
represents a considerable achievement when set against 
continuing difficult economic circumstances and has been 
achieved alongside significant efficiency savings. These 
improvements mean that we are well positioned to deliver 
our Spending Review commitments.
5.15 The Trust Statement shows a receivables figure of 
£29.5 billion. This figure is higher than that reported 
last year mainly due to the addition of a higher number 
of PAYE underpayment cases, relating to prior years, 
being reconciled during 2010-11; the impacts of extended 
payment dates for VAT online filing; and the inclusion of 
new penalties. Whilst we need to operate across different 
systems, we are continuing to improve both the accuracy 
of our internal reporting of debt (overdue payments 
being managed in our debt management systems) and, 
separately, our ability to reconcile that with information 
on our accounting systems.
5.16 It was announced as part of the 23 March 2011 
Budget that HMRC will continue, through its Business

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HM Revenue & Customs Annual Report and Accounts 2010–11 
 
43
Payment Support Service (BPSS), to provide advice 
and time to pay to viable businesses experiencing 
temporary financial difficulty. The service was 
launched in 2008 and is available for all HMRC taxes. 
Employee Engagement
5.17 I reported last year on the risk that HMRC’s 
ability to deliver its Purpose and Vision will be 
seriously affected by the low engagement of its 
workforce. This is caused by a number of factors 
including uncertainty about job security; lack of 
confidence in senior leadership and their management 
of change; and not feeling sufficiently challenged and 
motivated or involved in the decisions that affect their 
work. The HMRC Employee Engagement Index Score 
is 34 per cent which has reduced from the 36 per cent 
achieved in the 2009 autumn survey. Although this is 
disappointing it is representative of some of the other 
large government departments whose Engagement 
Index scores have also reduced (the Civil Service 
benchmark has fallen by two percentage points). 
5.18 HMRC clearly has to improve its employee 
engagement. Every member of the Executive 
Committee is taking this seriously and is determined 
to improve leadership and the way change is managed. 
Building on work started last year we are introducing a 
number of initiatives to combat this, including: 
• 
• 
• 
A set of new Leadership Behaviours has been 
developed and from April 2011 people have been 
assessed against them. In addition to this, we are 
currently assessing the skills and qualities of our most 
senior people through a rigorous selection process.
All corporate change communications will be co-
ordinated under one plan and wherever possible, 
communications will explain how change relates 
to the HMRC Customer-Centric Business Strategy. 
This approach will be supported by clearly 
established communication channels with senior 
leaders and interactive websites to ensure that 
everyone in HMRC is kept up-to-date with progress.
Colleague insight research will help leaders and 
managers improve their understanding of the People 
Survey results and what motivates their people. 
Leaders will use the colleague insight research 
when considering how to engage, communicate and 
involve their people.
5.19 HMRC is also setting out what employees can 
reasonably expect from the Department as an employer 
and what, in turn, is expected from them. Front line 
and back office people took part in focus groups 
to define what staff can expect from HMRC as an 
employer, with the active involvement of the trade 
unions. The resulting guiding principles are helping 
to reshape HMRC’s relationship with its people. 
Additionally, Pathfinders across the lines of business 
are leading activity which will illustrate these key 
principles.
Estates Strategy and Contract Management
5.20 Last year I reported on the Department’s 
response to the National Audit Office (NAO) report 
‘HMRC’s estate private finance initiative deal 
eight years on’ and the subsequent Public Accounts 
Committee hearing which concluded that HMRC 
had not taken full advantage of all the vacation 
allowances available to it. Following last year’s office 
closure programme and development of an estate 
strategy HMRC will have utilised all the previously 
unused flexibility in its PFI contract by the end of 
2011-2012 and will be using all future flexibility at 
the earliest opportunity. Following the provision of 
appropriate financial information HMRC and Mapeley 
have recently agreed in principle the settlement of 
commercial issues that were outstanding and a new 
framework for developing a strategic partnership.
6. Review of effectiveness
6.1 As Principal Accounting Officer, I have 
responsibility for reviewing the effectiveness of 
the system of internal control. My review of the 
effectiveness of the system of internal control 
is informed by executive managers within the 
Department who have responsibility for the 
development and maintenance of the internal control 
framework, by the work of the internal auditors and 
comments made by NAO in management letters and 
other reports. 
6.2 I discuss significant control issues with my 
executive team as they arise at our regular Executive 
Committee and Performance Committee meetings.

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HM Revenue & Customs Annual Report and Accounts 2010–11
Executive Committee meetings are informed by an 
assessment of our current exposure to strategic risk. 
Performance Committee meetings are further informed 
by monthly reports on performance. The focus of these 
is the progress being made to deliver our key targets 
and objectives and the issues and risks that could 
prevent this. 
6.3 To provide me with an assurance on the 
effectiveness of the system of internal control, the 
Director of Internal Audit provides me with an annual 
opinion, a summary of the findings from every internal 
audit review, and he alerts me to significant control 
issues as they arise. The Chairman of the Audit 
and Risk Committee, who is a non-executive Board 
member, provides the Board with a written report after 
each Audit and Risk Committee meeting.
6.4 A number of specific sources inform and 
contribute towards my review including:
• 
• 
• 
• 
• 
• 
• 
Individual statements from each member of the 
Executive Committee outlining the governance, risk 
and control arrangements in their business areas.
The Statement on Internal Control provided by the 
Chief Executive of the VOA and the review that 
underpins this.
The review that underpins the production of the 
National Insurance Fund Statements on Internal 
Control, which I sign separately.
NAO Reports and the Report by the Comptroller 
and Auditor General. 
The Director of Internal Audit’s Annual opinion to 
me as Principal Accounting Officer.
External reports on HMRC produced by 
organisations including the Information 
Commissioner’s Office, Her Majesty’s Inspectorate 
of Constabulary, the Independent Police Complaints 
Commission and the Office of the Surveillance 
Commissioners.
Formal assurance I receive from the SIRO that 
Information Risk has been appropriately managed in 
the conduct of HMRC business.
6.5 Taking these statements into account, and 
observations from the Director of Internal Audit, the 
Audit and Risk Committee and from NAO, I recognise 
that there are a number of material control weaknesses. 
Of those I have identified the most significant are 
detailed below. I am giving priority to the plans that 
we have put in place to address these weaknesses and 
to improve the overall control environment. 
Data Quality and its impact on our readiness 
to change
National Insurance and PAYE Service (NPS)
6.6 I reported a significant control issue in last year’s 
SIC following the implementation of the National 
Insurance and PAYE Service (NPS) in July 2009. 
Although data was successfully migrated from the 
old system, the quality of pre-NPS data and the 
strengthened validation on NPS combined to create 
more exceptions and identify more data anomalies 
than were forecast. 
6.7 As a result, the number of taxpayer Annual 
Notices of Coding (P2s) generated by the system 
almost doubled in January 2010 from the predicted 13 
million. Data inconsistencies and other factors meant 
that a proportion of P2s were incorrect.
6.8 A recovery programme was instigated that 
addressed the shortcomings by manual data cleansing, 
scanning data, isolating cases that carried a high risk 
of error, and testing all outputs. As a result HMRC is 
making good progress in stabilising NPS.
6.9 The new computer system is already demonstrating 
that it is more accurate and can process bigger volumes 
than before. The rate of accuracy for annual coding 
has improved - from around 80 per cent last year 
(caused by multiple old records in the old systems not 
matching up, and missing data) to over 98 per cent this 
year. Some large employers tell us that these are the 
most accurate codes for many years. HMRC estimates 
it needs to send around 16-18 million annual coding 
notices each year.
6.10 In addition, the end of year reconciliation is now 
98.5 per cent complete for 2008-09 and 2009-10 cases 
where HMRC has all the information it needs. For the 
year 2009-10 this represents the best completion rate in 
13 years, meaning more people’s tax affairs are up to 
date much sooner than before.

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45
PAYE Open Cases
6.11 I reported last year that there were 18.2 million 
PAYE customer reviews (open cases generated before 
NPS was implemented) outstanding at the end of 2009-
10. We had planned to process priority cases manually 
during 2010-11, focusing on 2007-08 under-payments 
and overpayments for low income customers. However, 
once resource was diverted to NPS stabilisation and 
recovery we were unable to keep to plan or to develop 
a technical solution sufficiently quickly. 
6.12 2006-07 under-payments were lost to time 
limitation in April 2011, but HMRC committed to 
recovering the maximum possible revenue from 2007-
08 cases. We have reviewed 400,000 2007-08 cases, 
which comprised all of the cases that we could identify 
with the data available to us, during the final quarter 
of 2010-11 in order to collect as many underpayments 
as possible through 2011-12 codes, before the cases are 
lost to time limitation in April 2012.
6.13 We will use NPS functionality to clear 
automatically approximately 60 per cent of the 
remaining 16.8 million open cases. Those which do not 
clear will be worked manually and we plan to work all 
outstanding overpayment cases by December 2012.
Non-Matching National Insurance (NI) Contribution 
Items 
6.14 The end of year information we receive from 
employers can include NI contributions that cannot 
be matched to the relevant employee record because 
some employers have provided insufficient personal 
details about their employees. Where items cannot be 
matched, they are kept on a non-matched suspense 
file until they can be matched to the correct NI 
account. Over the period from 2003-04 to 2008-09 
the proportion that could not be matched fell from 5 
per cent to 2.6 per cent. There are approximately 119 
million non-matching items held in the suspense file. 
6.15 For 2008-09, the most recent tax year for which 
detailed information is held, some 1.5 million new 
items were added to the suspense file bringing the 
overall total held since 1975 to 119 million. Indications 
are that around 86 per cent of non-matching items are 
below the relevant earnings threshold, meaning that 
individually and without being added to contributions 
or credits from another source, they cannot affect 
contributor benefits. Information for 2009-10 will not 
be available until July 2011 when the relevant NPS 
scan is scheduled to provide the core data. This scan 
is scheduled to run approximately 15 months after the 
relevant tax year as this provides time for the employer 
to file their returns and for HMRC to attempt to trace 
and correct those returns that cannot be matched at 
the first attempt. The consistent timing also allows for 
accurate comparisons in performance across years.
6.16 Recommendations from an Internal Audit 
review of non-matching items that concluded this year 
are being taken forward and the focus of the Data 
Improvement Project within the Real Time Information 
(RTI) Programme is to address data quality issues that, 
if not resolved, will negatively impact the successful 
delivery of RTI. A key element of the project will be to 
ensure that RTI submissions are matched to the correct 
individual and employment record. The interventions 
that will be delivered are expected to increase the 
match rates to individual NI accounts to 98 per cent.
Our service to our customers
6.17 As a result of the control issues outlined in the 
sections above, HMRC’s service for many individuals 
has not been good during 2010-11 and that is reflected 
in a drop in levels of customer satisfaction after an 
increasing trend in preceding years.
6.18 Some taxpayers received inaccurate coding 
notices in 2010 when NPS was switched on and the 
first annual coding routine was run. The process of 
rectifying the underlying data quality issue and dealing 
with the additional contact impacted on our ability to 
manage subsequent peaks of work, such as tax credit 
renewals. 
6.19 The late introduction of NPS also created work 
backlogs because we were unable to tackle backlogs of 
legacy open cases during the switchover to NPS, and 
correspondence backlogs were created when resources 
were shifted to recovery work. Diverting resources 
to deal with backlogs and the inaccurate data led to 
increased contact. With the added impact of the tax 
credit peak, callers found it hard to get through. As 
a result, in 2010-11 the percentage of call attempts 
answered fell to 48 per cent, from 76 per cent in 2009-
10. All of this damaged taxpayers’ trust in the system.

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HM Revenue & Customs Annual Report and Accounts 2010–11
6.20 Such drops in accuracy, service and performance 
are clearly not acceptable and, as a priority, HMRC 
now rigorously tests a significant number of live 
outputs to check their accuracy before any outputs are 
sent to customers. We are also clearing the backlogs 
to get PAYE back on track but accept that customer 
service standards will not be recovered until these are 
addressed.
6.21 This will not be an overnight change, but 
HMRC has plans to clear all old open cases by the 
end of 2012, and be fully back on track by the end of 
2013. Funding has been directed to clearing backlogs 
and the introduction of the new system will make 
customer records more accurate and remove the need 
for customers to call us. HMRC will move as quickly 
as possible to an operational standard that processes all 
PAYE cases within 12 months of the end of the tax year.
Sickness Absence 
6.22 Sickness absence remains high in HMRC 
and is a concern both for our reputation and for its 
impact on delivery objectives. I acknowledge the link 
to staff engagement as both a cause and an impact. 
Disengaged people are more likely to report sick and 
people become disengaged when sickness absence is not 
properly managed. 
6.23 In 2010-11 the average working days lost 
(AWDL) was 9.65 per full time employee (equivalent), 
a reduction of 8.01 per cent from the 2009-10 
AWDL of 10.49, but 7.2 per cent above our target of 
9 AWDL. Action to address this has been continuous 
throughout the year. From October, an Attendance 
and Wellbeing Project has been in place aimed at 
improving attendance both in the short term, through 
some quick wins, and longer term, by developing 
sustainable practices which are adopted across the 
whole Department. This work has led to the following 
activities being introduced:
• 
• 
• 
New sickness absence process and guidance has 
been published.
Functionality has been developed to provide 
managers with Day 1 recording, alerts and improved 
reporting. 
E-learning products have been developed to support 
managers. 
• 
• 
• 
Emphasis has been placed on the management of 
work-related stress, including the rollout of a ‘stress 
tool’.
A single governance structure has been developed 
featuring Attendance Management Working Groups 
and Attendance and Wellbeing Champions.
We are using employee segmentation to explore the 
links to engagement and provide more insight into 
how to target intervention. 
6.24 Work to improve management data has also 
continued in 2010-11, including:
•
•
 A new data-pack introduced in April 2011 allowing 
late recording to be captured so improving data 
accuracy. 
 Improved on-line guidance for managers on sick 
absence reporting and master-classes for the 
Manager’s Advice Service.
Tax Credit Error and Fraud
6.25 The Comptroller and Auditor General has 
again qualified his opinion on the regularity of the 
expenditure reported in the Trust Statement in respect 
of tax credits error and fraud.
6.26 HMRC implemented its revised Error and Fraud 
Strategy in April 2009, aiming to reduce error and 
fraud to no more than five per cent by March 2011. 
We will not know whether we have achieved this until 
July 2012 but the latest figures show a reduction in the 
error and fraud rate favouring the claimant, from 8.9 
per cent in 2008-09 to 7.4 per cent (£1.95 billion) in 
2009-10. 
6.27 As the 2008-09 estimates pre-dated the 
introduction of the revised tax credit error and fraud 
strategy, these latest figures are the best indicator 
yet of our progress towards five per cent. Since 
the introduction of the revised strategy we have 
significantly increased the number of interventions as 
well as increasing the focus on preventing error and 
fraud from entering the Tax Credit system in the first 
place. We are really encouraged by a reduction of 1.5 
percentage points. It shows we have taken the right 
path in our approach, that our activity since 2009-10 
has paid real dividends and that our approach is 
working.

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47
6.28 As the measurement of tax credit error and fraud 
is retrospective, based on assessing the compliance of 
finalised tax credit cases, we have put in place a series 
of proxy losses prevented targets (calculating incorrect 
payments identified or prevented, as a result of each 
intervention) to assess our progress towards reducing 
overall levels to no more than five per cent by March 
2011. In 2009-10 we achieved the proxy yield targets 
of £650 million by 31 March and £750 million by 
31 July. For 2010-11 HMRC set a target of £1 billion 
yield by March 2011 and £1.4 billion by the end of 
July 2011. At the end of March 2011, we had exceeded 
our target by around five per cent, identifying and 
preventing total losses of £1.05 billion, undertaking 
nearly 1.8 million interventions compared to just 
over 1 million in 2009-10. Given that as recently as 
2008-09 we identified additional yield of only £253 
million, this means we have seen an increase in excess 
of 300 per cent in the first years of the strategy.
6.29 Our strategy is based upon four strands:
• 
• 
• 
• 
Support – helping customers get it right first time.
Identifying and tackling non-compliance.
Prevention.
Professionalism – getting the right people with the 
right skills in the right place.
6.30 As part of the prevention strand of the revised 
strategy introduced in 2009, HMRC introduced a 
different approach to the three areas where we believe 
error and fraud enters the tax credit system. During 
2009-10, and into 2010-11, we have seen a significant 
cultural shift from the process-driven “Pay Now, 
Check Later” to the principle of “Check First, Then 
Pay”. This new approach is based on the principle of 
checking and verifying information before claims are 
put into payment or changes are made to claims. The 
new interventions mean that genuine customers are 
not getting money in error which they later have to 
repay and fraudsters are being blocked at the earliest 
opportunity. This is a positive step not only for the 
customer but also the Exchequer and is at the heart of 
our Strategy.
Dame Lesley Strathie DCB
Principal Accounting Officer
6 July 2011

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HM Revenue & Customs Annual Report and Accounts 2010–11 
 
49
Contents
Page
The Annual Report 
50
Corporate Governance Report 
59
Remuneration Report 
67
Statement of Accounting Officer’s Responsibilities 
73
Statement on Internal Control 
75
The Certificate and Report of the Comptroller and Auditor General to the House of Commons 
76
The Accounting Schedules:
 Statement of Parliamentary Supply 
78
 Consolidated Statement of Comprehensive Net Expenditure 
79
 Consolidated Statement of Financial Position 
80
 Consolidated Statement of Cash Flows 
81
 Consolidated Statement of Changes in Taxpayers’ Equity 
82
Notes to the Departmental Resource Accounts 
83
Consolidated Resource Accounts for 
the year ended 31 March 2011

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HM Revenue & Customs Annual Report and Accounts 2010–11
Introduction
1. These Resource Accounts have been prepared under a direction issued by HM Treasury in accordance with 
the Government Resources and Accounts Act 2000. They present the operating costs and financial position of 
HM Revenue & Customs (HMRC) for the year ended 31 March 2011 and include the Core Department and the 
Valuation Office Agency (VOA). Figures for the VOA are also published separately in their agency accounts (HC 
1156), which is available from The Stationery Office and which can be viewed at www.voa.gov.uk.
2. HMRC is responsible for collecting taxes, duties and National Insurance Contributions and for making 
payments of tax credits, Child Benefit, Child Trust Fund endowments and Health in Pregnancy Grants. HMRC is 
also responsible for collecting repayments of student loans, enforcing payment of the national minimum wage and 
for providing the Government business link portal. 
3. HMRC has a close relationship with the Department for Work and Pensions and its counterpart in Northern 
Ireland, the Department for Social Development, as they are responsible for the payment of benefits based on 
National Insurance Contributions. Administrative expenditure related to the collection of National Insurance 
Contributions and the associated income recovered from the National Insurance Funds is included in the 
Consolidated Statement of Comprehensive Net Expenditure. 
4. Receipts and payments of direct and indirect taxes, National Insurance Contributions and payments of tax 
credits are accounted for in the Trust Statement which is on pages 125-161 of this publication.
5. Pension benefits are provided through the Civil Service pension arrangement (see note 1.13.1 and the 
Remuneration Report). Pension benefits are also provided through the Local Government Pension Scheme for a 
number of staff that are employed by the VOA (see note 1.13.2). 
Departmental reporting cycle
6. In recent years the Department has produced regular reports on its performance as part of the Departmental 
and Autumn Performance Reports, the latest being the Departmental Report 2009 (Cm 7591) in July 2009 and 
the Autumn Performance Report 2009 (Cm 7774) in December 2009. No Departmental Report or Autumn 
Performance Report were published in 2010. For 2011 a combined Annual Report and Accounts has been 
produced and details of the Department’s performance can be found on pages 6-37 of this publication. These 
reports are available from The Stationery Office and the HMRC Internet site (www.hmrc.gov.uk).
Management Commentary
Clear line of sight
7. The HM Treasury Clear Line of Sight project has been established to align budgets, Estimates and accounts. 
As a result there has been an impact on accounts from 1 April 2010 with further changes to be implemented in 
2011-12. More detail on the impact in 2010-11 is set out at note 1.28. Further details of the project are available 
on the HM Treasury Internet site at www.hm-treasury.gov.uk.
Estate Management Strategy
8. The Department has developed an estate strategy to reduce the number of buildings it occupies in line with 
future operational requirements and civil estate benchmarks. The strategy will help HMRC obtain best value for 
money from the STEPS contract (see paragraph 18) which covers 70 per cent of the portfolio by floor area and 
ensure that investment funding to improve sustainability, workplace and IT infrastructures is targeted at those 
The Annual Report

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HM Revenue & Customs Annual Report and Accounts 2010–11 
 
51
locations with a long term business presence. The strategy will also address changes to the nature of the office 
holding as more processes are automated and working practices evolve and become more flexible.
Personal data related incidents 
9. The Cabinet Office’s Interim Progress Report on Data Handling Procedures made a commitment that 
departments will provide information on risk management of data handling within their Annual Report.
Incidents, the disclosure of which would in itself create an unacceptable risk of harm, may be excluded in 
accordance with the exemptions contained in the Freedom of Information Act 2000 or may be subject to the 
limitations of other UK information legislation. There were no such disclosures excluded in 2010-11.
No data losses were formally reported by HMRC to the Information Commissioner’s Office in 2010-11.
SUMMARY OF OTHER PROTECTED PERSONAL DATA RELATED INCIDENTS IN 2010-11
Incidents deemed by the Data Controller not to fall within the criteria for report to the Information 
Commissioner’s Office but recorded centrally within the Department are set out in the table below. Small, 
localised incidents are not recorded centrally and are not cited in these figures. Figures for 2009-10 are shown in 
brackets.
Personal
 Data Table
Statement on information risk
In September 2010, the Information Commissioner lifted, nine months early, the Enforcement Notice placed 
upon HMRC following the Child Benefit data loss incident. This recognised the commitment made to meet the 
terms of the notice, and also required HMRC to continue to implement the recommendations contained in the 
Poynter Report. 
The expansion of the Department’s Secure Electronic Transfer (SET) service has continued, providing enhanced 
security for high volume electronic data transfers. HMRC has met its target of 80 per cent of outbound file 
transfers, via SET. 
Governance and assurance activities continue to improve and particular focus has recently been given to the 
Cyber risks facing HMRC. The Senior Information Risk Owner (SIRO) has sponsored a Cyber Oversight Group 
and Cyber Working Group, to ensure cross department stakeholders remain engaged, and investment funding 
focuses on areas of greatest value. 
Engagement with targeted areas of the business, as part of HMRC’s Security Risk Management Overview 
for the Cabinet Office, has enabled the Department to better inform its information risk tolerance. It has also

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HM Revenue & Customs Annual Report and Accounts 2010–11
helped achieve improvements in a number of areas, including ownership and accreditation of HMRC’s legacy 
information systems; testing of end-to-end process continuity requirements; ongoing recertification of user access 
entitlements; and managing risks to information stored and processed in our customer facing on-line systems.
Protecting the confidentiality, availability and integrity of our customers’ information remains a strategic 
objective, and HMRC has been pleased by the independent recognition of the progress it has made by The 
National Archives in their recent Information Management Assessment. It praises senior management’s 
commitment to information management and describes HMRC’s approach to information security as best 
practice saying, “HMRC should be proud of its achievements in raising levels of understanding, awareness and 
compliance in relation to information security and assurance.” 
Plans also exist to build on progress to date, to drive both immediate improvements and longer term change, 
particularly in the areas of data quality; longer term digital continuity where storage requirements and 
technologies are continually evolving, and identifying a more consistent approach to identifying records that no 
longer need to be kept. 
Further action on information risk
We will continue to take a risk based approach to defining our Security Direction of Travel and addressing 
areas of non-compliance with relevant laws and regulations. Such additional measures are reflected in planned 
investments over the remainder of the spending review period 2011-14. HMRC has developed and piloted an 
enhanced security incident capture tool for phased roll out in 2011-12. It will ensure root causes and trends can 
be assessed and the probability of repeat incidents reduced.
Financial position and results for the year
Supply Procedure
10. Supply Estimates are a request to Parliament for funds to meet most expenditure by Government departments 
and certain related bodies. When approved by Parliament, they form the basis of the statutory authority for the 
appropriation of funds and for the Treasury to make issues from the Consolidated Fund. Statutory authority is 
provided annually by means of Consolidated Fund Acts and by an Appropriation Act. These arrangements are 
known as the “Supply Procedure” of the House of Commons.
Certain expenditure may be outside the Supply Procedure and, where Parliament gives statutory authority, will be 
charged directly to the Consolidated Fund. Alternatively, a statutory fund will be set up to finance the service, as 
in the case of the National Insurance Fund.
As a Government Department, HMRC is accountable to Parliament for its expenditure. Parliamentary 
approval for its spending plans is sought through Supply Estimates presented to the House of Commons. The 
Department is subject to gross expenditure control under the Parliamentary Vote system and has one Vote which 
is constructed on a resource account basis and is analysed by Request for resources (RfR). Each RfR includes a 
formal description (ambit) of the services to be financed by the RfR and Voted money cannot be used to finance 
services not covered by the ambit.
Comparison Outturn against Estimate 
11. Expenditure outturn for the year was £16,118.8m, £353.7m (2.1 per cent) below the Estimate. The variances 
which exceed 10 per cent are explained below as required by the Government Financial Reporting Manual 
(FReM). An explanation has also been provided for a variance that is close to 10 per cent.

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53
• 
• 
• 
• 
Request for resources 1B (RfR 1B), Other administration costs in Annually Managed Expenditure (AME), 
was underspent by £24.6m (27.5 per cent). This is due to the Estimate value having been originally agreed at 
Spending Review 2007; 
Request for resources 1D (RfR 1D), IFRS items outside Budget was underspent by £10.3m (16.2 per cent) 
against the Spring Supplementary Estimate of £63.5m and outturn was £53.2m. The Estimate was prepared 
in accordance with IAS 17 and IFRIC 12 and based on existing and historic property depreciation figures. 
HMRC has seen a greater than anticipated reduction in the size of its property estate which means that, 
where assets have been disposed of, the estimated depreciation values associated with that property have been 
overstated. This will no longer be an issue for 2011-12 onwards as these assets will not be reported on the 
Statement of Financial Position for Estimate purposes;
Request for resources 5B (RfR 5B), Child Trust Fund endowments was overspent by £27.9m (9.1 per cent). The 
overspend is mainly due to claims relating to the years 2008 to 2010 that had not previously been identified 
and also the introduction of payments to claimants of Disability Living Allowance. There will be a virement 
between RfR 5B and RfR 5A, Children’s benefits, which is underspent by £251.5m (2.0 per cent);
Request for resources 5C (RfR 5C), Health in Pregnancy Grant was underspent by £25.7m (19.8 per cent). 
This was due to a lower than expected uptake of claims in the last few weeks of entitlement before the benefit 
ceased on 31 December 2010.
Consolidated Statement of Financial Position
12. Details of the Department’s assets and liabilities are reported upon in the Consolidated Statement of 
Financial Position (see page 80).
13. Significant assets and liabilities include:
•
•
•
•
•
•
 property, plant and equipment £580.6m (note 13);
 intangible assets £1,207.2m (note 14);
 receivables £230.6m (falling due within one year) of which £72.3m relates to penalties (note 18); 
 payables (amounts falling due within one year) of £978.3m (note 21);
 payables (amounts falling due over one year) of £418.7m (note 21);
 provisions of £296.0m mainly relating to early departure costs and Child Trust Fund liabilities (note 22).
Cash flow
14. The net cash outflow for the year was £10.6m as detailed in the Consolidated Statement of Cash Flows (see 
page 81).

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HM Revenue & Customs Annual Report and Accounts 2010–11
15. The Department was allocated a pay settlement worth 2.4 per cent per annum for 2008, 2009 and 2010 and 
offers were agreed with its trade unions. The Department paid the 2010 award in June 2010. The 2011 pay award 
will need to be consistent with the outcome of the Spending Review and the Government’s pay freeze policy, 
which comes into effect for HMRC in 2011. The award will need to be agreed with the trade unions. 
16. Child Benefit, Child Trust Fund and Health in Pregnancy Grant (HiPG) are accounted for within programme 
costs (see note 11) and the Consolidated Statement of Comprehensive Net Expenditure (see page 79). 
The Government announced on 24 May 2010 that it intended to scale back and then stop Child Trust Fund 
payments. Details are reported at note 1.22 (see page 89).
The Government also announced on 22 June 2010 that HiPG would be abolished and that the Grant would not 
be paid to women who reach the twenty-fifth week of pregnancy after 31 December 2010. Accordingly, HiPG 
expenditure reduced in the final quarter of 2010-11, with any final residual expenditure to be reported in 2011-12.
Cash Flow Table

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55
The Government also announced in its Emergency Budget on 20 October 2010 that from 2012-13 a household 
which receives Child Benefit and where at least one partner is a higher rate taxpayer, will no longer be entitled to 
receive Child Benefit. 
17. Details of the Department’s significant provisions are reported in note 22 (see page 110).
18. The Department has eight Private Finance Initiative (PFI) contracts which are included within these Resource 
Accounts. The three most significant ones are: 
• 
• 
• 
Mapeley STEPS Contractor Ltd contract for private sector provision of serviced accommodation across the 
majority of the Departmental estate for 20 years. This is a joint contract with the former two Departments and 
Valuation Office Agency; 
Exchequer Partnerships contract for provision of serviced accommodation at 100 Parliament Street for 33 
years;
Newcastle Estates Partnership contract for provision of serviced accommodation at a number of sites in the 
Newcastle upon Tyne area, including the redevelopment of the Benton Park View site. This contract has two 
elements, one which will run for 25 years and the other for 28 years.
19. In addition, the Department has a significant IT contract (non PFI), which is included within these Resource 
Accounts. Called “ASPIRE” the contract is to deliver a significant proportion of HMRC’s and VOA’s IT 
infrastructure with Capgemini as the prime contractor and other outsourcing partners including Fujitsu. Under 
the contract, Capgemini provides user services for desktop, business applications management, enhancements and 
development, and projects as well as integration services for new projects (including the testing of applications 
and infrastructure). Fujitsu covers data centre operations, desktop installation and support, Input/Output 
services (i.e. scanning & processing, printing & distribution) and disaster recovery. Other suppliers included in 
the contract include Accenture and British Telecom. However, Fujitsu, British Telecom, and Accenture perform 
their roles as subcontractors to Capgemini, who as the prime contractor is always accountable for the services 
performed under the contract.
Government Banking Service
20. The Government Banking Service (GBS) is part of HMRC and is responsible for holding balances and 
providing banking transaction services to around 900 public sector customers. It also works with HM Treasury 
to minimise the cost of government borrowing and supports Treasury cash management. Its creation was a result 
of the recommendations of the Chancellor’s 2004 Departments Banking Review and The Bank of England’s 
decision to withdraw from the provision of retail banking and clearing services. In 2006 both the Office of the 
Paymaster General (OPG) and the Government Banking Programme (GBP) were transferred to HMRC. The 
transition from OPG to the new Government Banking Service (Government Banking Programme) was completed 
in 2010-11 and the OPG banking services closed.
Under GBS’s agreement with RBS and Citi, balances are swept from the commercial banks to the Bank of 
England and transferred to the Consolidated Fund. GBS customer balances are not included in HMRC’s 
Statement of Financial Position on page 80, but are included in the accounts of the relevant government entities.
Management
Ministers and senior managers
21. The Corporate Governance Report (see page 59) identifies those senior managers who are members of the 
Board.

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Register of interests
22. Senior managers within HMRC, including the non-executives, are required to complete a declaration of 
any interests. No significant company directorships or other interests were held by Board members which may 
have conflicted with their management responsibilities. Note 31 to the accounts confirms that no member of the 
Board, including non-executives, have any related-party interests. 
Internal Communications
23. The Department has a policy of actively informing and consulting its staff and their representatives 
through a number of well defined and established channels. A variety of channels are employed, including 
Hot Seat – an opportunity to send questions and feedback to the senior managers, staff telephone conferences 
with top managers, email alerts, intranet news pages, team briefings, newsletters, staff surveys, a staff 
magazine, communication events with senior managers, and regular meetings and discussions with trade union 
representatives.
Public Sector Information Holders
24. HMRC is required to comply with the cost allocation and charging requirements set out in HM Treasury and 
Office of Public Sector Information guidance Managing Public Money. Since 1 January 2010 HMRC information 
is provided through a Public Sector Information licence which has no charging implications for holders.
Public Interest Matters
Diversity and equality
25. We want our workforce to reflect the diversity of our customers and we want to develop and use the 
collective experience of that diverse workforce to deliver high quality service. 
26. Through promoting key messages in our Gender, Race and Disability Equality Schemes and progressing 
our Diversity Delivery Plan, we are addressing equality issues in the workplace. We have Executive Committee 
Champions and employee networks in place for eight diversity strands. The networks offer people the 
opportunity to share experiences; comment on new initiatives and ensure that everyone in the workforce is 
treated fairly and can give of their best. 
27. Our progress on diversity issues has been recognised in a number of ways: we gained first place in the ‘a:gender’ 
public sector Index of organisations committed to transgender equality; we came joint eighth in the Stonewall Index 
of gay friendly employers, and we are in the top 30 employers for Working Families Index. Our Senior Women’s 
Network has won an Opportunity Now award and our Black and Minority Ethnic Women’s network has been 
highly commended. In addition, our Lesbian, Gay, Bisexual and Transgender champion was shortlisted for the Civil 
Service Diversity Awards in recognition of his leadership.
28. Disabled staff are employed across all grades and locations. We operate the Guaranteed Interview Scheme 
and have recently completed a review of our reasonable adjustment processes. We are implementing a series of 
recommendations that will enable us to provide appropriate adjustments quickly and cost-effectively. We have also 
reviewed management practices in respect of mental health issues to ensure that sufficient support mechanisms are 
in place for managers and staff.
29. We continue to improve access to our services for disabled customers and to raise awareness of their needs 
with our front line staff.

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Employee Engagement
30. HMRC’s 2009 and 2010 people surveys indicated that the Department’s biggest engagement challenges are 
leadership and the management of change (see section 5.17 of the Statement on Internal Control).
31. To address these challenges HMRC has established an Employment Engagement Champions Group (EECG) 
chaired by a member of the Executive Committee. The EECG promotes the strategy for and the programme of 
activity aimed at improving employee engagement. Its employee engagement intranet site provides help and advice 
on motivating and engaging with teams and sharing best practice, at present the main focus being on leadership, 
expectations and the work.
Social and community issues
32. HMRC is the only government department to feature in Business in the Community’s Corporate Responsibility 
Index. Our platinum status in the Index puts us on a par with many of the top FTSE 100 organisations.
33. We invest approximately £2 million a year in partnerships with voluntary sector organisations which provide 
advice and support for disadvantaged communities. This year we gave 3,804 days of employee time for work 
in the community with voluntary organisations and participating in civic duties such as being magistrates and 
school governors, and on outreach programmes aimed at making contact with those people who need our help 
most but are reluctant to make contact with us. We work with UK and International agencies to develop and 
support effective civil governments overseas.
Payment of suppliers
34. The Department is committed to the prompt payment of invoices. Payment is regarded as late if made outside 
the agreed terms, or, where no terms were agreed, beyond 30 days after receipt of goods and valid invoice. The 
Department paid 99 per cent (2009-10: 99 per cent) of supplier invoices within 30 days. 
35. From 1 May 2010, in line with guidance from the Department for Business, Innovation & Skills, the 
Department has aimed to pay invoices within 5 days of receipt of goods and valid invoice. The Department paid 
94 per cent of supplier invoices within 5 days. The legal requirement remains at 30 days.
Auditors
36. The Comptroller and Auditor General audits these Resource Accounts in accordance with the Government 
Resources and Accounts Act 2000. The notional charge for these audit services as disclosed in these accounts 
is £0.7m (2009-10: £0.8m). In addition the Comptroller and Auditor General audits the Trust Statement and it 
has been agreed that it is also appropriate to reflect the cost of this audit in these Resource Accounts. For 2010-
11 the cost of the audit of the Trust Statement amounted to £1.2m (2009-10: £1.2m). PricewaterhouseCoopers 
undertake certain audit services on behalf of the Auditors. In 2009-10 the total audit fee also included an 
additional audit cost of £0.1m for work that was undertaken relating to the implementation of IFRS. The total 
audit fee reported in these Resource Accounts is £1.9m (2009-10: £2.1m). 
37. In 2010-11 the VOA engaged PricewaterhouseCoopers through an open commercial tendering process to 
review the VOA’s compliance with the Data Protection Act in respect of its Council Tax work. The cost of this 
work is reflected in the financial statements and was £0.2m.

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38. So far as I am aware, there is no relevant audit information of which the auditors are unaware. I have taken 
all the steps that I ought to have taken to make myself aware of any relevant audit information and to establish 
that the auditors are aware of that information.
Dame Lesley Strathie DCB 
Principal Accounting Officer 
6 July 2011

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Period of Report
1. This report covers the period from 1 April 2010 to 31 March 2011.
Code of Good Practice on Corporate Governance in Central Government Departments
2. The governance arrangements set out in this report are compliant with the provisions of HM Treasury’s Code 
of Good Practice on Corporate Governance in Central Government Departments published in July 2005. 
Ministerial arrangements
3. HMRC is a non-ministerial department established by the Commissioners for Revenue and Customs Act (CRCA) 
2005. HMRC’s status as a non-ministerial department aims to ensure that the administration of the tax system is fair 
and impartial. The Department is accountable to the Chancellor of the Exchequer for the discharge of all its functions. 
4. The Chancellor has delegated responsibility for oversight of the Department to the Exchequer Secretary to the 
Treasury as Departmental Minister for HMRC. 
How we run HMRC
5. HMRC has a governance structure with a non-executive Chairman leading the Board and a Chief Executive 
running the Department. The top team also includes the Permanent Secretary for Tax.
Chairman
6. Mike Clasper is the non-executive Chairman and leads the HMRC Board. The Board provides strategic 
leadership, approves business plans, monitors performance and ensures the highest standards of corporate 
governance (see paragraph 13). 
Chief Executive
7. Lesley Strathie is the Chief Executive and Permanent Secretary of HMRC. She is responsible for providing 
leadership and direction to the Department. She runs all aspects of HMRC’s business, ensuring delivery of the 
Department’s objectives and driving continuous improvement. She is the Principal Accounting Officer (PAO) and 
is accountable to Parliament for the Department’s expenditure and performance.
Permanent Secretary for Tax
8. Dave Hartnett is the Permanent Secretary for Tax. He works to the Chief Executive and is the senior tax 
professional in HMRC. He has specific well defined accountabilities in the areas of tax policy and tax strategy. 
He is also the Deputy Chief Executive. 
The Commissioners
9. The Commissioners are responsible under the CRCA for the collection and management of revenue, the 
enforcement of prohibitions and restrictions, as well as other functions e.g. payment of tax credits. They exercise 
these functions in the name of the Crown. 
10. The Commissioners are directly accountable to HM Treasury Ministers and Parliament and are required by 
the CRCA to comply with any directions of a general nature given to them by HM Treasury. In 2010-11 these 
were principally the Public Service Agreement targets and Annual Remit.
Corporate Governance Report

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Figu re 1
F
igure 2
The Department’s Senior Governance Structure
The Board
12. The Board is made up of members of the Executive Committee (see paragraphs 16 to 19) and the non-
executive Board members (see paragraphs 20 to 24). It comprised the following membership during this period:

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61
E
xecutive Committee Table
13. The responsibilities of the Board include: 
• 
• 
• 
• 
• 
• 
• 
development and final approval of the overall strategy of HMRC; 
development and final approval of the HMRC Communications Strategy and sign off significant HMRC 
communications identified within the Communications Strategy;
development and final approval of the culture and values objectives and strategies; 
approval of final sub-strategies of Lines of Business and Functions;
approval of final business plans (including the annual financial plan); 
advice to the Chief Executive on the appointment of senior executives; and 
ensuring the strength of the top team by participating in the appointment of and advising on the ongoing 
competence of Board members, ExCom members and other key appointments. 
14. This year an evaluation of the performance of the Board formed part of an independent review of HMRC’s 
high level governance arrangements (see paragraph 19). The non-Executive Chairman also holds reviews with 
non-executive Board members on individual performance. Every two years, the Board considers its remit, 
constitution and operating procedures. 
15. The Board met eleven times during the reporting period. Its terms of reference and summary minutes of 
meetings are published on the HMRC Internet site.
Executive Committee
16. The following people comprised the Executive Committee during this period:

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N
on-Executive Table
17. The Executive Committee oversees the breadth of HMRC’s work and is responsible for implementing 
performance improvement and change agendas. Its members have portfolios of responsibility that span each line 
of HMRC business and corporate service function. 
18. The Executive Committee meets once a month. Terms of reference and summary minutes are published on 
the HMRC Internet site. 
19. The Committee reviews its own effectiveness on a regular basis as part of the arrangements for each meeting 
and periodically by other means, for instance coaching, workshops, external scrutiny and formal review. An 
independent formal review of HMRC’s high level governance arrangements was conducted during the year. It 
made a number of recommendations to enhance the governance arrangements which will be implemented during 
2011-12.
Non-Executive Board Members
20. The non-executive Board members during the period were as follows:
21. The non-executives were all appointed following recruitment exercises held in accordance with Cabinet 
Office guidance. On appointment, new non-executives undertake a structured induction process to provide 
an overview of Government and Whitehall as well as the organisation, responsibilities and strategic priority 
objectives of HMRC. 
22. All of the non-executive Board members are considered to be independent of HMRC, being neither 
Commissioners nor officers of HMRC. Arrangements are in place to safeguard taxpayer confidentiality by 
ensuring that they do not participate in decisions involving specific tax matters.
23. The non-executive Board members contribute to Board decisions and provide guidance and advice to the 
Executive team, support and challenge management about the Department’s strategic direction and monitor and 
review progress. They do this primarily through their attendance at Board and sub-committee meetings but also 
through visits and meetings with staff.
24. The Chairman held meetings periodically with the non-executive Board members, as a group and 
individually, without the executives present.
Board Sub-Committees
25. The Board has three sub-committees; Audit and Risk; People; and Ethics and Responsibilities. The Board 
agrees the terms of reference of the sub-committees and periodically reviews their work.

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Audit and Risk Committee
26. The Audit and Risk Committee provides the Chairman, Principal Accounting Officer and the Board 
with independent advice and assurance on the effectiveness of the Department’s governance, risk and control 
arrangements.
27. In fulfilling this role, the Audit and Risk Committee reviews significant issues identified by the Board, 
Executive Committee, Internal Audit and the National Audit Office (NAO), acting on behalf of the Comptroller 
and Auditor General as the appointed independent external auditor, and invites executive managers to attend and 
provide an account of action being taken to address these issues.
28. Specific areas that come within the remit of the Audit and Risk Committee include the provision of assurance 
to the Board and Principal Accounting Officer as to the veracity of the financial statements, the efficacy of risk 
management and the strength and appropriateness of control processes across HMRC.
29. During the reporting period the members of the Audit and Risk Committee were John Spence OBE, Mark 
Haysom CBE and Dame Sue Street DCB (to 31 December 2010). 
30. During the year a number of standing invitees also attended Audit and Risk Committee meetings. 
These included the Chief Executive, Chief Finance Officer, Financial Controller, the Head of Corporate Risk 
Management, Director Internal Audit and representatives from NAO. 
31. The Audit and Risk Committee Chairman evaluates the performance of the committee in regular meetings 
with Audit and Risk Committee members and reports on performance to the HMRC Chairman. 
32. The Audit and Risk Committee met nine times during the reporting period and the Chair provided a written 
report to the Board after each meeting. Its terms of reference and summary minutes of meetings are published on 
the HMRC Internet site.
People Committee
33. The People Committee provides assurance to the Board on the effectiveness of people management; that 
HMRC are meeting their legislative responsibilities in relation to its people including Health and Safety, the 
Disability Discrimination Act and equal opportunities; and that the People Function priorities support the 
Department’s strategic direction.
34. During the reporting period the members of the People Committee were Mike Clasper, Colin Cobain and 
Gary Kildare, an externally appointed independent advisor. Standing invitees were the Chief People Officer, 
General Counsel and Solicitor, Director Local Compliance and Director Customer Operations.
35. The People Committee met six times during the period and the Chair provided a report to the Board after 
each meeting. Its terms of reference and summary minutes of meetings are published on the HMRC Internet site.
Ethics and Responsibilities Committee
36. The Ethics and Responsibilities Committee provides the Chairman, the Chief Executive (as Principal 
Accounting Officer) and the Board with independent advice and assurance that HMRC is acting responsibly and 
ethically on a range of stakeholder issues.
37. During the reporting period the members of the Ethics and Responsibilities Committee were Philippa 
Hird, Phil Hodkinson and Chris Pond, an externally appointed independent advisor. Standing invitees were 
the Director General Benefits and Credits, Director Knowledge, Analysis and Information, Director Corporate 
Responsibility and Diversity and Director Individuals Customer Directorate.

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38. The Ethics and Responsibilities Committee met four times during the reporting period. Its terms of reference 
and summary minutes of meetings are published on the HMRC Internet site.
Executive Committee Sub-Committees
39. The Executive Committee is supported by five sub-committees; Performance, Tax, Investment, Change 
Delivery and People Matters. 
Performance Committee
40. The Performance Committee has oversight of the Department’s performance, both in terms of immediate 
and future objectives. It also acts as the steering group and substantive delivery board across the Department’s 
strategic objectives. It interrogates HMRC performance against targets; identifies exceptions; and looks at 
ways to improve performance in all areas including both customer service and value for money. Discussions are 
informed by a set of performance indicators agreed by the Committee. 
41. During the reporting period, membership of the Performance Committee comprised every member of the 
Executive Committee (see paragraph 16). It was chaired by Lesley Strathie, Chief Executive.
42. The Performance Committee met monthly throughout the reporting period. Its terms of reference and 
summary minutes of meetings are published on the HMRC Internet site.
Tax Committee
43. The Tax Committee supports the Executive Committee by pro-actively co-ordinating tax issues within 
HMRC across its lines of business. “Tax” for this purpose includes all tax, duties, credits, benefits and related 
matters dealt with by HMRC. 
44. The Committee is chaired by the Permanent Secretary for Tax. Membership of the Committee consists of 
Director-level representatives of Executive Committee members. 
45. The Committee met seven times during the reporting period and the Chair provided a report to the Executive 
Committee after each meeting. Its terms of reference and summary minutes of meetings are published on the 
HMRC Internet site.
Investment Committee
46. The Investment Committee makes investment decisions on behalf of the Executive Committee for all 
Departmental change initiatives. It decides on the appropriateness of all investments within HMRC that affect 
the Department’s customers, lines of business, people, and IT systems. It has responsibility for investment 
decisions on whether to proceed with change initiatives and on the necessary release or withdrawal of funds. 
It determines the most appropriate portfolio of investments that will deliver against the strategic direction and 
priorities set by the Executive Committee.
47. The Committee is chaired by the Chief Finance Officer. Membership of the Committee consists of Director-
level representatives of Executive Committee members. 
48. The Committee met eleven times during the reporting period and the Chair provided a report to the 
Executive Committee after each meeting. Its terms of reference and summary minutes of meetings are published 
on the HMRC Internet site.

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Change Delivery Committee
49. The Change Delivery Committee is responsible for ensuring the HMRC portfolio of investment programmes 
delivers the changes and benefits identified at their outset. It has responsibility for assuring delivery of the agreed 
portfolio of HMRC investment programmes on behalf of the Executive Committee, through its monitoring and 
management of the portfolio; and identifies issues arising from this monitoring and assurance work. 
50. The Committee is chaired by the Chief Information Officer. Membership of the Committee consists of 
Director-level representatives of Executive Committee members. 
51. The Committee met eleven times during the reporting period and the Chair provided a report to the 
Executive Committee after each meeting. Its terms of reference and summary minutes of meetings are published 
on the HMRC Internet site.
People Matters Committee
52. The People Matters Committee oversees the development and delivery of the Executive Committee’s People 
Strategy and supports the Chief People Officer in designing and implementing HMRC’s people processes. It has 
responsibility for refreshing and updating existing HR practices. It develops, challenges and proposes solutions 
for the Executive Committee where new initiatives are being developed. It agrees the priority and work plan for 
the HMRC people policy remit.
53. The Committee is chaired by the General Counsel and Solicitor. Membership of the Committee consists of 
Director-level representatives of Executive Committee members. 
54. The Committee met twelve times during the reporting period and the Chair provided a report to the 
Executive Committee after each meeting. Its terms of reference and summary minutes of meetings are published 
on the HMRC Internet site.
Structure of the Department
55. The organisational structure of HMRC is based around four operational groups, each led by a Director 
General. These are: 
•
•
•
•
 Benefits and Credits. Responsible for helping families and individuals with targeted financial support, ensuring 
customers get it right first time and that losses from claimant error and fraud are reduced;
 Business Tax. Responsible for ensuring businesses pay the right amount of tax while improving our customers’ 
experience and the overall UK business environment;
 Enforcement and Compliance. Responsible for ensuring that HMRC successfully collects the full and correct 
amount of money due from UK taxpayers. It is also responsible for investigating offences against the tax and 
duty system;
 Personal Tax. Responsible for helping some 60 million individual customers across the UK to fulfil their tax 
obligations.
56. These are supported by the following cross-cutting functions:
• 
• 
• 
Finance
Information
Legal

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•
•
 People
 Permanent Secretary for Tax Group
Relationships with Arm’s Length Bodies
57. HMRC has identified one arm’s length body, the Environmental Trust Scheme Regulatory Body Limited 
(ENTRUST). ENTRUST is a not-for-profit private sector company which acts as regulator of the Landfill 
Communities Fund. They are approved by the Commissioners, via a Terms of Approval document, to carry out 
the function. The Commissioners’ power to approve another body to perform the function of regulator on its 
behalf is through legislation set out in the Finance Act 1996. Governance arrangements are in place to ensure 
appropriate oversight by HMRC.

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Remuneration Policy
The remuneration of senior civil servants is set by the Prime Minister following independent advice from the 
Review Body on Senior Salaries.
In reaching its recommendations, the Review Body has regard to the following considerations:
• the need to recruit, retain and motivate suitably able and qualified people to exercise their different 
responsibilities;
• regional/local variations in labour markets and their effects on the recruitment and retention of staff;
• Government policies for improving the public services including the requirement on departments to meet the 
output targets for the delivery of departmental services;
• the funds available to departments as set out in the Government’s departmental expenditure limits;
• the Government’s inflation target.
The Review Body takes account of the evidence it receives about wider economic considerations and the 
affordability of its recommendations.
Further information about the work of the Review Body can be found at www.ome.uk.com
Service Contracts
The Constitutional Reform and Governance Act 2010 requires Civil Service appointments to be made on merit 
on the basis of fair and open competition. The Recruitment Principles published by the Civil Service Commission 
specify the circumstances when appointments may be made otherwise.
Unless otherwise stated, the officials covered by this report hold appointments which are open-ended. Early 
termination, other than for misconduct, would result in the individual receiving compensation as set out in the 
Civil Service Compensation Scheme. 
Non-executive Board members are appointed for a fixed term of usually three years.
Further information about the work of the Civil Service Commission can be found at 
www.civilservicecommission.org.uk
There have been no amounts payable to third parties for services of a senior manager in 2010-11.
The following sections provide details of the remuneration and pension interests of the most senior officials of the 
Department.
Remuneration Report

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Renumeration 
Table

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69
N
o
n-Execut
i
ve Tabl
e
Salary
Salary covers both pensionable and non-pensionable amounts and includes gross salary; overtime; reserved rights 
to London weighting or London allowances; recruitment and retention allowances; private office allowances and 
any other allowance to the extent that it is subject to UK taxation. 
Bonuses
Bonuses are based on performance levels attained and are made as part of the appraisal process. They relate to 
performance in the previous year, therefore, bonuses paid in 2010-11 are based on 2009-10 performance and 
bonuses paid in 2009-10 are based on 2008-09 performance. This report is based on payments made by the 
Department and thus recorded in these accounts.
Non-Executive Board Members
The Department’s Board comprises both senior operational management and external appointees. The 
remuneration of senior management is included above. External Board appointees’ remuneration is detailed 
below:
Fees
The non-executive Board members receive a honorarium of £30,000 per annum. Phil Hodkinson and John 
Spence receive an additional £5,000 per annum as they each chair a sub-committee of the Board. The fees 
detailed above also include, where appropriate, allowances that are subject to UK taxation.
Benefits in kind
The monetary value of benefits in kind covers any benefits provided by the employer and treated by HM Revenue 
& Customs as a taxable emolument. The Senior Officials detailed in this report, with the exception of Mike 
Clasper, each had benefits in kind in 2010-11 relating to hospitality provided at external development events. 
Mike Clasper, Lesley Strathie and each of the non-executive Board members, with the exception of Colin Cobain, 
all had a benefit in kind relating to a non-executive Board dinner.

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Pension Benefits
 
T
a
b
l
e

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Civil Service Pensions
Pension benefits are provided through the Civil Service pension arrangements. From 30 July 2007, civil servants 
may be in one of four defined benefit schemes; either a final salary scheme (classic, premium or classic plus); 
or a whole career scheme (nuvos). These statutory arrangements are unfunded with the cost of benefits met 
by monies voted by Parliament each year. Pensions payable under classic, premium, classic plus and nuvos are 
increased annually in line with Pensions Increase legislation. Members joining from October 2002 may opt for 
either the appropriate defined benefit arrangement or a ‘money purchase’ stakeholder pension with an employer 
contribution (partnership pension account).
Employee contributions are set at the rate of 1.5 per cent of pensionable earnings for classic and 3.5 per cent for 
premium, classic plus and nuvos. Benefits in classic accrue at the rate of 1/80th of final pensionable earnings for 
each year of service. In addition, a lump sum equivalent to three years initial pension is payable on retirement. 
For premium, benefits accrue at the rate of 1/60th of final pensionable earnings for each year of service. Unlike 
classic, there is no automatic lump sum. Classic plus is essentially a hybrid with benefits for service before 1 
October 2002 calculated broadly as per classic and benefits for service from October 2002 worked out as in 
premium. In nuvos a member builds up a pension based on his pensionable earnings during their period of 
scheme membership. At the end of the scheme year (31 March) the member’s earned pension account is credited 
with 2.3 per cent of their pensionable earnings in that scheme year and the accrued pension is uprated in line 
with Pensions Increase legislation. In all cases members may opt to give up (commute) pension for a lump sum up 
to the limits set by the Finance Act 2004.
The partnership pension account is a stakeholder pension arrangement. The employer makes a basic contribution 
of between 3 per cent and 12.5 per cent (depending on the age of the member) into a stakeholder pension product 
chosen by the employee from a panel of three providers. The employee does not have to contribute, but where 
they do make contributions, the employer will match these up to a limit of 3 per cent of pensionable salary (in 
addition to the employer’s basic contribution). Employers also contribute a further 0.8 per cent of pensionable 
salary to cover the cost of centrally-provided risk benefit cover (death in service and ill health retirement).
The accrued pension quoted is the pension the member is entitled to receive when they reach pension age, or 
immediately on ceasing to be an active member of the scheme if they are already at or over pension age. Pension 
age is 60 for members of classic, premium and classic plus and 65 for members of nuvos.
Further details about the Civil Service pension arrangements can be found at the website www.civilservice.gov.
uk/my-civil-service/pensions/index.aspx
Cash Equivalent Transfer Values
A Cash Equivalent Transfer Value (CETV) is the actuarially assessed capitalised value of the pension scheme 
benefits accrued by a member at a particular point in time. The benefits valued are the member’s accrued benefits 
and any contingent spouse’s pension payable from the scheme. A CETV is a payment made by a pension scheme 
or arrangement to secure pension benefits in another pension scheme or arrangement when the member leaves a 
scheme and chooses to transfer the benefits accrued in their former scheme. The pension figures shown relate to 
the benefits that the individual has accrued as a consequence of their total membership of the pension scheme, not 
just their service in a senior capacity to which disclosure applies.
The figures include the value of any pension benefit in another scheme or arrangement which the member has 
transferred to the Civil Service pension arrangements. They also include any additional pension benefit accrued 
to the member as a result of their buying additional pension benefits at their own cost. CETVs are worked out 
within the guidelines and framework prescribed by the Institute and Faculty of Actuaries and do not take account

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of any actual or potential reduction to benefits resulting from Lifetime Allowance Tax which may be due when 
pension benefits are taken. 
Real Increase in CETV
This reflects the increase in CETV that is funded by the employer. It does not include the increase in accrued 
pension due to inflation, contributions paid by the employee (including the value of any benefits transferred from 
another pension scheme or arrangement) and uses common market valuation factors for the start and end of the 
period.
Elements of the Remuneration Report have been audited, as required by the Government Financial Reporting 
Manual. Those elements audited are Salary, Allowances, Bonuses, Benefits in Kind and Pension Benefits.
Dame Lesley Strathie DCB 
Principal Accounting Officer
6 July 2011

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73
Under the Government Resources and Accounts Act 2000, HM Treasury has directed HM Revenue & Customs 
to prepare, for each financial year, Resource Accounts detailing the resources acquired, held or disposed of 
during the year and the use of resources by the Department during the year. The accounts are prepared on an 
accruals basis and must give a true and fair view of the state of affairs of the Department and of its net resource 
outturn, resources applied to objectives, changes in taxpayers’ equity and cash flows for the financial year.
In preparing the accounts, the Principal Accounting Officer is required to comply with the requirements of the 
Government Financial Reporting Manual and in particular to:
• 
• 
• 
• 
observe the Accounts Direction issued by HM Treasury, including the relevant accounting and disclosure 
requirements, and apply suitable accounting policies on a consistent basis;
make judgements and estimates on a reasonable basis;
state whether applicable accounting standards as set out in the Government Financial Reporting Manual have 
been followed, and disclose and explain any material departures in the accounts; and
prepare the accounts on a going concern basis.
HM Treasury has appointed the Permanent Head of the Department as Principal Accounting Officer of the 
Department. In addition, HM Treasury has appointed Additional Accounting Officers to be accountable for those 
parts of the Department’s accounts relating to specified requests for resources and the associated assets, liabilities 
and cash flows. These appointments do not detract from the Head of Department’s overall responsibility as 
Accounting Officer for the Department’s accounts.
For 2010-11 the Principal Accounting Officer was Lesley Strathie. 
The allocation of Accounting Officer responsibilities in the Department was as follows:
• Mike Eland, in respect of
Request for resources 1:
Administering the tax system efficiently and in an even-handed way, making it easy for customers to get things 
right, helping individuals to get targeted financial support and other entitlements;
Request for resources 5:
Payments of Child Benefit, Child Trust Fund endowments, Health in Pregnancy Grant and Saving Gateway. 
• Dave Hartnett, in respect of
Request for resources 3:
Providing payments in lieu of tax relief to certain bodies i.e. transitional payments to charities, personal pensions, 
life assurance premium relief and residual payments for mortgage interest relief, and associated non-cash items.
• Penny Ciniewicz, Chief Executive of the Valuation Office Agency, in respect of
Request for resources 2:
Undertaking rating and council tax valuation work in England and Wales and providing valuation and property 
management services to central government and other bodies where public funds are involved i.e. administration 
and the associated non-cash items incurred in the provision of valuation and other services for government 
departments and other public bodies by the Valuation Office Agency. 
Statement of Accounting Officer’s 
Responsibilities

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Request for resources 4:
Making payments of rates to Local Authorities on behalf of certain bodies i.e. rates paid by HM Revenue & 
Customs in respect of non-domestic property occupied by accredited representatives of Commonwealth and 
foreign countries and certain international organisations; and associated non-cash items.
The responsibilities of an Accounting Officer, including responsibility for the propriety and regularity of the 
public finances for which the Accounting Officer is answerable, for keeping proper records and for safeguarding 
the Department’s assets, are set out in chapter 3 of Managing Public Money published by HM Treasury.

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75
The Department’s Statement on Internal Control, covering both the Resource Accounts and the Trust Statement, 
is shown on pages 39 to 47.
Statement on Internal Control

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HM Revenue & Customs Annual Report and Accounts 2010–11
I certify that I have audited the financial statements of HM Revenue & Customs for the year ended 31 March 
2011 under the Government Resources and Accounts Act 2000. These comprise the Statement of Parliamentary 
Supply, Statement of Comprehensive Net Expenditure and the Statement of Financial Position, the Statement 
of Cashflows, the Statement of Changes in Taxpayers’ Equity and the related notes. These financial statements 
have been prepared under the accounting policies set out within them. I have also audited the information in the 
Remuneration Report that is described in that report as having been audited.
Respective responsibilities of the Accounting Officer and auditor
As explained more fully in the Statement of Accounting Officer’s Responsibilities, the Accounting Officer is 
responsible for the preparation of the financial statements and for being satisfied that they give a true and 
fair view. My responsibility is to audit, certify and report on the financial statements in accordance with the 
Government Resources and Accounts Act 2000. I conducted my audit in accordance with International Standards 
on Auditing (UK and Ireland). Those standards require me and my staff to comply with the Auditing Practices 
Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient 
to give reasonable assurance that the financial statements are free from material misstatement, whether caused 
by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the 
Department’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of 
significant accounting estimates made by the Department; and the overall presentation of the financial statements. 
In addition I read all the financial and non-financial information in the Departmental Report, Annual Report 
and Corporate Governance Report, to identify material inconsistencies with the audited financial statements. 
If I become aware of any apparent material misstatements or inconsistencies I consider the implications for my 
certificate.
In addition, I am required to obtain evidence sufficient to give reasonable assurance that the expenditure and 
income reported in the financial statements have been applied to the purposes intended by Parliament and the 
financial transactions conform to the authorities which govern them. 
Opinion on Regularity
In my opinion, in all material respects the expenditure and income have been applied to the purposes intended by 
Parliament and the financial transactions conform to the authorities which govern them.
Opinion on Financial Statements
In my opinion:
• the financial statements give a true and fair view of the state of the Department’s affairs as at 31 March 2011 
and of its net cash requirement, net resource outturn and net operating cost, for the year then ended; and
• the financial statements have been properly prepared in accordance with the Government Resources and 
Accounts Act 2000 and HM Treasury directions issued thereunder.
The Certificate and Report of the 
Comptroller and Auditor General to 
the House of Commons

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77
Opinion on other matters
In my opinion:
• 
• 
the part of the Remuneration Report to be audited has been properly prepared in accordance with HM 
Treasury directions made under the Government Resources and Accounts Act 2000; and
the information given in the Sustainability section within the Departmental Report, Annual Report and 
Corporate Governance Report for the financial year for which the financial statements are prepared is 
consistent with the financial statements. 
Matters on which I report by exception
I have nothing to report in respect of the following matters which I report to you if, in my opinion:
• 
• 
• 
• 
adequate accounting records have not been kept; or
the financial statements and the part of the Remuneration Report to be audited are not in agreement with the 
accounting records or returns; or
I have not received all of the information and explanations I require for my audit; or
the Statement on Internal Control does not reflect compliance with HM Treasury’s guidance.
Report
I have no observations to make on these financial statements.
Amyas C E Morse 
Comptroller and Auditor General 
6 July 2011 
 
National Audit Office
157-197 Buckingham Palace Road
Victoria
London SW1W 9SP

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HM Revenue & Customs Annual Report and Accounts 2010–11
Summary of Resource Outturn 2010-11
 
T
a
b
l
e
Net cash requirement 2010-11
 
T
a
b
l
e
Statement of Parliamentary Supply

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79
C
o
n
s
o
l
i
d
a
ted Statem
e
n
t
 
T
a
b
le
Consolidated Statement of 
Comprehensive Net Expenditure 
for the year ended 31 March 2011

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C
o
n
s
o
l
i
d
a
t
e
d
 
Statement 
T
able 
Dame Lesley Strathie DCB 
Principal Accounting Officer
6 July 2011
The notes on pages 83 to 123 form part of these accounts.
Consolidated Statement of Financial 
Position as at 31 March 2011

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81
C
o
n
solidated 
S
t
atement Ta
ble 
The notes on pages 83 to 123 form part of these accounts.
Consolidated Statement of 
Cash Flows for the year ended 
31 March 2011

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C
onsolidated State
ment Table	
The notes on pages 83 to 123 form part of these accounts.
Consolidated Statement of Changes 
in Taxpayers’ Equity for the year 
ended 31 March 2011

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83
1. 
Statement of Accounting Policies
These financial statements have been prepared in accordance with the 2010-11 Government Financial Reporting 
Manual (FReM) issued by HM Treasury. The accounting policies contained in the FReM apply International 
Financial Reporting Standards (IFRS) as adapted or interpreted for the public sector context. 
Where the FReM permits a choice of accounting policy, the accounting policy which is judged to be most 
appropriate to the particular circumstances of HM Revenue & Customs for the purpose of giving a true and fair 
view has been selected. The particular policies adopted by HM Revenue & Customs are described below. They 
have been applied consistently in dealing with items that are considered material to the accounts.
In addition to the primary statements prepared under IFRS, the FReM also requires the Department to prepare 
the Statement of Parliamentary Supply and supporting notes which show outturn against Estimate in terms of the 
net resource requirement and the net cash requirement. 
1.1 
Accounting convention
These accounts have been prepared under the historical cost convention modified to account for the revaluation 
of property, plant and equipment, intangible assets and inventories and certain financial assets and liabilities.
1.2 
Basis of consolidation
These accounts comprise a consolidation of the non-agency parts of the Department (the Core Department) 
and those entities which fall within the Departmental boundary as defined in the FReM. Transactions between 
entities included in the consolidation are eliminated. 
A list of all those entities within the Departmental boundary is given at note 33.
1.3 
Financial Instruments
A financial instrument is a contractual obligation which gives rise to a financial asset of one entity and a financial 
liability or equity instrument of another entity. The Department has no equity instruments.
In accordance with IAS 32 and IAS 39, the Department’s financial assets are categorised as cash and cash 
equivalents, receivables, deposits and advances. These are measured at fair value at the inception of the contract.
Financial liabilities are measured at fair value at the inception of the contract and comprise trade payables, other 
payables and the accrual for Flexible Early Severance.
Statutory charges and payments (for example, amounts due from penalty and law cost receivables) are not 
recognised as financial instruments as these do not arise from contractual agreements and are outside the scope 
of the accounting treatment for financial instruments, in accordance with IAS 32, Appendix – Application 
Guidance, AG12.
The carrying values of financial assets and financial liabilities are disclosed in the Consolidated Statement of 
Financial Position and supporting notes.
1.4 
Property, plant and equipment
1.4.1 
General
With the exceptions stated below concerning the furniture of the Core Department, property, plant and 
equipment is stated at cost less accumulated depreciation and impairment losses, in accordance with IAS 16. A 
£5,000 capitalisation threshold applies to all property, plant and equipment except for furniture, vehicles and IT 
hardware, which are capitalised regardless of cost. On initial recognition assets are measured at cost including 
any costs such as installation directly attributable to bringing them into working condition. Assets under 
Notes to the Departmental 
Resource Accounts

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construction are recorded at cost. Apart from property and (collectively) furniture, all other plant and equipment 
is of low value with short lives where the cost is considered to be comparable to the modified historical cost had 
indices been applied. Assets capitalised under finance leases are recorded at the lower of fair value and the present 
value of the minimum lease payments, at the inception of the contract, in accordance with IAS 17. 
1.4.2 
Property assets
Where substantially all risks and rewards of ownership of a leased asset are borne by the Department, the asset 
is recognised and recorded at the lower of fair value and the present value of the minimum lease payments, at the 
inception of the lease. The interest element of the finance lease payment is charged to the Consolidated Statement 
of Comprehensive Net Expenditure over the period of the lease at a constant rate in relation to the balance 
outstanding. 
Private Finance Initiative (PFI) transactions have been accounted for in accordance with IFRIC 12, and where the 
Department has control within the contract and a material residual interest, the property is recognised as a non-
current asset and the liability to pay for it is accounted for as a finance lease. Contract payments are apportioned 
between a Consolidated Statement of Comprehensive Net Expenditure service charge and a Consolidated 
Statement of Financial Position finance lease liability.
The majority of the freehold and leasehold property assets occupied by HMRC were acquired from the 
predecessor Departments by Mapeley STEPS Contractor Ltd in March 2001 under a twenty-year PFI contract 
(see note 27.2). These assets have been capitalised as finance leases under IFRIC 12. The buildings only have 
been treated as finance leases and the related land has been treated as operating leases. The Department has 
also capitalised its seven other PFI property interests as finance leases being service concession arrangements 
under IFRIC 12, with the exception of Benton Park View, of which only 75 per cent has been capitalised as 
the Department for Work and Pensions is the joint tenant for the remainder of the property. The Department 
has capitalised both its short-term leases with third-party private landlords which Mapeley manages on its 
behalf, and its short-term leases held directly with third-party private landlords under IAS 17 where the relevant 
conditions are met.
Property assets have been stated at fair value using professional valuation every five years, with interim 
professional review three years after each full valuation. Valuations in intermediate years are undertaken where a 
material change is likely.
Accommodation refurbishments at note 13 reports expenditure in respect of major capital refurbishments 
and improvements of properties occupied but not owned. HMRC policy from April 2005 is to capitalise 
refurbishments when the project costs exceed £150,000.
1.4.3 
IT assets
The IT non-current assets recognised by our IT partners CapGemini and Fujitsu and used in delivering the 
ASPIRE contract have been capitalised as finance leases under IFRIC 12 and are disclosed at the lower of fair 
value and the present value of the minimum lease payments, at the inception of the contract. It is not possible to 
separate these assets between the Core Department and the Valuation Office Agency as they are used in common 
to deliver the service. These joint assets are held by the Core Department and are treated as an operating lease by 
the Valuation Office Agency. Whilst consolidated figures will report the correct aggregate position this difference 
in approach is to be noted. Where related figures are reported separately for the Core Department and the 
Valuation Office Agency, there is no material impact on figures reported.
1.4.4 
Furniture
For the Core Department, the value and depreciation of furniture & fittings is estimated on the basis of the 
average number of staff accommodated, the average current furniture costs for each employee and the useful

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85
economic life ascribed to furniture assets. The valuation of furniture is reviewed every five years. Individually 
these assets have a low value, but collectively are material to these accounts. This methodology provides a reliable 
estimation of the actual value and the depreciation that would have been charged had the Department maintained 
detailed records for individual items of furniture. The use of this method avoids the Department having to incur 
significant costs in maintaining and validating detailed records.
1.4.5 
Assets under construction
Assets under construction are separately reported in note 13. Costs are accumulated until the asset is completed 
and brought into service when the asset is transferred to the relevant asset class and depreciation commences.
1.5 
Depreciation
Property, plant and equipment is depreciated at rates calculated to write them down to estimated residual values 
on a straight-line basis over their estimated useful lives. Asset lives are normally in the following ranges:
Asset category 
Estimated useful life
Land 
Not depreciated
Freehold buildings 
50 years
Leased serviced accommodation 
Period of the lease
Leased IT assets 
Period of the lease
Accommodation refurbishments 
Period of the lease
Office equipment 
5 to 20 years
Computer equipment 
3 to 7 years
Vehicles 
3 to 7 years
Furniture & fittings 
15 years
Developed computer software 
 10 years unless known to be otherwise, remaining economic life is 
reviewed annually.
Scientific aids 
3 to 12 years
1.6 
Intangible assets
1.6.1 
Licences
Computer software licences with a useful economic life greater than one year are capitalised as intangible 
non-current assets where expenditure of £5,000 or more is incurred. Software licences are amortised over 
the shorter of the term of the licence and the useful economic life. Renewable software licence fees payable at 
regular intervals are treated as expenditure and charged to the Consolidated Statement of Comprehensive Net 
Expenditure.
1.6.2 
Developed computer software
Computer software that has been developed by the Department and its computer service partner, and for which 
the Department has ownership rights e.g. the corporate tax collecting software, has been capitalised. This 
capitalisation includes the staff costs for developing, integrating and testing IT software in the development of 
the programs. Annually, appropriate indices are applied to developed computer software, which have not been 
formally valued during the year. 
1.6.3 
Intangible assets under construction
Intangible assets under construction are separately reported in note 14. Costs are accumulated until the asset 
is completed and brought into service when the asset is transferred to the relevant asset class and amortisation 
commences.

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1.7 
Impairments of non-financial assets
In accordance with IAS 36 impairment losses are recognised when it is identified that the carrying amount of 
non-financial assets may not be recoverable in full. The amount of the impairment loss is the difference between 
the asset’s carrying value and its recoverable amount. Where an impairment results from a loss in economic 
value or service potential, the loss is recognised as an operating cost in the Statement of Comprehensive Net 
Expenditure. Any revaluation reserve associated with the impaired assets is then released to the General Fund. 
Impairment losses that do not result from such consumption of economic benefits are first applied against any 
existing amounts in the revaluation reserve before any remaining loss is recognised as an operating cost.
Non-financial assets comprise property, plant and equipment and intangible non-current assets.
Impairments of financial assets are considered under IAS 39 Financial Instruments: Recognition and 
Measurement.
1.8 
Inventories
Valuation of inventories are accounting estimates determined by applying the lower of cost and net realisable 
value in accordance with IAS 2.
1.9 
Operating income
Operating income is income which relates directly to the operating activities of the Department. It principally 
comprises fees and charges to other government departments, agencies, non-departmental public bodies and 
external customers for services provided on a full-cost basis. It includes not only income appropriated in aid of 
the Estimate but also any operating income which, in accordance with the FReM, is required to be paid to the 
Consolidated Fund. Operating income is stated net of VAT.
1.10 
Administration and programme expenditure
The Statement of Comprehensive Net Expenditure is analysed between administration and programme income 
and expenditure. The classification of expenditure and income as administration or as programme follows the 
definition of administration costs as agreed with HM Treasury. 
Administration costs reflect the costs of running the Department. These include both administrative costs and 
associated operating income. Income is analysed between that which, under the administration budget, is allowed 
to be offset against gross administrative costs in determining the outturn against the administration budget, and 
that operating income which is not.
Programme costs reflect non-administration costs, including Child Benefit, Child Trust Fund and Health in 
Pregnancy Grant payments and other disbursements by the Department.
1.11 
Cash and cash equivalents
These are cash and bank balances in respect of administering the Department and programme expenditure 
including that relating to Child Benefit, Child Trust Fund and Health in Pregnancy Grant, but exclude all tax and 
duty revenues collected. The latter are included in the Department’s Trust Statement.
1.12 
Foreign exchange
Balances held in a foreign currency, including Euro bank balances, are translated into Sterling using the Citibank 
rate on the last working day of the month. Other transactions denominated in a foreign currency are translated 
into Sterling at the rate of exchange ruling on the date of each transaction. Any exchange rate differences are 
posted to an expenditure account and are therefore dealt with in the Consolidated Statement of Comprehensive 
Net Expenditure.

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1.13 
Pensions
1.13.1 Principal Civil Service Pension Scheme (PCSPS)
Past and present employees are covered by the provisions of the Principal Civil Service Pension Scheme (PCSPS). 
The defined benefit schemes are unfunded and are non-contributory except in respect of dependants’ benefits. 
The Department recognises the expected cost of these elements on a systematic and rational basis over the period 
during which it benefits from employees’ services by payment to the PCSPS of amounts calculated on an accruing 
basis. Liability for payment of future benefits is a charge on the PCSPS. In respect of the defined contribution 
schemes, the Department recognises the contributions payable for the year. 
1.13.2 Local Government Pension Scheme (LGPS) 
The Valuation Office Agency merged with The Rent Service on 1 April 2009, taking on staff who are members 
of the LGPS. The fund is administered by London Pension Fund Authority and the Mayor of London appoints 
its trustees. The scheme provides defined benefits to members (retirement lump sums and pensions), earned as 
employees working for the Agency. The LGPS is accounted for as a defined benefit scheme.
The pension liability recognised in the Agency’s Statement of Financial Position is the present value of the defined 
benefit obligation associated with the Agency’s employees minus the fair value of the scheme assets attributable to 
the Agency. 
The defined benefit obligation is valued annually by an independent actuary, using the projected unit method 
– an assessment of the future payments that will be made in relation to retirement benefits earned to date by 
employees. To calculate this the actuary makes assumptions about mortality rates, employee turnover rates and 
projections of earnings for current employees. The present value of the defined benefit obligation is determined by 
discounting the estimated future cash flows using interest rates of high-quality corporate bonds denominated in 
sterling and having terms to maturity approximating the terms of the related pension liability.
A formal valuation of the scheme’s assets and liabilities for the purpose of setting employers’ contributions 
is carried out every three years. The last formal valuation was as at 31 March 2010. The current employer 
contribution rate is 18.8 per cent of pensionable pay (2009-10: 18.8 per cent).
Current service costs, interest on the scheme liabilities, gains and losses on settlements or curtailments and the 
expected return on assets are charged to the Consolidated Statement of Comprehensive Net Expenditure in the 
period in which they occur. Past service costs are recognised as operating costs immediately.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged 
through reserves in the period in which they arise.
As part of our Service Level Agreement with them, Department for Work and Pensions (DWP) accepts that, were 
the TRS pension fund liability to crystallise, then DWP would accept this liability and in so far as they could 
fund this themselves would do so and in the event that they could not fund this would seek additional funding 
from HM Treasury to address any shortfall. The VOA and by extension the Department is effectively indemnified 
against this liability.
1.14 
Operating Leases 
Leases which do not constitute finance leases are regarded as operating leases and the rentals are charged to the 
Consolidated Statement of Comprehensive Net Expenditure on a straight-line basis over the term of the lease.
1.15 
Employee Benefits
In accordance with IAS 19 Employee Benefits, an accrual is made for staff annual leave earned but not taken at 
the date of the Consolidated Statement of Financial Position.

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1.16 
Provisions
Under IAS 37 the Department provides for legal or constructive obligations which are of uncertain timing or 
amount at the date of the Consolidated Statement of Financial Position, on the basis of the best estimate of 
the expenditure required to settle the obligation. Where the effect of the time value of money is significant, the 
estimated risk-adjusted cash flows are discounted using the real rate set by HM Treasury.
1.17 
Early departure costs 
The Department is required to meet the additional cost of benefits beyond the normal PCSPS benefits in respect 
of employees who retire early. The Department makes provision in full for this cost when the early retirement is 
binding on the Department. The estimated risk-adjusted cash flows are discounted at 2.9 per cent as set by HM 
Treasury (2009-10: 1.8 per cent).
1.18 
Provision for doubtful debt
Under IAS 39 a specific provision for doubtful debt is made in respect of legal costs that have been awarded to the 
Department. These costs arise as a result of legal proceedings against taxpayers for the recovery of outstanding 
tax liabilities. A further provision is made in respect of penalty receivables (note 1.20) to allow for the remission 
of uncollectable penalties and in respect of Child Benefit receivables (note 1.21) to allow for potentially 
irrecoverable amounts. All these provisions have been estimated having regard to the level of debts not recovered.
1.19 
Value Added Tax
Most of the activities of the Department are outside the scope of VAT. A proportion of the activities of the 
Department will attract VAT, and output VAT will apply in these circumstances. The Department also has 
recoverable and non-recoverable elements for input tax on purchases. Some input VAT on a restricted number 
of services is recovered under Section 41 of the VAT Act 1994 and in accordance with the HM Treasury 
‘Contracting-out Direction’. Section 41 is intended to remove any disincentive to government departments of 
contracting-out activities performed ‘in-house’ where there is a sound basis for doing so. Irrecoverable VAT is 
charged to the relevant expenditure category or included in the capitalised purchase cost of non-current assets. 
Income and expenditure is otherwise shown net of VAT.
1.20 
Tax penalty income
Income arising from the levying of tax penalties is generally treated as Consolidated Fund Extra Receipts which 
from 2010-11 are reported within the Trust Statement. However, HM Treasury has given authority for certain 
penalties relating to Income Tax, Corporation Tax and Capital Gains Tax, to be appropriated in aid by the 
Department, i.e. kept by the Department to fund the costs of collection and they are reported in these Resource 
Accounts. 
Penalties relating to National Insurance Contributions do not appear in these Resource Accounts. They are 
accounted for as income in the Trust Statement and paid over to the National Insurance Fund.
1.21 
Child Benefit
Child Benefit is accounted for within the programme costs in the Consolidated Statement of Comprehensive Net 
Expenditure. Payments to claimants are recorded from the time a claim for Child Benefit is approved and put into 
payment by HMRC, and thereafter as each subsequent payment falls due. Appropriate accruals and prepayment 
adjustments are made, in respect of all payments, to ensure that the expenditure arising from the entitlement 
period of each payment is recorded to the correct month; these adjustments are based on the number of days of 
the entitlement period falling within each calendar month.

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Where an overpayment of benefit is established, a debt is created and programme expenditure in the Consolidated 
Statement of Comprehensive Net Expenditure is reduced accordingly. Where possible, overpayment of debt is 
recovered from future benefit entitlement. Debt which is deemed irrecoverable is written-off in accordance with 
the Department’s normal remission policy, and recorded as expenditure within the Consolidated Statement of 
Comprehensive Net Expenditure.
1.22 
Child Trust Fund
Child Trust Fund (CTF) endowments provided assistance with the funding of long-term individual savings and 
investment accounts provided by approved financial institutions. Eligibility for an endowment arose when a claim 
for Child Benefit was approved. All eligible children born on or after 1 September 2002 up to and including 2 
January 2011 were entitled to an initial endowment. However, the entitlement for children born in the 5 months 
up to 2 January 2011 was awarded at a lower initial endowment rate. In addition to the initial endowment, 
children in families where the family income is below the income threshold for Child Tax Credit purposes in 
the tax year of birth will also qualify for a supplementary endowment. Final payments of this supplementary 
endowment will be made in 2011-12. 
In addition, eligible children on reaching their seventh birthday between 1 September 2009 and 31 July 2010 
were entitled to a further endowment. Eligibility for a supplementary endowment is dependent on the family 
income being below the threshold for Child Tax Credit purposes in the tax year in which the child became seven 
years old.
Eligible children in receipt of the Disability Living Allowance (DLA) paid by the Department for Work and 
Pensions, received an annual endowment at either a lower or higher rate, depending on the level of the DLA 
award. The entitlement period for this award was 6 April 2009 to 5 April 2011.
Payments due, where they remain unpaid, are recognised as either payables (amounts falling due within one year) 
or as a provision.
1.23 
Health in Pregnancy Grant
Health in Pregnancy Grant provided financial assistance to women to help meet the additional costs encountered 
during pregnancy. Eligibility for the grant arose when a woman was certified by a health professional as having 
reached at least her twenty-fifth week of pregnancy on or before 31 December 2010. Payments due, where they 
remain unpaid, are recognised as payables (amounts falling due within one year).
1.24 
Third-party assets
On behalf of the Department, Citibank holds Euro deposits in relation to the European Commission (EC) 
twinning projects. These assets are not held as part of the Department’s activities and as such do not form part of 
these accounts.
Details of these assets are reported in note 32.
1.25 
Contingent liabilities
In addition to contingent liabilities disclosed in accordance with IAS 37, the Department discloses for 
parliamentary reporting and accountability purposes certain statutory and non-statutory contingent liabilities 
where the likelihood of a transfer of economic benefit is remote, but which have been reported to Parliament in 
accordance with the requirements of Managing Public Money.
Where the time value of money is material, contingent liabilities which are required to be disclosed under IAS 37 
are stated at discounted amounts and the amount reported to Parliament separately noted. Contingent liabilities 
that are not required to be disclosed by IAS 37 are stated at the amounts reported to Parliament.

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HM Revenue & Customs Annual Report and Accounts 2010–11
1.26 
Parliamentary Estimates included in the accounts not restated
In line with HM Treasury advice, Prior Period Adjustments arising from the removal of the cost of capital charge 
and the FReM adaptation of IAS 36, Impairment of assets were not included in Spring Supplementary Estimates 
for 2010-11, other than as a note, on the basis that the Prior Period Adjustment numbers could have been 
misleading. The impact of these accounting policy changes on the Statement of Comprehensive Net Expenditure 
in respect of 2009-10 are shown in 1.27. Prior Period Adjustments arising from an error in previous recording or 
any other change in accounting policy were included in the Estimates in line with conventional arrangements.
1.27 
Impact of removal of cost of capital charge and change in impairment policy on Net Resource Outturn
The removal of the cost of capital charge and the adaptation of IAS 36, Impairment of assets has the following 
effect on Resource Outturn in 2009-10. The Statement of Parliamentary Supply and related notes have not been 
restated for this effect.
1
.27 Tab
l
e	
1.28 
Newly applied and future accounting policy changes
Adopted in these Financial Statements
The FReM typically applies the standards and interpretations that are effective for the accounting period to 
which it refers. 
An amendment to the FReM, effective from 1 April 2010 which has been applied in these accounts includes IAS 
36 referred to in note 1.7. This amendment requires impairments of property, plant and equipment that arise from 
a clear consumption of economic benefits to be taken direct to the Consolidated Statement of Comprehensive Net 
Expenditure. A Prior Period Adjustment relating to impairments has been recorded in the 2009-10 comparatives. 
The impact is recorded in note 1.27.
The HM Treasury Clear Line of Sight Policy aims to align budgets, Estimates and accounts. As a result there has 
been an impact on accounts from 1 April 2010 in respect of cost of capital charges being removed in line with 
corresponding changes to budget and estimates. A Prior Period Adjustment to remove the cost of capital charge 
relating to the 2009-10 Financial Year has been recorded and the impact is shown in note 1.27. In addition to the 
adjustments referred to in note 1.27, the Clear Line of Sight Policy has also resulted in the following comparative 
figures being restated:
• 
• 
The charges for all Provisions are now shown in note 11 – Programme Costs. Previously, certain provisions 
(and where relevant the unwinding of the discount) were treated as Administration Costs in note 10. The 
comparative values have been restated accordingly;
Certain Consolidated Fund Extra Receipts (CFERs) are now reported in the Department’s Trust Statement. 
Values have been restated as necessary.
To comply with IFRS 8 Operating Segments, notes 24.1 and 24.2 Segment Information have now been included 
in these accounts following HM Treasury guidance.

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91
Effective for future Financial Years
New and revised standards and interpretations have been issued but are not yet effective, and have not therefore 
been adopted in this account. We expect that the following new standard and FReM changes will affect the 
Resource Accounts when they are adopted by the Financial Reporting Manual:
• 
• 
• 
IFRS 9 Financial Instruments: Classification and Measurement (effective 1 January 2013) – IFRS 9 is a 
replacement of IAS 39 and simplifies the classification and measurement of financial assets;
In 2011-12, the accounting for tax credits is to be recorded in the Consolidated Statement of Comprehensive 
Net Expenditure of the Resource Accounts rather than the Trust Statement. The use of tax revenues to fund 
tax credits is recorded in the Trust Statement as a disbursement. Funding from the Trust Statement for tax 
credits will be recorded in the Resource Accounts as financing;
In 2011-12, as a result of the Spending Review 2010 discussions with HM Treasury, the Department is 
realigning its expenditure profile between administration and programme costs.
1.29 
Critical accounting judgements and key sources of estimation
The preparation of the financial statements requires management to make judgements, estimates and assumptions 
that affect the application of policies and reported amounts of assets and liabilities, income and expenditure. 
These are based on factors that are believed to be reasonable, the results of which form the basis for making 
judgements. The estimates and underlying assumptions are reviewed on an ongoing basis. The most significant 
estimates and areas of management judgement made in the accounts relate to:
• 
• 
• 
• 
• 
the revaluation of assets in accordance with Modified Historic Cost Accounting Principles (see note 1.1);
the valuation of furniture (see note 1.4.4);
the employee leave accrual (see note 1.15);
 provisions for legal claims, early departure costs, Child Trust Fund, Health in Pregnancy Grant and 
accommodation costs (see note 22);
the contingent liabilities disclosure (see note 29).

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HM Revenue & Customs Annual Report and Accounts 2010–11
2. 
Analysis of net resource outturn by section
Analysis 
T
a
ble
Explanation of the variances between Estimate and outturn for Request for Resources
The outturn for RfR1 was £94.7m (2.7 per cent) less than the Estimate. Within this:
• 
• 
Request for resources 1B (RfR 1B), Other administration costs in AME, was underspent by £24.6m (27.5 per 
cent). This is due to the Estimate value having been originally agreed at Spending Review 2007; 
Request for resources 1D (RfR 1D), IFRS items outside Budget was underspent by £10.3m (16.2 per cent) 
against the Spring Supplementary Estimate of £63.5m and outturn was £53.2m. The Estimate was prepared 
in accordance with IAS 17 and IFRIC 12 and based on existing and historic property depreciation figures. 
HMRC has seen a greater than anticipated reduction in the size of its property estate which means that, 
where assets have been disposed of, the estimated depreciation values associated with that property have been 
overstated. This will no longer be an issue for 2011-12 onwards as these assets will not be reported on the 
Statement of Financial Position for Estimate purposes.

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93
The outturn for RfR5 was £249.3m (2.0 per cent) less than the Estimate. Within this:
•
•
 Request for resources 5B (RfR 5B), Child Trust Fund endowments was overspent by £27.9m (9.1 per cent). The 
overspend is mainly due to claims relating to the years 2008 to 2010 that had not previously been identified 
and also the introduction of payments to claimants of Disability Living Allowance. There will be a virement 
between RfR 5A and RfR 5B, Children’s benefits, which is underspent by £251.5m (2.0 per cent); 
 Request for resources 5C (RfR 5C), Health in Pregnancy Grant was underspent by £25.7m (19.8 per cent). 
This was due to a lower than expected uptake of claims in the last few weeks of entitlement before the benefit 
ceased on 31 December 2010.
Detailed explanations of the variances are given in the Management Commentary.
3. 
Reconciliation of outturn to net operating cost and against Administration Budget
3.1 
Reconciliation of net resource outturn to net operating cost
Reconcili
a
t
i
o
n of net r
esource 
o
u
t
t
urn 
Tab
l
e
3.2 
Outturn against final Administration Budget
O
u
t
t
urn agains
t final A
d
m
i
n
istr
atio
n
 
B
udget T
able

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HM Revenue & Customs Annual Report and Accounts 2010–11
4. 
Reconciliation of net resource outturn to net cash requirement
R
e
c
o
n
ciliation
 
T
a
b
l
e 
Explanation of the variances between Estimate and cash requirement
• 
• 
• 
• 
The proceeds of asset disposals varied by £3.5m (92.1 per cent) from the Estimate. This is due to a significant 
receipt in 2006-07 for the sale of a property being rolled over into the 2010-11 Estimate from Spending Review 
07 (SR07);
Changes in working capital other than cash varied by £189.6m (71.0 per cent) from the Estimate. The 
Estimate included an element for changes in payables falling due after more than one year. The majority of the 
remaining variance resulted from accruals assumptions that were based on 2009-10 trends; 
Changes in payables falling due after more than one year varied by £10.7m. The Estimate for this item was 
included in the changes in working capital category;
Use of provisions varied by £32.4m (19.8 per cent) from the Estimate. Early release schemes run in recent 
years, together with legal cases and other provisions arising, have resulted in utilised provisions being greater 
than the funding of £34.1m set at SR07.

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95
5. 
Analysis of income payable to the Consolidated Fund
Analysis of income Table
6. 
 Reconciliation of income recorded within the Statement of Comprehensive Net 
Expenditure to operating income payable to the Consolidated Fund
R
e
conciliat
ion Table 
7. 
Consolidated Fund Income
Consolidated Fund income shown in note 6 above does not include any amounts collected by HMRC where it 
was acting as agent of the Consolidated Fund rather than as principal. Full details of income collected as agent 
for the Consolidated Fund are in the Department’s Trust Statement which is on pages 125-161 of this publication.
8. 
Non-operating income – Excess Appropriations in Aid
The Department has no non-operating income – Excess A in A.

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HM Revenue & Customs Annual Report and Accounts 2010–11
9. 
Staff numbers and related costs
Staff numbers Table
The Department does not pay the salary of the Minister who has responsibility for HM Revenue & Customs 
(HMRC). This is paid out of central funds and can be found in the resource accounts of HM Treasury.
The Principal Civil Service Pension Scheme (PCSPS) is an unfunded multi-employer defined benefit scheme 
but HMRC is unable to identify its share of the underlying assets and liabilities. The Scheme Actuary valued 
the scheme as at 31 March 2007. You can find details in the resource accounts of the Cabinet Office: Civil 
Superannuation (www.civilservice.gov.uk/my-civil-service/pensions).
For 2010-11, employers’ contributions of £340,094,640 were payable to the PCSPS (2009-10: £353,665,000) 
at one of four rates in the range 16.7 per cent to 24.3 per cent of pensionable pay, based on salary bands. The 
Scheme Actuary reviews employer contributions usually every four years following a full scheme valuation. The 
contribution rates are set to meet the cost of the benefits accruing during 2010-11 to be paid when the member 
retires and not the benefits paid during this period to existing pensioners. 
Employees can opt to open a partnership pension account, a stakeholder pension with an employer contribution. 
Employers’ contributions of £626,477 (2009-10: £730,117) were paid to one or more of the panel of three 
appointed stakeholder pension providers. Employer contributions are age-related and range from 3 per cent to 
12.5 per cent of pensionable pay. Employers also match employee contributions up to 3 per cent of pensionable 
pay. In addition, employer contributions of £44,811, 0.8 per cent of pensionable pay (2009-10: £52,783, 0.8 per 
cent of pensionable pay), were payable to the PCSPS to cover the cost of the future provision of lump sum benefits 
on death in service or ill-health retirement of these employees.
Contributions due to the partnership pension providers at the reporting period date were nil. Contributions 
prepaid at that date were nil.
131 persons (2009-10: 125 persons) retired early on ill-health grounds; the total additional accrued pension 
liabilities in the year amounted to £203,661 (2009-10: £186,239).
A number of the Valuation Office Agency’s employees are members of the Local Government Pension Scheme. 
Details of this scheme can be found in note 1.13.2 and note 23.

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97
Average number of persons employed
The average number of whole-time equivalent persons employed during the year was as follows. These figures 
within the Consolidated Departmental Resource Accounts include those working in the Core Department and the 
Valuation Office Agency.
A
v
e
rage num
ber of pe
r
s
o
ns empl
oyed Tab
l
e 
9.1 
Reporting of Civil Service and other compensation schemes – exit packages
Comparative data shown in brackets for previous year.
R
eporting of Civil Serv
ice Table
Redundancy and other departure costs have been paid in accordance with the provisions of the Civil Service 
Compensation Scheme, a statutory scheme made under the Superannuation Act 1972. Exit costs are accounted 
for in full in the year in which the obligation becomes binding on the Department. Where the Department has 
agreed early retirements, the additional costs are met by the department and not by the Civil Service pension 
scheme. Ill-health retirement costs are met by the pension scheme and are not included in the table.
The numbers included in the table above include departures of staff who are members of the Local Government 
Pension Scheme. Their compensation arrangements are outside the scope of the Civil Service Compensation 
Scheme. The cost of their early retirements reflects the cost of providing any lump sum due on retirement together 
with the cost associated with the increase in future liability to pay pension.

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HM Revenue & Customs Annual Report and Accounts 2010–11
10. 
Other Administration Costs
Other Adm
i
n
i
s
t
ration C
o
s
t
s Table

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99
11. 
Programme Costs
Programme
 
C
o
s
t
s Table
Child Trust Fund Endowments and Health in Pregnancy Grant 
Due to changes in legislation, entitlement to Child Trust Fund endowments ceased in 2010-11 although the 
additional yearly payment to children qualifying for Disability Living Allowance ceased from 6 April 2011. 
Entitlement to Health in Pregnancy Grant ceased on 31 December 2010.
* Certain prior year figures have been restated as per note 1.27 and note 1.28.

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HM Revenue & Customs Annual Report and Accounts 2010–11
12. 
Income
I
ncome Tab
le 1 
Of total operating income received, the following relates to services provided to external and public sector 
customers where full cost exceeds £1.0m. In each case the financial objective is to recover the full costs of the 
service. This information is only provided for fees and charges purposes, and not for IFRS 8 purposes.
I
n
c
ome Table 
2

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101
13. 
Property, plant and equipment
P
r
o
p
erty, pl
a
n
t
 and equipment
 Table

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HM Revenue & Customs Annual Report and Accounts 2010–11
13. 
Property, plant and equipment (continued)
P
r
o
p
erty, pl
a
n
t
 and equipment
 Table Co
ntinued
Freehold Land and Buildings 100 Parliament Street
A full valuation, undertaken in March 2010 on the basis of existing use, established the value as being £96.1m, 
with the last interim valuations having been carried out in March 2009 and January 2008, respectively. 
Valuations were performed by the Valuation Office Agency, an executive agency of HM Revenue & Customs, 
whose services include providing valuation and estate surveying services to government departments.
Leased Land and Buildings
The accounting treatment adopted by HM Revenue & Customs accords with International Accounting 
Standards. Leased buildings have been brought onto the Department’s Consolidated Statement of Financial 
Position where applicable, whilst leased land remains as an operating lease. The buildings have been valued by 
the Valuation Office Agency, an executive agency of HM Revenue & Customs, whose services include providing 
valuation and estate surveying services to government departments. The valuations were provided as at three 
dates; the commencement of the lease, March 2008 and March 2009.

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103
14. 
Intangible assets
I
n
t
angible asset
s
 Table

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HM Revenue & Customs Annual Report and Accounts 2010–11
15. 
Financial Instruments
The following disclosures are made to allow users of the Department’s financial statements to evaluate the nature 
and extent of risks arising from financial instruments to which the Department is exposed at the reporting date.
The risks considered are credit risk (the risk of default by a counter-party receivable), liquidity risk (the risk 
that the Department will not be able to discharge its financial obligations) and market risk (the risk of loss from 
fluctuations in market prices).
As the cash requirements of the Department are largely met through the Estimates process, financial instruments 
play a more limited role in creating risk than would apply to a non-public sector body of a similar size. The 
majority of financial instruments relate to contracts to buy non-financial items in line with the Department’s 
expected purchase and usage requirements and the Department is therefore exposed to little credit or market risk. 
The Department does not face a liquidity risk as its operations, including benefits payments, are financed by the 
Exchequer.
15.a Credit Risk
The Department’s objective is full recovery of debt and we actively pursue this recovery. Our policy is to operate 
normal credit control procedures for the management of risk of default by trade receivables through our Accounts 
Receivable function. Deposits and advances are recovered on completion of successful litigation. 
Due to the nature and immaterial value of trade and other receivables, the Department views the credit risk 
associated with these receivables as negligible. No provision for doubtful debt is made in respect of other 
Government departments.
15.b Collateral and other credit enhancements obtained
The Department holds no collateral or other credit enhancement in respect of its financial assets.
15.c Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because 
of changes in market prices. Market risk includes currency risk and interest rate risk. Currency risk is the risk 
that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign 
exchange rates. The Department is exposed to negligible currency risk and therefore does not undertake hedging 
operations. Currency transactions are translated at the spot rate on the transaction date. Interest rate risk is the 
risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market 
interest rates. The Department does not face an interest rate risk as it has no investments or borrowings and its 
operations are financed by the Exchequer.
15.d Embedded Derivatives
The Department has conducted a review of all its material contracts and has concluded that there are no 
separable material embedded derivatives which require disclosure. The Department continues to monitor the 
position regarding embedded derivatives on a regular basis.

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105
15.e Fair Value
The value of financial assets and financial liabilities carried at amortised cost is deemed to be a reasonable 
approximation of their fair value.
15.f Capital disclosures
This section is not applicable to the Department.
15.1 
Investments in other public sector bodies
The Department holds no loans, Public Dividend Capital or other interests in public bodies outside the 
Departmental boundary.
16. 
Impairments
The Department conducts an annual impairment review. In 2010-11 the IT software supporting the terminated 
Child Trust Fund, Health in Pregnancy Grant and Saving Gateway schemes was impaired. The Valuation Office 
Agency had an impairment relating to developed software designed to assist with the valuation of property for 
local taxes.
I
m
pairments Table

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HM Revenue & Customs Annual Report and Accounts 2010–11
17. 
Inventories
I
n
ventorie
s
 Table
18. 
Trade receivables and other current assets
T
r
a
d
e receivab
l
es and oth
e
r
 current
 
assets T
a
ble
Child Trust Fund Endowments and Health in Pregnancy Grant 
Due to changes in legislation, entitlement to Child Trust Fund endowments ceased in 2010-11 although the 
additional yearly payment to children qualifying for Disability Living Allowance ceased from 6 April 2011. 
Entitlement to Health in Pregnancy Grant ceased on 31 December 2010.

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107
18.1 
Intra-Government Balances
I
ntra-Government Balances Table
19. 
Cash and cash equivalents
C
a
s
h
 and cash 
e
quivalents
 
T
able
20. 
Reconciliation of Net Cash Requirement to increase/(decrease) in cash
R
e
c
onciliatio
n
 
of Net Cas
h Require
m
ents T
able

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HM Revenue & Customs Annual Report and Accounts 2010–11
21. 
Trade payables and other current liabilities
T
r
a
d
e payables
 
and other 
c
u
rrent li
a
bilities
 
Table
Child Trust Fund Endowments and Health in Pregnancy Grant 
Due to changes in legislation, entitlement to Child Trust Fund endowments ceased in 2010-11 although the 
additional yearly payment to children qualifying for Disability Living Allowance ceased from 6 April 2011. 
Entitlement to Health in Pregnancy Grant ceased on 31 December 2010.

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109
21.1 
Intra-Government Balances
I
ntra-Government Balances Table

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110 
 
HM Revenue & Customs Annual Report and Accounts 2010–11
22. 
Provisions for liabilities and charges
P
rovisi
ons fo
r liabilit
i
es and ch
a
r
g
es Table

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111
22.1 
Early departure costs
The Department meets the additional costs of benefits beyond the normal PCSPS benefits in respect of employees 
who retire early by paying the required amounts annually to the PCSPS over the period between the early 
departure date and when the employee reaches age 60. The Department provides for this in full when the early 
retirement programme becomes binding by establishing a provision for the estimated payments discounted by 
HM Treasury discount rate of 2.9 per cent in real terms. 
22.2 
Child Trust Fund
Child Trust Fund (CTF) endowments; eligibility to which ceased on 03 January 2011, provided assistance with 
the funding on long-term individual savings and investment accounts provided by approved financial institutions. 
A provision of £106.3m (2009-10: £114.0m) has been made for amounts that will become payable in respect of 
children qualifying for CTF endowments. The provision mainly comprises initial and supplementary endowments 
for children born to 31 December 2010 of £67.4m (2009-10: £71.2m) and those who attained the age of seven 
by 31 July 2010 of £23.0m (2009-10: £35.6m), along with additional endowments due to children in receipt of 
Disability Living Allowance of £15.9m.
22.3 
Health in Pregnancy Grant
The Health and Social Care Act (2008) established entitlement to Health in Pregnancy Grant which provided 
financial assistance to women to meet the additional costs encountered during pregnancy. This grant was 
available to women who reached their twenty-fifth week of pregnancy by 31 December 2010. Accordingly, no 
provision has been made in 2010-11 (2009-10: £10.6m).
22.4 
Legal claims
A provision of £37.3m (2009-10: £30.7m) has been made for costs relating to various legal claims against the 
Department. The provision reflects all known claims where legal advice indicates that it is probable that the 
claim will be successful and the amount of the claim can be reliably estimated. Legal claims which may succeed 
but are less likely to do so or cannot be estimated reliably are disclosed as contingent liabilities in note 29. 
22.5 
Accommodation costs 
A provision of £11.3m has been made (2009-10: £3.7m) mainly for buildings-related claims giving rise to 
probable liabilities under tenancy agreements where the amount of the claims can be reliably estimated. Claims, 
which may succeed but are less likely to do so or cannot be estimated reliably are disclosed as contingent 
liabilities in note 29.
22.6 
Other
Provisions relating to various other claims against the Department amount to £4.9m (2009-10: £4.2m).

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HM Revenue & Customs Annual Report and Accounts 2010–11
23. 
Pension liability
This pension liability, part of the Local Government Pension Scheme (LGPS), is in respect of staff previously 
employed by The Rent Service (TRS) but now employed by the Valuation Office Agency (VOA). For the purposes 
of International Accounting Standard 19, the VOA commissioned a qualified independent actuary to carry out an 
assessment of the TRS pension fund as at 31 March 2011. The results of the actuarial assessment are shown below.
Pension liability Tabl
e

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113
Table Continued

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114 
 
HM Revenue & Customs Annual Report and Accounts 2010–11
Table Continued
As part of our Service Level Agreement with them, DWP accepts that were the TRS pension fund liability to 
crystallise, then DWP would accept this liability and in so far as they could fund this themselves would do so 
and in the event that they could not fund this would seek additional funding from HM Treasury to address any 
shortfall. The VOA and by extension the Department is effectively indemnified against this liability.
24. 
Segment information
24.1 
Reporting Segments as determined by IFRS 8
Following the ending of the performance regime of Public Service Agreements (PSAs) and Departmental Strategic 
Objectives (DSOs) this Note apportions current expenditure against the Operating Segments that are the main 
areas of business activity.
The reportable segments are the lines of business that are reported to the Chief Executive and the Board as 
detailed in paragraphs 55 and 56 of the Corporate Governance report (see page 65). These segments are the 
strands of activity in the management information reviewed by the Board and used by them to make decisions, 
presented as the Management Accounts and reported here in the same format. As the spirit of IFRS 8 requires 
presentation of information of a comparable format to that used by the Board to make business decisions, the

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115
information is more meaningful when presented with the overheads shown separately as they make up 41.3 per 
cent of net expenditure in 2009-10 and 44.6 per cent of net expenditure in 2010-11.
Other Segments comprise – Chief Executive, Performance and Improvement, Permanent Secretary for Tax and 
Other. Income reported in Other Segments consists mainly of Administration Charges to the National Insurance 
Fund as reported in note 12.
Management Accounts are prepared for RfR 1A only.
Information on all other RfRs is included in note 24.2. This information is reported to the Board, however as it 
is Annually Managed Expenditure (AME) it is centrally managed and is reported in a different format than the 
reportable segments in the management accounts which compares budgeted spend to actual spend at the segment 
level.
AME segments are demand led, and are therefore not subject to firm multi-year limits in the same way as 
Departmental Expenditure Limits (DEL).
T
a
b
le

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HM Revenue & Customs Annual Report and Accounts 2010–11
24.2 
 Reconciliation between Segment Information and Net Operating Cost in the Consolidated Statement of 
Comprehensive Net Expenditure
T
able
Explanation of the significant variances between 2010-11 and 2009-10 Management Accounts.
The net spend of the Department overall as shown in the Management Accounts has decreased from £3,947.2m to 
£3,574.9m.
• 
• 
• 
• 
• 
• 
• 
• 
• 
• 
• 
• 
Business Tax – the increase in gross expenditure relates to Shipbuilders’ Relief, an increase of £29.4m (12.5 per 
cent). This is due to the relief becoming due on completion of vessels;
Personal Tax – decrease in expenditure of £89.7m (10.7 per cent). This is primarily due to a reduction in 
paybill;
Finance and Estates – decrease in expenditure of £136.1m (17.8 per cent). Estates rationalisation is reducing the 
estate related costs;
People Function – decrease in expenditure of £150.3m (67.1 per cent). This is due to the utilisation of early 
departure provisions, see note 22.1;
Legal – decrease in expenditure of £11.1m (16.1 per cent). This is primarily due to a reduction the utilisation of 
provisions;
Business Tax – increase in income of £3.3m (26.8 per cent). This is primarily due to an increase in 
Shipbuilders’ Relief recovered;
Enforcement and Compliance – decrease in income of £5.8m (19.9 per cent). This is primarily due to a decrease 
in income from Other Government Departments;
Personal Tax – decrease in income of £9.3m (12.4 per cent). This is due to a reduction in penalty charges and a 
reduction in income from Other Government Departments;
Finance and Estates – increase in income of £3.5m (21.6 per cent). This is primarily due to an increase in GBS 
Tariff;
Information Technology – decrease in income of £6.4m (18.6 per cent). This is primarily due to a decrease in 
income from Other Government Departments;
Legal – decrease in income of £1.8m (40.9 per cent). This is primarily due to a decrease in income from Other 
Government Departments;
People Function – decrease in income of £4.0m (83.3 per cent). This is due to a decrease in income from Other 
Government Departments, and a reduction in the UKBA service charge.

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117
25. 
Capital commitments
C
apital c
ommitme
n
ts Ta
ble
The majority of capital commitments relate to the future cost of the development work raised under the IT 
service contract with ASPIRE.
26. 
Commitments under leases
26.1 
Operating leases
Total future minimum lease payments under operating leases are given in the table below. The buildings 
payments relate to property leased by Mapeley from third-party landlords on behalf of the Department; 
property leased by the Department direct from private landlords and the minor occupation of other government 
department buildings. The property leases vary in length and the Department has no right of purchase at the end 
of the contract but would re-negotiate leases where continued occupation is desired. The properties have been 
assessed against IAS 17 and determined as operating leases and therefore the associated commitments have been 
recorded in this note.
The Other commitments relate to a number of IT and vehicle leasing contracts. These include a contract for 
the management of the Customs Handling of Import Export Freight system (CHIEF) which is a data capture 
and validation system for international trade movements. The CHIEF contract runs for 5 years to 31 January 
2015 with an option to extend the contract by up to 3 years. Other Commitments also include a contract with 
Inchcape Fleet Solutions (IFS) for the fleet management including service, maintenance and repair of motor 
vehicles over a 4 year period with a renewal option of a further 2 years. IFS also provide 20 per cent of the 
Department’s leased vehicles under this contract. There are no purchase options within the lease agreements. 
There are options to both informally and formally extend each Lease Agreement. There are no specific escalation 
clauses relating to the lease agreements. The remaining vehicles leased by the Department are via a contract with 
Lex Autolease, again there are no purchase options within the lease agreements but there are options to formally 
extend each of the lease agreements. The payment of these lease costs to Lex Autolease go via IFS, our fleet 
management supplier.
C
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26.2 
Finance leases
The following commitments are in respect of assets that have been brought onto the Department’s Consolidated 
Statement of Financial Position (SoFP) under IAS 17. Total finance lease charges are given in the table below. The 
buildings payments relate to property leased by Mapeley from third-party landlords on behalf of the Department 
and property leased by the Department direct from private landlords. The property leases vary in length and the 
Department has no right of purchase at the end of the contract but would re-negotiate leases where continued 
occupation is desired. The properties have been brought onto the SoFP under IAS 17 and determined as finance 
leases and therefore the associated commitments have been recorded in this note. The commitments also include 
payments relating to the property known as 100 Parliament Street which was brought onto the SoFP under UK 
GAAP rules and the ownership will revert back to the Department at the end of the contract.
F
i
nance leas
e
s Table 
26.3 
Finance leases – Consolidated Statement of Comprehensive Net Expenditure – Future commitments
The payments to which the Department is committed in relation to Finance leases are detailed in the table below. 
The building commitments in notes 26.1, 26.3 and 27.3 are based on the assumption of an annual RPI increase of 
4 per cent (2009-10: 5 per cent).

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T
able	
27. 
Commitments under PFI and other service concession arrangements
27.1 
Off-balance sheet (SoFP)
The Department has no off-balance sheet (SoFP) PFI contracts. 
27.2 
On-balance sheet (SoFP)
The following commitments are in respect of assets that have been brought onto the Department’s Statement 
of Financial Position (SoFP) under IAS 17 and IFRIC 12. They comprise commitments relating to the STEPS 
Contract (Mapeley-owned) freehold and historic leasehold properties, Newcastle Estates Partnership (NEP) held 
with DWP and six further property PFI arrangements with contractors. They also include commitments for IT 
assets owned by CapGemini and Fujitsu to deliver the IT service contract.
The STEPS contract is subjected to annual RPI movements and adjustments for index efficiencies. There is 
no automatic right of renewal for the STEPS contract at the expiry of the agreement on 2 April 2021; but the 
contract provides for new market lease terms to be agreed if required, giving the Department continued rights 
of occupation in HMRC’s former freehold and historic leasehold estate beyond contract expiry. Options for 
termination of the contract include default (without compensation) and termination for convenience (with 
compensation).
The NEP contract is subject to an annual uplift in January in relation to the Availability Charge (i.e. rent) and 
a further annual uplift relating to the Condition Payment (service charge) in April. Whilst there is a phased 
building specific expiry arrangement concluding October 2029, the contract contains options to extend the 
occupancy of buildings which can be exercised 3 years before the expiry of building occupancy agreements via 
negotiation with the landlord. There are a number of options to terminate the contract which include voluntary 
termination giving 12 months notice with compensation, termination for Force Majeure, termination for default 
without compensation and finally contractor insolvency.
The IT contract was originally for a 10 year period commencing on 1 July 2004. The contract incorporated an 
option to extend it up to a further 8 years. In 2007 the Department exercised the option to extend it for a further 
3 years to 30 June 2017 in return for achieving certain pricing reductions. 
The substance of each contract is that the Department has a finance lease and that payments comprise two 
elements – finance lease charges and service charges. The details of the finance lease charges are set out in the 
table below.

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27.3 
Charge to the Consolidated Statement of Comprehensive Net Expenditure and future commitments
The total amount charged in the Consolidated Statement of Comprehensive Net Expenditure in respect of on-
balance sheet (SoFP) PFI and other service concession arrangement transactions (there were no off-balance sheet 
(SoFP) transactions) was £502.0m1 (2009-10: £486.3m) and the payments to which the Department is committed 
are detailed in the table below. The building commitments in notes 26.1, 26.3 and 27.3 are based on the 
assumption of an annual RPI increase of 4 per cent (2009-10: 5 per cent).
1 This amount is included within the figures reported in note 10 as PPP and PFI service charges.
T
able	
28. 
Other financial commitments
The Department has entered into non-cancellable contracts (which are not leases or PFI contracts) for various 
services. The commitments include a Strategic Partnership agreement with Accenture to help strengthen the 
in-house IT function within the Department to better support internal customers and Other Government 
Departments. The contract started on 1 March 2010 and will run for three years. The payments to which the 
Department is committed, analysed by the period during which the commitment expires, are as follows.
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a
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28.1 
Financial Guarantees, Indemnities and Letters of Comfort
The Department has entered into the following quantifiable guarantees, indemnities or provided letters of comfort. 
None of these is a contingent liability within the meaning of IAS 37 since the likelihood of a transfer of economic 
benefit in settlement is too remote. They therefore fall to be measured following the requirements of IAS 39. 
Managing Public Money requires that the full potential costs of such contracts be reported to Parliament. These 
costs are reproduced in the table below.
The Department has not entered into any unquantifiable contingent liabilities. 
29. Contingent liabilities disclosed under IAS 37
The Department has the following contingent liabilities:
• 
• 
• 
• 
• 
Shipbuilders’ Relief – a contingent liability of £61.7m (2009-10: £93.2m) exists for potential claims against the 
Department;
Legal Claims – a contingent liability of £81.2m (2009-10: £52.3m) exists for costs that may be awarded should 
various legal cases in which HMRC is involved be determined against the Department. The contingent liability 
covers all such cases where the outcome is unknown or cannot be estimated reliably;
Specialist Investigations are reporting a contingent liability in respect of potential compensation for a Missing 
Trader Intra Community Fraud (MTIC) case totalling £10.2m (2009-10: £9.7m); 
Action where appointed liquidators have been guaranteed costs with a view to recovery of outstanding tax 
liabilities £0.9m, 120 cases (2009-10: £1.1m, 141 cases);
The Department has a further number of contingent liabilities amounting to £8.1m (2009-10: £6.0m).

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30. 
Losses and special payments
30(a) 
Losses Statement
L
osses St
atement
 
T
able	
Details of cases over £250,000
£6.1m – The Government announced in the budget on the 22 June 2010 that the Saving Gateway would no 
longer be introduced. Accordingly, the Department has incurred a constructive loss of £6.1m in respect of the 
decommissioning of the IT system.
30(b) 
Special Payments
T
able	
Details of cases over £250,000
£0.8m – Utilisation of a prior year provision in respect of a personal injury claim.
£0.6m – Ex-gratia payment in respect of losses caused by control and enforcement action.
£0.4m – Compensation payment in respect of damages for unsuccessful legal proceedings.
31. 
Related-party transactions
The Department is the parent of the Valuation Office Agency. This body is regarded as a related-party with which 
the Department has had various material transactions during the year.
The Valuation Office Agency has had a significant number of material transactions with other government 
departments. Most of these transactions have been with the Department for Communities and Local 
Government, the Department for Work and Pensions and the Welsh Assembly Government.
In addition, the Department has had a small number of transactions with other government departments and 
other central government bodies.
No Board member, key manager or other related parties has undertaken any material transactions with the 
Department during the year.

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123
T
hird-part
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ts Tab
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32. 
Third-party assets
The Department holds Euro deposits in relation to European Commission (EC) Twinning Projects. For such 
projects it is common for the lead body to hold Euro funds on behalf of the EC. The funds are payable to other 
European Union (EU) member states as reimbursement for work undertaken in assisting EU candidate states in 
preparing for membership of the EU. The Department holds these funds as an agent of the EC.
Neither the Department nor the Government generally have any beneficial interest in these funds. They are set 
out in the following table.
In previous years details of deposits held in relation to VAT on E-services, seized monies (Sterling and US dollar), 
motor vehicles and vessels have been reported in the Resource Account. As proceeds from the sale of seized assets 
are now paid to the Exchequer as Consolidated Fund Extra Receipts (CFERs), these are now reported in the Trust 
Statement.
33. 
Entities within the departmental boundary
The entities within the boundary during 2010-11 were as follows:
• Supply-financed agencies 
– Valuation Office Agency
• Non-departmental public bodies – None
• Others 
– None
The Annual Report and Accounts of the Valuation Office Agency are published separately and can be viewed at 
www.voa.gov.uk
34. 
Events after the reporting period
There are no reportable events after the reporting period. The financial statements were authorised for issue by 
the Principal Accounting Officer on 6 July 2011.

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HM Revenue & Customs Departmental Report and Accounts 2011 
 
125
Trust Statement
Contents
Principal Accounting Officer’s Foreword to the Trust Statement 
126
Statement of the Principal Accounting Officer’s Responsibilities in Respect of the Trust Statement 
134
Statement on Internal Control 
135
The Audit Report of the Comptroller and Auditor General to the House of Commons 
136
Statement of Revenue, Other Income and Expenditure for the year ended 31 March 2011 
139
Statement of Financial Position as at 31 March 2011 
140
Statement of Cash Flows for the year ended 31 March 2011 
141
Notes to the Trust Statement 
142
Accounts Direction Given by HM Treasury 
161

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HM Revenue & Customs Annual Report and Accounts 2010–11
Principal Accounting Officer’s 
Foreword to the Trust Statement
Scope
HM Revenue & Customs (HMRC) is responsible for collecting taxes, duties and National Insurance 
Contributions and for making payments of tax credits, Child Benefit, Child Trust Fund endowments and 
Health in Pregnancy Grants. HMRC is also responsible for collecting repayments of student loans, enforcing 
payment of the national minimum wage and for providing the Government business link portal. The Trust 
Statement reports the revenues and expenditures and assets and liabilities related to the taxes and duties for 
the financial year 2010-11 and reports the full year’s activity of HMRC. The costs of running HMRC, and 
payments of Child Benefit and Child Trust Fund, are reported in the Departmental Resource Accounts.
The taxes and duties which HMRC has accounted for in this Trust Statement are:
• 
• 
• 
• 
• 
• 
• 
• 
• 
• 
• 
• 
Income, Corporation, Bank Payroll, Capital Gains, Inheritance, Insurance Premium, Stamp and Petroleum 
Revenue taxes 
Bank Levy
Value Added Tax (VAT)
Excise duties 
Customs duties 
Betting and Gaming duties
Air Passenger Duty
Environmental taxes: Climate Change Levy, Aggregates Levy and Landfill Tax 
National Insurance Contributions (NICs)
Fines and Penalties
Tax Credits and
Recovery of Student Loan repayments
RN Limited, a company registered in 1933, is used by HMRC as a nominee to hold charges securing tax debts 
owed to HMRC. These debts are already fully reflected in the Trust Statement. RN Limited also holds as 
nominee and on behalf of HMRC assets that have been assigned to HMRC in settlement of debts.

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127
Financial Review of 2010-11 Trust Statement
1. Total Revenue
Total revenues accruing in year were £468.9 billion: £33.1 billion (7.6 per cent) higher when compared to prior 
year, reflecting the highest accrued revenue to date. This significant rise is due to increases in various tax/duty 
rates and a continued upturn in the economy when compared to the prior year. It is also reflective of improved 
performance of the Department in reducing revenue losses from fraud and error, increasing compliance yield and 
improving debt management.
Taxes and dut
ies Pie 
Chart
The eight taxes and duties specifically named above (Income Tax & National Insurance Contributions [IT & NICS] being reported 
together) between them account for 95 per cent of HMRC revenue in 2010-11.
Total revenue accruing to the Department is shown before deduction of revenue losses, decrease in provision for 
doubtful debt and the movement in the provision for liabilities provided in the year. In order to analyse revenue 
from taxes and duties after these changes, the Statement of Revenue and Expenditure should be viewed in 
conjunction with notes 9.1 and 10.1.
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HM Revenue & Customs Annual Report and Accounts 2010–11
2. Comparison by Tax Type
2.1 Income Tax & National Insurance Contributions
Income Tax and NICs accounted for 54.2 per cent of total revenue at £254.1 billion; £5.1 billion (2.0 per cent) 
higher than 2009-10. 
The main reason for the increase was due to higher receipts of PAYE IT and NIC 1, reflecting economic 
improvement throughout the year across most sectors. 
2.2 Value Added Tax
Value Added Tax accounted for 19.3 per cent of total revenue at £90.3 billion; £13.2 billion (17.1 per cent) higher 
than 2009-10.
The main reasons for the increase are the changes in the VAT rate which returned to 17.5 per cent from January 
2010 and the increase to 20 per cent which took effect from January 2011. The improvement in economic growth 
also resulted in increased receipts. 
2.3 Corporation Tax
Corporation Tax accounted for 9.8 per cent of total revenue at £45.9 billion; £8.0 billion (21.1 per cent) higher 
than 2009-10. 
This increase is primarily due to an improvement in the economic situation with increased Corporation Tax 
receipts being an indication of an upturn in company profits. The growth in receipts compared to 2009-10 is 
evident across all onshore and offshore sectors.
2.4 Hydrocarbon Oils Duties
Hydrocarbon Oils accounted for 5.8 per cent of total revenue at £27.2 billion and were the highest on record; 
£0.9 billion (3.4 per cent) higher than 2009-10. 
The increase is mainly due to duty rate rises. 
2.5 Alcohols
Alcohol Duties accounted for 2.0 per cent of total revenue at £9.5 billion and were the highest on record; £0.3 
billion (3.3 per cent) higher than 2009-10. 
The increase is partly due to the duty rate rises in April 10 coupled with increased sales attributable to a stronger 
UK alcohols market. 
2.6 Tobacco
Tobacco Duties accounted for 2.0 per cent of total revenue at £9.3 billion; £0.2 billion (2.1 per cent) lower than 
2009-10. 
The decrease is primarily due to exceptionally high out-turns in 2009-10 resulting from changes in the timing of 
budgets which led to increased trade activity by manufacturers. In 2010-11, the Budget reverted back to March 
2011 and normal trading patterns were restored.

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129
2.7 Stamp Taxes
Stamp Taxes accounted for 1.9 per cent of total revenue at £9.0 billion; £0.9 billion (11.1 per cent) higher than 
2009-10. 
The increase is mainly attributable to an increase in receipts of Stamp Duty Land Tax reflecting higher prices of 
residential properties and higher volumes of commercial sales. 
2.8 Other Taxes, Duties and Revenues
The remaining minor taxes and duties account for 5.0 per cent of the total revenue at £23.6 billion; £4.9 billion 
(26.2 per cent) higher than in 2009-10.
2.8.1 Capital Gains Tax 
Capital Gains Tax accounted for 0.79 per cent of total revenue at £3.7 billion; £1.8 billion (94.7 per cent) higher 
than 2009-10. 
The increase looks high as it is compared to a particularly low revenue yield in 2009-10. 
The 2009-10 yield was low due to an inflated receipts figure in 2008-09 as taxpayers brought forward their 
disposals following a pre-announced effective increase in the CGT rate on longer term investments in the 2007 
Pre-Budget Report.
2.8.2 Petroleum Revenue Tax
Petroleum Revenue Tax accounted for 0.35 per cent of total revenue at £1.6 billion; £0.6 billion (60.0 per cent) 
higher than 2009-10. 
This increase is the result of rising oil prices.
2.8.3 Bank Payroll Tax 
Bank Payroll Tax accounted for 0.2 per cent of total revenue at £925 million. 
The £925 million revenue accrued in 2010-11 was in addition to the £2.5 billion estimated in 2009-10; resulting 
from stronger than anticipated bonuses.
2.8.4 Bank Levy
An estimated £659 million (£0.7 billion) Bank Levy has accrued, which is payable through future Corporation 
Tax Quarterly Instalment Payments (QIPs).

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HM Revenue & Customs Annual Report and Accounts 2010–11
3. Movement in Accrual Adjustments
3.1 Receivables and Accrued Revenue Receivable (Note 7) – Restated for 2009-10
The total of Receivables and accrued revenue receivable (ARR) - before the provision for doubtful debt - increased 
by £7.4 billion (6.9 per cent) between 31 March 2010 and 31 March 2011 to £115.2 billion. 
Receivables increased by £1.4 billion (5.0 per cent) compared to a prior year increase of £0.4 billion (1.4 per 
cent). Debt management has improved over the last year resulting in a decrease in overdue debt,* which has been 
reflected in the receivables balance. However, overall the receivable balance has increased due to the addition of 
higher number of prior year PAYE underpayment cases being reconciled during 2010-11, the impacts of extended 
payment dates for VAT online filing and the inclusion of new penalties. 
Accrued Revenue Receivable increased by £6.0 billion (7.5 per cent) to £85.7 billion. These increases mainly 
relate to VAT (£4.2 billion), Income Tax (£1.7 billion) and Corporation Tax (£1.4 billion), offset by a reduction in 
Bank Payroll Tax (£2.5 billion). The increase in VAT is mainly due to the VAT rate increase to 20 per cent whilst 
increases in the other taxes reflect the ongoing signs of the economic recovery.
*Overdue debt represents only part of the receivable balance. Receivables represent all liablilities that have been established, irrespective of 
whether they are due or overdue (see note 7 for further details).
3.2 Provision for Doubtful Debt (Note 9.4)
3
.2 Table	
Provision for Doubtful Debt decreased by £1.5 billion (13.0 per cent). This is mainly due to improved debt 
collection rates which form the basis of the provision calculation.
The Provision for Doubtful Debt is calculated to provide a fair value of receivables in the Trust Statement, in 
effect reducing receivables to a value that is likely to be collected and providing for non collectable debt.
Non collectable debt includes legally due debt that is written off or remitted (losses), in addition to debt that is 
discharged, amended or cancelled as information is received which reduces the liability or confirms that it is not 
legally due. The discharge, amendment and cancelled element results from liabilities being estimated by either the 
Department or the taxpayer and then subsequently amended once the true liability is known. 
3.3 Provision for Liabilities and Contingent Liabilities (Note 10.1)
Provisions were reviewed during 2010-11. Of the sum of £4,919 million provided last year £2,119 million was 
paid out during the year and it was identified that £977 million was no longer required. A new provision of 
£2,558 million has been added, the larger part of which relates to PAYE open cases, giving a carried forward 
balance of £4,381 million – a £538 million reduction on last year.
Contingent liablities were also reviewed during 2010-11 resulting in the estimates being increased by £2.6 billion. 
In addition, new cases have been identified with an estimated value of £1.6 billion.

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131
3.4 Payables, Accrued Revenue Payable & Deferred Revenue (Note 8)
The total of Payables, Accrued Revenue Payable (ARP) and deferred revenue decreased by £4.2 billion 
(9.7 per cent), mainly due to a net decrease of £3.0 billion in payables for the National Insurance Funds (NIF) 
and the NHS resulting from one large payable of £3.6 billion, due as at 31 March 2010, being paid during the 
current year.
3.5 Revenue Losses (Note 9.2)
Revenue losses decreased by £0.7 billion (11.3 per cent); from £6.6 billion in 2009-10 to £5.9 billion in 2010-11. 
This was mainly due to a large reduction in VAT losses resulting from Missing Trader Intra Community (MTIC) 
Fraud. This was partly offset by an increase in Income Tax losses due to additional underpayments below £300 
being remitted during 2010-11.
4. Comparison of Movement over the last 7 years 
C
ompariso
n Table	
Note: Total Revenue figures for the years 2004-05 to 2008-09 above differ from those previously published, having been adjusted to 
take account of the fact that, from 2009-10, Tax Credits Negative Taxation is reported as Expenditure in the Statement of Revenue & 
Expenditure, and so allow all years 2004-05 to 2010-11 to be compared on a like-for-like basis. 
5. Tax Credits
Tax credits accrued payments when compared to last year were £1.3 billion (4.9 per cent) higher due to:
• the up-rating (increase) to the rates of tax credits elements brought forward from 2011-12;
• policy changes which increased the value of the child element above average earnings; and 
• an increase in the number of families in work receiving tax credits.
Basis for the Preparation of the Trust Statement
The HM Treasury accounts direction, issued under Section 2 of the Exchequer and Audit Departments Act 1921, 
requires HMRC to prepare the Trust Statement to give a true and fair view of the state of affairs relating to the 
collection and allocations of taxes and duties and the revenue income and expenditure and cash flows for the 
financial year. Regard shall be given to all relevant accounting and disclosure requirements given in Managing 
Public Money and other guidance issued by HM Treasury and the principles underlying UK Generally Accepted 
Accounting Practice (UK GAAP) and International Financial Reporting Standards (IFRS).
HMRC has worked closely with HM Treasury to ensure that the accounting policies that underpin these accounts 
are comprehensive, appropriate, and supported to a sufficient level of detail by reports from Departmental 
business systems.

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HM Revenue & Customs Annual Report and Accounts 2010–11
Owing to the diverse nature of the taxes and duties administered by HMRC, a variety of methods are used to 
produce the relevant accruals information.
Selection of Appropriate Accounting Policies for the Trust Statement and Use of Judgements 
and Estimates 
As Principal Accounting Officer, it is my responsibility to apply suitable accounting policies in the preparation of 
the Trust Statement. The underlying approach to accruals measurement is that revenues from taxation are deemed 
to accrue evenly over the period for which they are due. Revenues are recognised in the period in which the event 
that generates the revenue occurs. 
In respect of the direct taxes, the nature of tax legislation and our associated systems, some of the accrued 
revenue receivable figures and some other items are subject to statistical estimation or forecasts. We have used 
estimates for a number of taxation streams because the majority of tax returns reporting taxpayer liabilities are 
not required to be sent to us until several months after the Trust Statement has been published.
In preparing our estimates we have to take account of areas of uncertainty around those factors which determine 
future revenue flows. We therefore have to make complex judgements concerning some of these factors and we 
have procedures in place to do this. 
We utilise statistical models to derive the estimates. These use a combination of projections based on the most 
recent revenue flows and forecasts of economic variables on which future revenue flows depend. We have based 
these forecasts on what we believe to be the relevant inputs. However, because of the areas of uncertainty 
involved, there will inevitably be differences between our forecasts and future outturns. These differences arise 
because of the need to make judgements on areas of uncertainty and are not indicative of deficiencies in our 
models. We believe that the levels of variation are acceptable with a maximum likely overall uncertainty expected 
to be some £4 billion, which does not significantly affect the reported position. This figure is equivalent to less 
than 1 per cent of total revenue reported in the Statement of Revenue, Other Income and Expenditure. 
This maximum likely overall uncertainty is based on a combination of evidence from the performance of the 
models over previous years and the judgement of professional departmental economists and statisticians having 
substantial experience of forecasting in the area of direct taxes. 
The accuracy of the estimates included in the 2009-10 Trust Statement has been reviewed as more recent data has 
become available, and I can confirm that they were within the levels of overall uncertainty quoted there.
Accrued revenue receivable is separately estimated for each revenue stream and component of income tax. The 
estimates used are those prepared for March 2011 Budget on the basis of the economic assumptions provided 
by Office for Budget Responsibility. The most important of these assumptions were that profits from self-
employment rose by 4.4 per cent in 2010-11 and dividend income rose by 5.9 per cent, while savings income fell 
by 11.8 per cent.
In respect of indirect taxes, accrued revenue receivable and accrued revenue payable are estimated for VAT, as the 
amounts involved are material. These include a significant amount of actual data available after 31 March which 
is included in the estimation calculations. Estimation techniques are not required for other indirect taxes and 
duties where actual data is available. 
No tax collection system can ensure that all those who have a tax liability comply with their obligations. Whilst 
the Department is concerned with compliance, the Trust Statement does not include estimates of taxes foregone 
as a result of avoidance and non-compliance with taxpayers’ obligations.

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133
Legal Proceedings
The HMRC Litigation and Settlement Strategy is available via the HMRC website. The aim of the Strategy is to 
make sure that disputes are conducted in a way that is professional, effective and that supports HMRC objectives 
to close the tax gap and provide customers with a clear understanding of the law.
HMRC is engaged in legal proceedings with taxpayers across a range of cases, including some where reference to 
the European Court of Justice may be required, as well as cases wholly within the jurisdiction of United Kingdom 
courts. The Department makes provision for these proceedings, which occur in the normal course of business, 
as summarised in Note 1, ‘Statement of Accounting Policies’ and Note 10.1, ‘Taxes Subject to Challenge’. 
HMRC may make additional significant provisions for such legal proceedings as required in the event of further 
developments in these matters, consistent with generally accepted accounting principles. Litigation is inherently 
unpredictable and, depending on the judgement of the relevant court, in some or all of these cases, there may be 
reductions in revenue and/or repayments of tax.
Provisions are made, after taking appropriate legal and other specialist advice, when a reasonable estimate can be 
made of the likely outcome of the dispute. At 31 March 2011, HMRC’s aggregate provision for legal and other 
disputes was £4.4 billion. PAYE open cases accounted for £2.5 billion of this total (see Note 10.1). The ultimate 
liability for legal claims may vary from the amounts provided and depends upon the outcome of litigation 
proceedings, investigations and possible settlement negotiations. 
Other cases, where it is probable that HMRC will be required to settle the obligation and is unable to reliably 
estimate the amount, or where it is possible that HMRC will be required to settle the obligation, are classed as 
contingent liabilities - see Note 10.1.
Auditors
The Trust Statement is audited by the Comptroller and Auditor General under Section 2 of the Exchequer and 
Audit Departments Act 1921. The auditor’s remuneration for this is included in HMRC’s Resource Accounts.
No non-audit work was carried out by the auditors for HMRC.
Dame Lesley Strathie DCB
Principal Accounting Officer
6 July 2011

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HM Revenue & Customs Annual Report and Accounts 2010–11
Statement of the Principal 
Accounting Officer’s Responsibilities in 
Respect of the Trust Statement
HM Treasury has appointed the Chief Executive as Principal Accounting Officer of HMRC with overall 
responsibility for preparing the Trust Statement and for transmitting it to the Comptroller and Auditor General.
The Principal Accounting Officer for HMRC is responsible for ensuring that there is a high standard of financial 
management, including a sound system of internal control; that financial systems and procedures promote the 
efficient and economical conduct of business and safeguard financial propriety and regularity; that financial 
considerations are fully taken into account in decisions on policy proposals; and that risk is considered in relation 
to assessing value for money.
The Principal Accounting Officer is responsible for the fair and efficient administration of the tax system, 
including the assessment, collection and proper allocation of revenue, and payment of tax credits and other 
entitlements.
Under section 2(3) of the Exchequer and Audit Departments Act 1921, the Principal Accounting Officer is 
responsible for the preparation and submission to the Comptroller and Auditor General of a Trust Statement for 
HMRC for the financial year 2010-11. In conforming with HM Treasury direction (see page 161 of this Trust 
Statement), the Trust Statement reports the revenue collected and expenditure in respect of taxes, duties, National 
Insurance Contributions, tax credits and Student Loan recoveries administered by HMRC during the year, 
together with the net amounts surrendered to the Consolidated Fund.
The Trust Statement is prepared on an accruals basis, except for Stamp Duty and National Insurance Classes 1A, 
1B and 3, which are accounted for on a cash basis. The Trust Statement must give a true and fair view of the state 
of affairs of HMRC, including a Statement of Revenue and Expenditure, a Statement of Financial Position, and a 
Statement of Cash Flows.
The Trust Statement includes a Statement on Internal Control (SIC) which sets out the governance, risk and 
control arrangements for HMRC. The SIC process is firmly and clearly linked to the risk management process in 
HMRC.
In preparing the Trust Statement, the Principal Accounting Officer is required to:
• 
• 
• 
observe the relevant accounting and disclosure requirements, and apply suitable accounting policies on a 
consistent basis;
make judgements and estimates on a reasonable basis;
state whether applicable accounting standards have been followed and disclose and explain any material 
departures in the account.
The responsibilities of an Accounting Officer, including responsibility for the propriety and regularity of the 
public finances for which an Accounting Officer is answerable, for keeping proper records and for safeguarding 
the Department’s assets, are set out in the Accounting Officers’ Memorandum issued by HM Treasury and 
published in Managing Public Money.

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135
The Department’s Statement on Internal Control, covering both the Resource Accounts and the Trust Statement, 
is shown on pages 39 to 47 of this document.
Statement on Internal Control

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HM Revenue & Customs Annual Report and Accounts 2010–11
I have audited HM Revenue & Customs’ (the Department’s) Trust Statement for the year ended 31 March 2011 
under the Exchequer and Audit Departments Act 1921. The Trust Statement comprises the Statement of Revenue, 
Other Income and Expenditure, the Statement of Financial Position, the Statement of Cash Flows and the related 
notes. These financial statements have been prepared under the accounting policies set out within them.
Respective responsibilities of the Principal Accounting Officer and auditor
As explained more fully in the Statement of the Principal Accounting Officer’s Responsibilities in Respect of the 
Trust Statement, the Principal Accounting Officer is responsible for the preparation of the financial statements 
and for being satisfied that they give a true and fair view of the state of affairs relating to taxes, duties, National 
Insurance Contributions, tax credits and Student Loan recoveries as at 31 March 2011 and of the revenue and 
expenditure and cash-flows for the year then ended. My responsibility is to audit and report on the financial 
statements in accordance with the Exchequer and Audit Department Act 1921. I conducted my audit in 
accordance with International Standards on Auditing (UK and Ireland). Those standards require me and my staff 
to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient 
to give reasonable assurance that the financial statements are free from material misstatement, whether caused 
by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the 
Department’s circumstances and have been consistently applied and adequately disclosed; the reasonableness 
of significant accounting estimates made by the Department; and the overall presentation of the financial 
statements. In addition I read all the financial and non-financial information in the Principal Accounting Officer’s 
Foreword to the Trust Statement to identify material inconsistencies with the audited financial statements. If 
I become aware of any apparent material misstatements or inconsistencies I consider the implications for my 
report.
In addition, I am required to obtain evidence sufficient to give reasonable assurance that the revenue and 
expenditure reported in the financial statements have been applied to the purposes intended by Parliament and 
the financial transactions conform to the authorities which govern them. 
Qualified opinion on regularity
The Trust Statement records £28.1 billion of tax credits expenditure in 2010-11. As shown in Note 3.3 to the 
Trust Statement, the Department’s latest estimate is that in 2009-10 error and fraud resulted in overpayments 
of between £1.75 billion and £2.14 billion (6.6 per cent to 8.1 per cent) of the final award by value to which 
claimants were not entitled. Note 3.3 also shows that the Department estimates that error led to underpayments 
of between £0.25 billion and £0.55 billion (1.0 per cent to 2.1 per cent) of the final award by value. Where error 
and fraud result in over or underpayment of tax credits the transactions are not in conformity with the Tax 
Credit Act 2002 and related regulations which specify the criteria for entitlement to tax credits and the method to 
be used to calculate the award.
The Audit Report of the Comptroller 
and Auditor General to the House 
of Commons

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137
The Department currently has no estimate of the total level of error and fraud in the tax credit awards made 
in 2010-11 and therefore no evidence to demonstrate a lower estimate for overpayments and underpayments 
attributable to error and fraud in 2010-11. Accordingly, I have been unable to confirm that, in all material 
respects, tax credits awards are in conformity with the authorities which govern them and have been applied for 
the purposes intended by Parliament. I have therefore qualified my audit opinion on the regularity of tax credits 
expenditure because of the probable level of overpayments attributable to error and fraud which have not been 
applied to the purposes intended by Parliament; and because of the probable level of under and over payments in 
tax credits expenditure which are not in conformity with the relevant authorities.
In my opinion, except for the probable level of error and fraud in tax credits expenditure, in all material 
respects the revenue and expenditure have been applied to the purposes intended by Parliament and the financial 
transactions conform to the authorities which govern them.
Opinion on Financial Statements
In my opinion: 
• 
• 
the HM Revenue and Customs Trust Statement gives a true and fair view of the state of affairs as at 31 March 
2011 relating to the collection and settlement of taxes, duties, National Insurance Contributions, tax credits 
and student loan recoveries and related expenditures administered by the Department, and of the revenue and 
expenditure and cash flows for the year then ended; and
the Trust Statement has been properly prepared in accordance with the Exchequer and Audit Departments Act 
1921, as amended by the Government Resources and Accounts Act 2000 and HM Treasury directions issued 
thereunder.
Emphasis of Matter: significant uncertainty in the estimates of accrued revenue receivable and 
accrued revenue payable
In forming my opinion on the truth and fairness of the Trust Statement, which is not qualified, I have considered 
the adequacy of the disclosures made in Notes 7 and 8 on the estimates of accrued tax revenue receivable of 
£85.7billion and accrued revenue payable of £24.6 billion at 31 March 2011. As described in Note 7.1.4, the 
Department considers that the combined accrued revenue receivable and accrued revenue payable at 31 March 
2011 are subject to maximum likely uncertainty of £4 billion in either direction, equivalent to less than one 
per cent of total revenue reported in the Statement of Revenue and Expenditure. The significant uncertainty is 
adequately disclosed in the Trust Statement.
Opinion on other matters
In my opinion: 
• the information given in the Principal Accounting Officer’s Foreword to the Trust Statement for the financial 
year for which the financial statements are prepared is consistent with the financial statements.

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Matters on which I report by exception
I have nothing to report in respect of the following matters which I report to you if, in my opinion:
• adequate accounting records have not been kept; or
• the financial statements are not in agreement with the accounting records or returns; or
• I have not received all of the information and explanations I require for my audit; or
• The Statement on Internal Control does not reflect compliance with HM Treasury’s guidance. 
Report
Details of these matters are set out in paragraph 4.4 of my Report on HM Revenue and Customs 2010-11 
Accounts.
Amyas C E Morse 
Comptroller and Auditor General 
 
6 July 2011 
National Audit Office
157-197 Buckingham Palace Road
Victoria
London SW1W 9SP

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139
Statement of Revenue, Other 
Income and Expenditure for the 
year ended 31 March 2011
S
t
a
tement of
 
R
evenue T
able
There were no recognised gains or losses accounted for outside the above Statement of Revenue, Other Income and 
Expenditure.
The notes at pages 142 to 160 form part of this Statement.

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140 
 
HM Revenue & Customs Annual Report and Accounts 2010–11
Statement of Financial Position 
as at 31 March 2011
S
t
a
tement of
 
F
inancial Posit ion Table
The notes at pages 142 to 160 form part of this Statement.
Dame Lesley Strathie DCB 
Principal Accounting Officer
6 July 2011

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141
Statement of Cash Flows for the 
year ended 31 March 2011
S
t
a
tement of
 
C
ash Flow
s Table

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HM Revenue & Customs Annual Report and Accounts 2010–11
Notes to the Trust Statement
1 Statement of Accounting Policies
1.1 Basis of Accounting
The Trust Statement is prepared in accordance with:
• the accounts direction issued by HM Treasury under the Exchequer and Audit Departments Act 1921; 
• the 2010-11 Financial Reporting Manual issued by HM Treasury; and
• the accounting policies detailed below.
The accounting policies have been developed by HM Revenue & Customs (HMRC) in consultation with HM 
Treasury and have been reviewed during 2010-11 and these policies have been applied consistently in dealing 
with items considered material in relation to the accounts. 
The ‘tax gap’ is not recognised in the Trust Statement. This is defined as the difference between tax collected and 
that which, in HMRC’s view, should be collected. Tax liability is therefore defined so as to include all tax that 
is due under either the letter or the spirit of the law. Under this definition the tax gap revenue loss equates to the 
shortfall resulting from fraud, error, non-payment and artificial avoidance schemes.
The financial information presented in the primary statements is rounded to the nearest £0.1 billion. The 
financial information presented in the notes to the financial statements is rounded to the nearest £0.1 billion 
except for Certificates of Tax Deposit, Student Loan Recoveries, tax revenue due to/from the Isle of Man, revenue 
losses and provision for liabilities which are rounded to the nearest £1 million.
1.2 Accounting Convention
The Trust Statement has been prepared in accordance with the historical cost convention. Taxes and duties are 
accounted for on an accruals basis, except for Stamp Duty and National Insurance Classes 1A, 1B and 3, which 
are accounted for on a cash basis. In addition, some repayments are accounted for on a cash basis as detailed in 
Note 1.3.
1.3 Revenue Recognition 
Taxes and Duties Recognised on an Accruals Basis
Taxes and duties are measured at the fair value of the consideration received or receivable net of repayments. 
Revenue is recognised when: a taxable event has occurred, the revenue can be measured reliably and it is probable 
that the economic benefits from the taxable event will flow to HMRC. Note 7 provides an explanation of accrued 
revenue receivable. 
Taxable events for the material tax streams are as follows:
• 
• 
• 
• 
• 
• 
• 
• 
Income Tax and National Insurance Contributions- earning of assessable income during the taxation period by 
the taxpayer. Where payments are received in advance of Self Assessment returns, the estimate of the Income 
Tax component is based on prior year Income Tax liabilities.
Value Added Tax – undertaking of taxable activity during the taxation period by the taxpayer
Corporation Tax – earning of assessable profit during the taxation period by the taxpayer
Excise duties – movement of goods out of a duty suspended warehouse
Hydrocarbon Oils Duty – production of taxable goods
Stamp Taxes (Stamp Duty Land Tax and Stamp Duty Reserve Tax) – purchase of property or shares
Bank Levy – chargeable equity and liabilities as reported in balance sheet at end of chargeable period 
Inheritance Tax – the date of agreement of assessment, after death or other chargeable transfer of value

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143
• Capital Gains Tax – disposal of a chargeable asset leading to a taxable gain. Where payments are received in 
advance of Self Assessment returns, the estimate of the Capital Gains Tax component is based on prior year 
Capital Gains Tax liabilities.
Revenues are deemed to accrue evenly over the period for which they are due. No revenue is recognised if there are 
significant uncertainties regarding recovery of the taxes and duties due.
All repayments are accounted for on an accruals basis with the exception of Capital Gains Tax, Inheritance Tax, 
Petroleum Revenue Tax and Stamp Duty. 
Taxes Recognised on a Cash Basis
Taxes are recognised in the accounting period in which the tax receipt is received and are measured at the cash 
amount received for those taxes and duties listed in Note 1.2.
Repayments for Capital Gains Tax, Inheritance Tax, Petroleum Revenue Tax and Stamp Duty are made on a cash 
basis. These are recognised in the period the repayment is made.
Tax Credits 
Tax credits are recognised in the year in which they are assessed and authorised by HMRC. Authorisation is the 
point at which the obligation to pay the tax credit arises.
Payments of tax credits are provisional until entitlement is finalised after the financial year end. Under-payments 
are accounted for on a cash basis in the year of payment. Over-payments are recovered from future tax credit 
awards or through repayments by claimants.
National Insurance Contributions
National Insurance Contributions are collected by HMRC on behalf of the National Insurance Funds of Great 
Britain and Northern Ireland, and the Health Services for England, Wales, Scotland and Northern Ireland. They 
are payable to the Funds and the Health Services when received. For 2010-11 an allocation has been made between 
income tax and Class 1 National Insurance Contributions based on the Department’s best estimate of the amounts 
of each likely to be reported in employers’ end of year returns. The allocations are re-assessed when the end of year 
returns are available and any adjustments to the amounts due are made with actual information on the income tax 
and national insurance contribution split. At year end, the difference between the revised estimated NIC receipts 
and amounts which have been paid over to National Insurance Funds and NHS funds is recognised as payable 
or receivable as appropriate. Amounts due from taxpayers to HMRC but not received at the end of the reporting 
period are included as receivables in Note 7 and as accrued revenue payable in Note 8 in respect of the Funds and 
Health Services.
Student Loan Recoveries
HMRC collects Student Loans that are recovered through the taxes system on behalf of the Department for 
Business, Innovation and Skills (BIS). Student loan recoveries are accounted for on the basis of estimated cash 
collected during the year. The actual amounts recovered during the year are only known after the year end when 
employers submit their annual returns. Estimates of receipts are made in year using an estimation model and at 
year end are updated based on the latest figures of employer returns processed. At the year end the difference 
between estimated receipts (recoveries) and pay-over to BIS is shown as a receivable or payable. Differences 
between estimated and actual recoveries are adjusted and accounted for in the following year.
Fines and Penalties 
Income arising from the levying of tax penalties is generally treated as Consolidated Fund Extra Receipts.

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HM Revenue & Customs Annual Report and Accounts 2010–11
However, HM Treasury has given authority for certain penalties relating to Income Tax, Corporation Tax and 
Capital Gains Tax to be appropriated in aid by the Department, i.e. kept by the Department to fund the cost of 
collection and they are reported in the Resource Accounts.
Penalties relating to National Insurance Contributions are accounted for as income and paid over to the National 
Insurance Fund.
1.4 Receivables
Receivables are shown net of a provision for doubtful debts.
1.5 Provisions and Contingent Liabilities 
Provisions are recognised when HMRC has a present legal or constructive obligation as a result of a past event, it 
is probable that HMRC will be required to settle that obligation and an amount has been reliably estimated.
Contingent liabilities are cases where it is probable that HMRC will be required to settle the obligation but is not 
able to estimate the amount reliably, or where it is possible that HMRC will be required to settle the obligation. 
These are not disclosed where disclosure could seriously prejudice the outcome of legal claims against the 
Department.
1.6 Restated totals for 2009-10 
The prior year comparative data has been restated due to the following: 
1. Consolidated Fund Extra Receipts (CFERs) are now reported in the Trust Statement as part of the HM Treasury 
Clear Line of Sight Alignment Project. These adjustments, reported as Fines and Penalties, have increased revenue 
by £0.6 billion and resulted in changes to: 
• Statement of Revenue, Other Income and Expenditure; Statement of Financial Position; Statement of Cash 
Flows; Notes 7, 9.1, 9.2, 9.4 and a presentational rounding in Note 2.3.
2. A review of receivables affected the Statement of Financial Position with a net increase in receivables of £1.0 
billion (VAT £0.8 billion, Customs duty £0.2 billion) and a net decrease in Accrued Revenue Receivable of £1.0 
billion (VAT £0.8 billion, Customs Duty £0.2 billion).
2 Taxes and Duties Due
2.1 Value Added Tax
V
a
lue Adde
d Tax T
a
b
le
VAT is structured in such a manner that taxpayers are also entitled to claim repayments; hence a breakdown of 
gross revenue and repayments is disclosed.

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145
2.2 Hydrocarbon Oils Duties
2
.
2 Table
2.3 Alcohol Duties
2
.
3 Table
2.4 Tobacco Duties
2
.
4
 Table
2.5 Stamp Taxes
2
.
5 Table

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2.6 Other Taxes and Duties
2
.
6 Table
Other Revenue relates to the movement of monies for Payments on Account which occur when a taxpayer makes 
a payment to HMRC before a charge is raised. Such funds are shown in the Statement of Financial Position under 
current liabilities and are only transferred to Revenue when liability has been established.
2.7 Landfill Tax
The Landfill Tax revenue of £1,137 million (2009-10: £1,023 million) is net of £65 million (2009-10: £63 million) 
contributions made to environmental bodies by landfill operators, under the Landfill Communities Fund (formerly 
the Landfill Tax Credit Scheme.) 
Landfill Tax was introduced on 1 October 1996 as a tax on the disposal of waste through landfill. It is levied on 
landfill operators by weight of refuse disposed in landfill sites. The Landfill Communities Fund was introduced 
at the same time as the tax. It allows operators to claim tax credits for contributions they make to approved 
environmental bodies for environmental improvement works in the vicinity of landfill sites. The recipients 
spend the contributions which meet one of the objectives specified in the Landfill Tax Regulations. Operators 
can contribute up to 5.5 per cent of their landfill tax liability and reclaim 90 per cent of the contributions they 
make as a tax credit. ENTRUST is a not-for-profit private sector company which acts as regulator of the Landfill 
Communities Fund and is an arm’s length body of HMRC.
2.8 Bank Payroll Tax 
Bank Payroll Tax was introduced by the Finance Bill 2010. It had effect for the period 9 December 2009 to 5 April 
2010 and was payable on or before 31 August 2010. Additional revenue in excess of the amount accrued at 31 
March 2010 are due to higher than expected bonuses being paid. No prior year adjustment is considered necessary.

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147
2.9 Bank Levy 
Bank levy was introduced by the Finance Bill 2011 and commenced on the 1 January 2011. Payment will be 
through the existing Corporation Tax Quarterly Instalment Payments (QIPs). In 2011 payment will be required 
only on QIPs payment dates on or after the date that Finance Bill 2011 receives Royal Assent. The accrued revenue 
receivables figure included in Note 2.6 is an estimate of accrued revenue liabilities from the 1 January 2011 to the 
31 March 2011.
3 Tax Credits
3.1 Analysis of Tax Credit Expenditure:
The Tax Credits expenditure analysis above is in accordance with the Organisation for Economic Co-operation 
and Development’s classification rules and international practice for the calculation of net taxes and social security 
contributions. It is disclosed as Negative Taxation to the extent that the tax credits are less than or equal to 
the recipient family’s income tax liability and as Payments of Entitlement where tax credits exceed the recipient 
family’s income tax liability.
The split between Child and Working Tax Credits has been estimated. 
3
.1 Table

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3.2 Tax Credit Receivables
3
.
2 Table
As a result of the finalisation exercise undertaken in 2010-11 further overpayments relating to tax credits paid in 
2009-10 totalling £636.8 million were identified. Adjustments made to payments in 2003-04 through to 2008-09 
resulted in a net £16.7 million overpayment. These have been accounted for in 2010-11.
In accordance with the accounting policy for tax credits (Note 1.3), amounts under or over paid in 2010-11 and 
identified during the finalisation exercise being undertaken in 2011-12 are not included in the above figures. 
Remissions and write-offs in 2010-11 include £16.7 million written off in respect of organised fraud identified 
during the year.
3.3 Tax Credits Error and Fraud
HMRC measures the overall level of error and fraud by investigating a random sample of finalised awards, 
although because of the design of the tax credits scheme this cannot be completed until after claimants have 
finalised their awards for the preceding year. Some claimants, such as those taxpayers included with Self 
Assessment, may not finalise their awards for the preceding year until 31 January. 
In June 2011, HMRC completed its testing on finalised awards for 2009-10, based on a random sample of some 
2,696 enquiries. As a result, HMRC estimates that error and fraud resulted in overpayments of between £1.75 
billion and £2.14 billion (6.6 per cent to 8.1 per cent of the final award by value) being paid to claimants to which 
they were not entitled. In addition, HMRC estimates that error resulted in underpayments to claimants of between 
£0.25 billion and £0.55 billion (1.0 per cent to 2.1 per cent of the final award by value) to which they were entitled.

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4 Other Revenue 
4.1 National Insurance Contributions
4
.
1 Table
Balances owing to/(due from) the National Insurance Funds (NIF) and NHS as at 31 March 2011 were:
• 
• 
NIF Great Britain: £1.0 billion (opening balance at 1 April 2010: £4.0 billion)
NIF Northern Ireland: (£0.4 billion) (opening balance at 1 April 2010: (£0.4 billion))
The combined balance of £0.6 billion is included within payables (Note 8).
National Insurance Contributions are paid over to the National Insurance Funds and National Health Services 
when received and not when accrued (as published in the GB and NI White Paper Accounts). The balances owing 
to/(due from) the National Insurance Funds (NIF) and NHS represent the difference between cash receipts and 
cash transferred to the NIF and NHS. 
Almost all Pay-as-You-Earn (PAYE) payments are made as combined payments of income tax and Class 1 National 
Insurance Contributions without any notification at the time of the breakdown between the two. An allocation 
has been made between income tax and Class 1 National Insurance Contributions based on the Departments’ 
best estimate of the amounts of each likely to be reported in employers’ end of year returns. The allocations are 
re-assessed when the end of year returns are available and any adjustments to the amounts due are made with 
actual information on the income tax and national insurance contribution split.

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HM Revenue & Customs Annual Report and Accounts 2010–11
4.2 Certificates of Tax Deposit
Under the Certificate of Tax Deposits (CTD) scheme, HMRC accepts deposits from people liable to UK taxes 
and other liabilities that are listed in the current Prospectus (details can be found at www.hmrc.gov.uk). HMRC 
administers this scheme on behalf of HM Treasury, and the accounts of the National Loans Fund include the 
principal and accrued interest for all issued CTDs as at 31 March.
Delays in processing between the issue and redemption of CTDs and the transfer of funds to and from the 
National Loans Fund can result in balances at the year end; these balances are included within receivables or 
payables on the Statement of Financial Position in the Trust Statement. 
4
.2 T
able
4.3 Student Loan Recoveries
4
.
3
 Table
The Department recovers Student Loans through the taxes system on behalf of the Department for Business, 
Innovation and Skills (BIS), from those former students eligible to make repayments. Student Loan recoveries are 
estimated on the basis of the end of year employer returns processed before the Trust Statement is certified. The 
actual value of Student Loan recoveries is established later in the year, and the difference between the estimate and 
the actual receipts is adjusted in the Trust Statement for the following year.
There is a net overpayment of £146 million to BIS at 31 March 2011 which, with HM Treasury authorisation, will 
be rectified by decreasing payments to BIS during 2011-12. Any adjustments to the annual figures will be reflected 
in next year’s Trust Statement.

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151
5 Taxation Revenue due from the Isle of Man
5
 
Table
Under the Isle of Man Act 1979, a revenue sharing agreement exists between the UK and the Isle of Man 
Governments whereby VAT and certain Customs and Excise duties (known as Common Duties) are pooled and 
shared on an agreed basis.
The Isle of Man Treasury is therefore entitled to a share of Common Duties collected in both the United Kingdom 
and the Isle of Man that are attributable to goods consumed or services supplied on the Island. This share is 
reduced by the Common Duties collected and retained by the Isle of Man and by UK costs of collection.
The 2009-10 IoM figures shown in this Note last year were based on estimates. The current 2009-10 figures have 
been revised to reflect the audited and certified 2009-10 IoM Annual Account. The figures provided for 2010-11 
are based on estimates as the 2010-11 IoM Annual Account will not be audited and certified until late 2011.
A revised agreement came into force on 1st April 2010 introducing arrangements that enabled funding flows 
between the two parties to be reviewed on a quarterly basis and appropriate adjustments made thus avoiding the 
build up of significant over/under payments. As a result of this arrangement, the Isle of Man paid the UK £68 
million on 21 April 2011 covering the period January to March 2011.
6 Fines and Penalties 
Following a proposal emerging from the HM Treasury Clear Line of Sight Alignment Project, HMRC was 
directed that Consolidated Fund Extra Receipts (CFERs), previously reported in the HMRC Resource Accounts, 
be accounted for in the Trust Statement with effect from 1 April 2010. These receipts consist mainly of tax related 
fines and penalties together with amounts collected when seized assets are sold. The amounts accrued for 2010-11 
are shown in the Statement of Revenue, Other Income and Expenditure. The impact of restated data for 2009-10 is 
explained in Note 1.6.

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7 Receivables and Accrued Revenue Receivable
7
 
T
a
ble

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153
Receivables represent all liabilities that have been established, irrespective of whether due or overdue, for which 
payments have not been received at the Statement of Financial Position date. Examples of liabilities that are due 
but not overdue are VAT returns received prior to the Statement of Financial Position date, where electronic 
payment is due during the first week in April, and some assessments issued to taxpayers where a period of time 
(generally 30 days) is allowed for payment to be made.
Accrued revenue receivable represents taxes and duties relating to the financial year that are not yet due or 
received from taxpayers where these have not been included in receivables. The majority of these amounts have 
been estimated using statistical models based on projections of the most recent revenue flows and forecasts of 
economic variables on which future revenue flows depend.
An amount of £0.7 billion is included in the Corporation Tax accrued revenue receivable figure in respect of 
liabilities stoodover (postponed) by HMRC pending finalisation of enquiries. Accrued revenue receivable has only 
been recognised in cases where there is clear evidence that the amount is due to HMRC.
7.1 Accounting Estimates 
Estimates have been provided to support the accrued revenue receivable balances and accrued revenue payable 
balances where tax returns reporting taxpayer liabilities or associated tax payments are not filed until after the 
Trust Statement has been published.
Estimates have been provided to support the accrued revenue receivable balances for Income Tax collected under 
PAYE, self assessment, Company Income Tax and Tax Deducted from Savings Income; Corporation Tax, Value 
Added Tax, Petroleum Revenue Tax, Stamp Duty Land Tax, Stamp Duty Reserve Tax, Bank Levy and National 
Insurance Contributions (Class 1 collected through PAYE and Class 4 collected through self assessment). 
Accounting estimates have also been provided to support the Value Added Tax and National Insurance 
Contributions accrued revenue payable balances.
Descriptions of the estimation techniques and details of the underlying assumptions have not been provided for 
Income Tax collected under PAYE, Petroleum Revenue Tax, Stamp Duty Land Tax, Stamp Duty Reserve Tax, 
Company Income Tax and Tax Deducted from Savings Income as the estimated monetary amounts are either 
relatively small or not deemed to be particularly sensitive to changes in the underlying assumptions.
7.1.1 Corporation Tax 
Corporation Tax for large onshore companies is paid by four quarterly instalment payments (QIPs). North Sea 
companies, who previously paid QIPs, have from 2006-07 moved to paying their Corporation Tax liabilities in 
three instalment payments (TIPs). Separate accrued revenue receivable estimates have been calculated for onshore 
and North Sea companies.
Onshore companies
Accrued revenue receivable has been estimated where between one and four QIPs for onshore companies have 
been received using a model that forecasts companies’ Corporation Tax liabilities based on the number and value 
of QIPs received.
Corporation Tax is assumed to accrue evenly throughout the companies’ accounting periods. Assumptions for 
the proportions of companies’ Corporation Tax liabilities that are remitted with each QIP and adjustments for 
overpayments and late payments of Corporation Tax liabilities are based on historical trends of Corporation Tax 
liabilities and receipts. The principal assumptions are shown below:

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HM Revenue & Customs Annual Report and Accounts 2010–11
T
able	
The proportions of Corporation Tax liability remitted with the first, second and third QIPs are now being 
separately calculated for each relevant accounting period. The proportions shown above are the overall weighted 
averages.
For accounting periods where no QIPs have been received, accrued revenue receivable has been estimated based 
on prior year outturn liabilities at a sectoral level adjusted for forecast growth in Corporation Tax liabilities. The 
annual growth rates applied are based on the economic assumptions that are provided by HM Treasury and used 
to forecast Corporation Tax revenues for the March 2011 Financial Statement and Budget Report, and are shown 
below: 
T
able	
North Sea companies
The accrued revenue receivable for 2010-11 is almost entirely attributable to companies with accounting periods 
ending December 2011. These are accounting periods for which no TIPs have been received and so the estimate is 
primarily based on prior year outturn liabilities adjusted for forecast growth in North Sea companies’ Corporation 
Tax liabilities. The growth rate used for 2010-11 is shown below:
T
able	
7.1.1.1 Bank Levy
In line with its June 2010 Budget announcement, the Government introduced a levy on banks and banking groups3 
chargeable equities and liabilities with effect from 1 January 2011. This followed publication of the draft Finance 
Bill on 9 December 2010 and consultation over the summer and autumn.
3 Banks and banking groups also includes building societies, building society groups and banking sub groups in non-banking groups

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155
Banks and banking groups will pay the Levy as part of their regular QIPs payments although the first payment in 
respect of 2011 liabilities will not be received until after Finance Act 2011 receives Royal Assent. For most banks 
and banking groups the first payments are not expected until October 2011. 
As the Bank Levy is based on annual balance sheet figures, accrued revenue receivable will be estimated by 
assuming the Bank Levy revenue accrues evenly throughout the banks’ Accounting Periods.
At present as no Bank Levy payments have yet been received therefore accrued revenue receivable figures have been 
estimated based on HM Treasury forecasts set out in the March 2011 Budget.
7.1.2 Self Assessment Income Tax and National Insurance Contributions Class 4 
Accrued revenue receivable represents accrued tax liabilities for 2010-11 where payment is not yet due at 31 March 
2011. The estimation process has three stages:
(i) estimation of accrued tax liabilities for 2010-11. The estimates used are those prepared for Budget 2011 on the 
basis of the economic assumptions provided by the Office for Budget Responsibility (OBR). The most important 
of these assumptions were that profits from self-employment rose by 4.4 per cent in 2010-11 and dividend income 
rose by 5.9 per cent, while savings income fell by 11.8 per cent;
(ii) deduction from the 2010-11 accrued tax liabilities of relevant payments by 31 March 2011. An estimate of 
these payments is provided by the ‘head of duty analysis’, a statistical apportionment of total self assessment 
receipts of income tax, NICs Class 4 and capital gains tax between these three components. The breakdown is 
estimated from separate information on self assessment liabilities;
(iii) a further deduction for payments due by 31 March but not made by that date (these are included in the 
receivable balances). The amounts relate to payments on account due on 31 January. The breakdown of the total 
between income tax and NICs is made by statistical estimation.
7.1.3 Value Added Tax 
VAT registered businesses in the UK are required to submit VAT returns either monthly, quarterly or annually 
one month in arrears of the end of the relevant accounting period. Consequently, some, but not all, information 
relating to VAT accrued revenue receivable and payable was available at the time of publication of these accounts.
To facilitate the creation of estimates for the remaining elements, historical time-series have been created to show 
the accrued revenue by month. Established statistical forecasting techniques have then been applied to construct 
estimates for the more recent periods based on the resulting trends. These have been combined with actual return 
data and adjusted to account for any payments or repayments relating to these returns that were made prior to 
the financial year end. This provides an estimate of accrued revenue receivable and payable via the regular return 
process. The statistical models selected on the basis of historical data provide a reliable indication of future 
accrued revenue receivable and payable. 
To construct final estimates of accrued revenue receivable and payable, a number of further adjustments have been 
made to reflect VAT that is accounted for outside the process described above. The principal adjustments relate to 
import VAT, repayments made to government departments and Officers’ Assessments of errors in submitted VAT 
returns. These are based largely on actual return information although some forecast element remains. 
7.1.4 Uncertainty Around the Estimates
Statistical models are used to derive the estimates. These are based on a combination of projections based on 
the most recent revenue flows and forecasts of economic variables on which future revenue flows depend. The 
forecasts are based on what HMRC believe to be the relevant inputs, as previously described. However, because 
of the areas of uncertainty involved, there will inevitably be differences between the forecasts and future outturns.

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HM Revenue & Customs Annual Report and Accounts 2010–11
These differences arise because of the need to make judgements on areas of uncertainty and are not indicative 
of deficiencies in the models. HMRC believes that the levels of variation are acceptable with a maximum likely 
overall uncertainty expected to be some £4 billion, which does not significantly affect the reported position. This 
figure is equivalent to less than 1 per cent of total revenue reported in the Statement of Revenue, Other Income and 
Expenditure.
This maximum likely overall uncertainty is based on a combination of evidence from the performance of the 
models over previous years and the judgement of professional departmental economists and statisticians having 
substantial experience of tax forecasting.
8 Payables, Accrued Revenue Payable and Deferred Revenue 
A breakdown of payables, accrued revenue payable and deferred revenue falling due within one year is as follows:
8
 
Table
Payables are amounts recorded as due at the end of the reporting period but payment has not been made in full.
There are three distinct types of accrued revenue payable. These comprise, firstly, amounts due to VAT traders that 
have an established revenue repayment claim relating to the financial year, but the date the claim is received is after 
the end of the reporting period; secondly amounts of receivables and accrued revenue receivable that will when 
received be passed to a third-party, e.g. National Insurance Contributions due to the National Insurance Funds 
and National Health Services; thirdly amounts in respect of Corporation Tax likely to be repayable by HMRC 
pending finalisation of enquires.
Deferred revenue includes duties and taxes paid in the current year that relate to future accounting periods.
There are no Payables which fall due after one year.

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HM Revenue & Customs Annual Report and Accounts 2010–11 
 
157
9 Bad and Doubtful Debts
9.1 Breakdown of Bad and Doubtful Debts
9
.
1
 Table
Bad and doubtful debts are made up of revenue losses and the movement in the provision for doubtful debts. The 
analysis of revenue losses is shown below:
9.2 Revenue Losses
9
.
2
 
T
a
ble
Remissions are debts capable of recovery but HMRC has decided not to pursue the liability on the grounds of 
value for money. Write-offs are debts that are considered to be irrecoverable because there is no practical means for 
pursuing the liability.

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HM Revenue & Customs Annual Report and Accounts 2010–11
For certain taxes only a partial split between remissions and write-offs is known. Where information is unavailable 
the percentage split of the known element is applied to the remainder to calculate a total estimated remission and 
write-off split.
HMRC has identified a number of cases where there has potentially been an underpayment of Income Tax through 
the PAYE system. HMRC was not able to establish a liability in respect of cases relating to 2005-06 and earlier 
before statutory limitations became applicable in April 2010. HMRC has determined that it was not cost effective 
to do further work to establish liabilities for cases relating to 2006-07 before the statutory limitation for these 
cases applied in April 2011. Because these cases have not been worked it has not been possible to estimate reliably 
the revenue foregone.
9.3 Revenue Losses – Cases over £10 million 
There were 31 cases including 4 bulk write-off cases (2009-10: 69 cases) where the loss exceeded £10 million, 
totalling £0.8 billion (2009-10: £1.9 billion). Specific details are shown below:
There were 14 write-offs of VAT, interest, surcharge and penalties relating to Missing Trader Intra-Community 
Fraud (MTIC) over £10 million each, totalling £337 million. All MTIC cases are assessed to establish if there is 
potential to recover revenue and, where appropriate, proactive insolvency action is initiated.
There were 12 write-offs relating to Insolvency over £10 million each. They were for VAT, Corporation Tax and 
Income Tax, including interest and penalties totalling £248 million.
There was a bulk write-off of £47.8 million in respect of 49,100 Corporation Tax debts. These related to 
companies that had been struck off the Companies House Register and therefore in the absence of a legal entity, 
were considered irrecoverable. 
There were 2 bulk remissions totalling £171 million (£129 and £42 million) in respect of Tax Credits relating to 
481,000 overpayments. These related to small aged debts that were considered irrecoverable or those where there 
was a low likelihood of recovery. The remissions were therefore progressed on a value for money basis. 
There was a remission of £18.5 million VAT in respect of one trader. The trader was incorrectly advised by HMRC 
regarding the apportionment of VAT between zero and standard rated supplies. In June 2010 the Commissioners 
determined that assessment and interest for the period would be remitted.
There was a bulk remission of £284 million for Income Tax, related to a number of financial years, which was 
considered not cost effective to pursue as recoverability was in doubt. This included a specific decision not to 
pursue amounts under £300 for 2008-09 and 2009-10 estimated at £160 million, in addition to amounts given up 
related to small occupational pensions for approximately £35 million.
9.4 Provision for Doubtful Debts 
9
.
4
 Table

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159
Receivables in the Statement of Financial Position are reported after the deduction of the provision for doubtful 
debt (PDD) which is estimated based on HMRCs analysis of existing receivables and historical trends in debt 
recovery, losses, discharges, amendments and cancellations. The department assesses the collectability of 
receivables that are considered individually significant and the remainder are placed into groups of similar 
receivables, based on risk, and assessed collectively. The PDD is calculated to provide a fair value of receivables, 
in effect reducing them to a value that is likely to be collected and providing for non collectable debt.
Non collectable debt includes legally due debt that is written off or remitted (losses), in addition to debt that is 
discharged, amended or cancelled, as information is received which reduces the liability or confirms that it is not 
legally due. The discharge, amendment and cancelled element results from liabilities being estimated by either the 
department or the tax payer and then subsequently amended once the true liability is known.
10. Provision for Liabilities and Contingent Liabilities
10.1 Taxes subject to challenge 
1
0
.1 Tabl
e
HMRC is involved in a number of legal and other disputes which can result in claims by taxpayers against 
HMRC. It is in the nature of HMRC’s business that a number of these matters may be the subject of negotiation 
and litigation over several years. The Department, having taken legal and other specialist advice, has established 
provisions having regard to the relevant facts and circumstances of each matter and in accordance with 
accounting requirements. The ultimate liability for such matters may vary from the amounts provided and is 
dependent upon the outcome of litigation proceedings, investigations and possible settlement negotiations. 
This provision also includes probable repayments of tax for PAYE open cases amounting to £2.5 billion that will 
be made once the cases are reconciled.
The accounting policy on provisions and contingent liabilities can be found in Note 1.5.
HMRC currently has 12 cases where the maximum potential tax revenue, before losses, capital allowances and 
other reliefs, is over £100 million. This covers a range of heads of duty, including Corporation Tax, Income Tax, 
and VAT. The table above shows the total provision we have made for likely outcomes. The total meeting the 
criteria for contingent liabilities is estimated at £9.7 billion compared to £5.5 billion as at 31 March 2010.

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HM Revenue & Customs Annual Report and Accounts 2010–11
10.2 Consequences of oil field decommissioning on Petroleum Revenue Tax
The 1975 Oil Taxation Act, as subsequently amended, allows for Petroleum Revenue Tax (PRT) losses arising 
from the decommissioning of infrastructure associated with oil and gas fields subject to PRT, to be carried back 
indefinitely. As a result, there is always the possibility that the field decommissioning costs will be set-off against 
the assessable profit arising for any chargeable period during the life of the field. The set-off must be made first 
against the assessable profit arising in the latest possible chargeable period with, thereafter, any balance of the 
loss offset against the profit of previous periods, working backwards until it is exhausted. Consequently, the PRT 
charges for the period to which the losses get carried back may be less than originally measured and any accrued 
revenue receivable for those periods will be less than originally thought.
There is considerable uncertainty in the amount and timing of decommissioning costs which depend on a range 
of economic, technical, and environmental factors, for example the effect of movements in oil and gas prices.
The estimated contingent liability for the PRT cost of decommissioning to the Exchequer is £5 billion at today’s 
prices over the period 2011 to 2040. This is based on an estimate of total decommissioning costs to the industry 
of around £26 billion. However, estimates of decommissioning costs continue to rise and the oil and gas industry 
representative body ‘Oil & Gas UK’ recently produced a report, based on the 2011 UK Oil & Gas UK Activity 
Survey, which estimates the total cost of decommissioning will be £29 billion at today’s prices over the same 
period, so the Exchequer cost may be higher.
11 Third Party Assets
The Department holds cash and other assets which have been seized in relation to ongoing legal proceedings. 
These assets do not belong to the Department and do not form part of these accounts, although where seized 
assets are forfeited without legal proceedings, proceeds are recognised as Penalty Income.
The Department also holds Euro deposits in relation to traders who are located outside the European Union 
but who are trading electronically via the internet with EU member states. Neither the Department nor the 
Government generally have any beneficial interest in these funds
12 Related-Party Transactions
Due to the nature of HMRC’s business, we have a large number of transactions, relating to taxation income, with 
other government departments and other central government bodies. No Board member, key manager or other 
related parties have undertaken material transactions with the Department during the year.
13 Events after the reporting period
There are no reportable events after the reporting period. The financial statements were authorised for issue by 
the Principal Accounting Officer on 6 July 2011.

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161
Accounts Direction Given by 
HM Treasury
ACCOUNTS DIRECTION GIVEN BY HM TREASURY IN ACCORDANCE WITH 
SECTION 2 OF THE EXCHEQUER AND AUDIT DEPARTMENTS ACT 1921. 
1. This direction applies to those government departments listed in appendix 2.
2. The Department shall prepare a Trust Statement (“the Statement”) for the financial year ended 31 March 
2011 for the revenue and other income collected by the department as an agent for others, in compliance with the 
accounting principles and disclosure requirements of the edition of the Government Financial Reporting Manual 
by HM Treasury (“FReM”) which is in force for 2010-11. 
3. The Statement shall be prepared, as prescribed in appendix 1, so as to give a true and fair view of (a) the state 
of affairs relating to the collection and allocation of taxes, licence fees, fines and penalties by the Department as 
agent and of the expenses incurred in the collection of those taxes, licence fees, fines and penalties insofar as they 
can properly be met from that revenue and other income; (b) the revenue and expenditure; and (c) the cash flows 
for the year then ended.
4. The statement shall also be prepared so as to provide disclosure of any material expenditure or income that 
has not been applied to the purposes intended by Parliament or material transactions that have not conformed to 
the authorities which govern them.
5. When preparing the Statement, the Department shall comply with the guidance given in the FReM (Chapter 
13). The Department shall also agree with HM Treasury the format of the Principal Accounting Officer’s 
Foreword to the Statement, and the supporting notes, and the accounting policies to be adopted, particularly in 
relation to revenue recognition. Regard shall also be given to all relevant accounting and disclosure requirements 
in Managing Public Money and other guidance issued by HM Treasury, and to the principles underlying 
International Financial Reporting Standards.
6. Compliance with the requirements of the FReM will, in all but exceptional circumstances, be necessary for the 
accounts to give a true and fair view. If, in these exceptional circumstances, compliance with the requirements of 
the FReM is inconsistent with the requirement to give a true and fair view, the requirements of the FReM should 
be departed from only to the extent necessary to give a true and fair view. In such cases, informed and unbiased 
judgement should be used to devise an appropriate alternative treatment which should be consistent with both 
the economic characteristics of the circumstances concerned and the spirit of the FReM. Any material departure 
from the FReM should be discussed in the first instance with HM Treasury.
7. The Statement shall be transmitted to the Comptroller and Auditor General for the purpose of his 
examination and report by a date agreed with the Comptroller and Auditor General and HM Treasury to ensure 
compliance with the administrative deadline for laying the audited accounts before Parliament before the Summer 
Recess.
8. The Trust Statement, together with this direction (but with the exception of the related appendices) and 
the Report produced by the Comptroller and Auditor General under section 2 of the Exchequer and Audit 
Departments Act 1921 shall be laid before Parliament at the same time as the Department’s Resource Accounts 
for the year unless the Treasury have agreed that the Trust Statement may be laid at a later date.
Chris Wobschall
Head, Assurance and Financial Reporting Policy 
HM Treasury
22 December 2010

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This Report is published alongside the 2010-11
Accounts of HM Revenue & Customs
7July 2011
Issued under Section 2 of
the Exchequer and Audit
Departments Act 1921
Amyas Morse
Comptroller and
Auditor General
National Audit Ofﬁce
6 July 2011
HM Revenue & Customs 2010-11 Accounts
Report by the Comptroller and
Auditor GeneralNational Audit Office

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Contents
Summary R4
Part One
Introduction R1
Part Tw
The resolution of
tax disputes R1
Part Thre
Stabilising the
PAYE Servic
R3
Part Four
Tax Credit
R4
2
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5
e
e
1
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3

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R4 Summary Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
Summary
Scope of the audi
1
Section 2 of the Exchequer and Audit Departments Act 1921 requires the
Comptroller and Auditor General (C&AG) to examine the accounts of HM Revenue &
Customs (the Department) to ascertain that adequate regulations and procedure have
been framed to secure an effective check on the assessment, collection and proper
allocation of revenue, and that they are being duly carried out. The C&AG is also
required by that Act to examine the correctness of the sums brought to account and
to report the results to the House of Commons. The C&AG’s audit opinion on the Trust
Statement account and this report together satisfy that requirement
2
We have examined the Department’s activities and principal tax streams, and
obtained evidence on the adequacy and operation of its regulations and procedures.
This report sets out our overall conclusions from this examination, and our ﬁndings and
recommendations in three areas which were a priority for the Department in 2010-11:
The resolution of tax disputes (Part Two)
Stabilising the PAYE Service (Part Three); an
Tax Credits (Part Four).
3
This report is part of a wider programme of audit we conduct on the Department.
The programme includes our annual ﬁnancial audit of the Department’s accounts
and examination of its systems for the assessment and collection of taxes, and value
for money studies and other work either across government or focusing speciﬁcally
on the Department. In devising our programme, we have regard to the NAO’s three
strategic themes of cost-effective service delivery, ﬁnancial management and informed
government. Recognising the Department’s challenge of balancing objectives on
revenue, cost and customer experience, we seek to provide objective insight on how the
Department is
transforming its performance and improving compliance among taxpayers and
beneﬁt and tax credits claimants using its customer-centric approach; and
achieving value for money by delivering a sustainable cost base while
maintaining revenues.
t
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Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts Summary R5
4
Our conclusions on the Department’s overall management of the tax systems are
based on our examination under Section 2 of the Exchequer and Audit Departments
Act 1921, our value for money studies under the National Audit Act 1983, and
consideration of the Department’s Statement on Internal Control. Since our previous
report on the Department’s Accounts1, we have completed two value for money studies,
resulting in the following reports
HMRC: Engaging with Tax Agents (Session 2010-11, HC 486, 13 October 2010); an
Managing civil tax investigations (Session 2010-11, HC 677, 17 December 2010).
5
We have begun work on ﬁve further value for money studies, to be published later
in 2011-12, on: Improving the efﬁciency of HMRC processes (Pacesetter); Reducing
costs in HMRC; Online ﬁling of tax returns; HMRC’s professional (tax) skills; and The
delivery of the Compliance & Enforcement Programme
Conclusion
6
Whilst recognising that no tax collection system can ensure that all those who have
a tax liability comply with their obligations, we conclude that in 2010-11, HM Revenue &
Customs has framed adequate regulations and procedure to secure an effective check
on the assessment, collection and proper allocation of revenue, and that they were
being duly carried out. This assurance is subject to the observations on speciﬁc aspects
of the administration of taxes and tax credits in this report.
The resolution of tax disputes
7
Tax disputes between the Department and major businesses are an inevitable
consequence of the complexity and international nature of modern business
transactions. At 31 March 2011, the Department was investigating over 2,700 issues with
the largest companies, with potential tax at stake of £25.5 billion.
8
In 2007, the Department published its Litigation and Settlement Strategy, setting out
its framework for concluding tax disputes across all taxes, duties and tax credits streams.
The Strategy seeks to ensure consistency in the way in which tax disputes are resolved
and requires each tax issue to be considered on its own merits, rather than as part of
a package. It provides a sound framework for resolving disputes, but the Department’s
review of the Strategy in December 2009 identiﬁed differences in understanding amongst
its staff of the ﬂexibility permitted by the Strategy in settling disputes.
1
HM Revenue & Customs’ 2009-10 Accounts Session 2009-10, HC 299, 20 July 2010
:
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R6 Summary Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
9
The Department launched its High Risk Corporates Programme (the Programme) in
2006 with the intention of resolving long-outstanding tax disputes with large companies;
improving its relationship with these businesses; and discouraging aggressive tax
avoidance behaviour. The Department has concluded settlements with companies in the
Programme totalling over £9 billion since 2006. The Programme has helped to reduce
the backlog of outstanding tax issues and has contributed to reduced avoidance activity
by major companies. Companies have welcomed the Department’s commitment to
resolving tax disputes within the Programme to an accelerated timescale, although this
brings the risk that issues will be traded as settlement deadlines are approached. We
have seen examples where the Programme Board has agreed not to pursue issues
involving ﬁnely balanced arguments. Whilst this is consistent with the Litigation and
Settlement Strategy, the Department accepts that it could be more explicit in describing
the criteria used to make marginal decisions.
10
The High Risk Corporates Programme Board (the Programme Board) includes
relevant senior stakeholders from across the Department and provides a strong
governance framework. In general, the largest and most contentious proposed
settlements with companies both in and outside of the Programme must be approved
by the Programme Board. The Board is a useful forum for challenging proposed
settlements, reinforced by the requirement for consensus before settlements are agreed.
11
In four of the largest settlements we examined, the Department used speciﬁc
governance arrangements, which involved reducing the size of the team dealing with the
case and the settlement being signed off by Commissioners without a prior reference
to the Programme Board. In three of these cases, one or both of the Commissioners
signing off the settlement also participated in the settlement negotiations. These
arrangements meant that in these three cases, there was no, or limited, separation
between the negotiation and the approval of major tax settlements (though in one case
there was support from independent legal counsel for the settlement). In the case where
both Commissioners were involved in the negotiations, there was no independent
scrutiny of the proposed settlement. The Department believes that there will always
be cases where Commissioners have to be involved and a clear separation will not
be possible. However, in our view, this reduces the demonstrable assurance that the
settlement reached is appropriate, for both external stakeholders, including other
taxpayers and Parliament, and the Department’s own staff
12
A substantial majority of the settlements that we examined complied with the
Litigation and Settlement Strategy and the Department’s processes for involving relevant
technical experts and for approving settlements. We found two signiﬁcant exceptions
to this. In one case, a settlement was reached without those negotiating the settlement
realising that it should have been referred to the Programme Board before being
agreed with the company. When the Programme Board reviewed the settlement, they
established that a ﬁnancial error had been made. In another case, the settlement was
put to the Programme Board by email, and agreed even though not all members of the
Board formally responded.
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13
Parliament has provided the Commissioners with some discretion with regard
to their duty for the collection and management of taxes, but a 2005 House of Lords
judgement (‘the Wilkinson case’) limits the extent of this discretion. We found some
differences of view within the Department on the implications of this judgement for
settling tax disputes, and we found one instance where Commissioners were invited
to exercise these powers on the basis of oral legal advice. In our view, in the particular
circumstances of this case, it would have been helpful to have secured conﬁrmation of
that advice in writing
Recommendations
14
The High Risk Corporates Programme sets out strong governance arrangements
for overseeing the settlement of a number of major tax disputes which should achieve
clear separation between the analysis and negotiation, and the approval of large tax
settlements. In order to provide conﬁdence to internal and external stakeholders on
the appropriateness of all such settlements, the Department should ensure that this
separation is fully in place in the resolution of every major tax dispute.
15
We found two cases where it was unclear to the staff working on the settlement
that the proposal would need to be approved by the Programme Board. In both cases,
the Board subsequently raised substantive issues about the proposal. The Department
should issue guidance as soon as possible to clarify the criteria for referral of cases to
the Programme Board.
16
Referrals to the Programme Board are based on the overall settlement value of the
case, but referrals to Commissioners are based on the value of individual issues. The
criteria for referring proposed settlements to Commissioners should take account of the
overall settlement value as well as the value of individual issues
17
The Commissioners are able to use discretion in exercising the collection and
management powers granted to them by Parliament, but this has been limited by a
House of Lords judgement. The Department should ensure that there is clarity on when
to apply these powers to resolving tax disputes, and each proposal to use the powers in
settling major tax disputes should be supported by appropriate legal advice
18
The Department has decided that it needs to re-launch its Litigation and
Settlement Strategy. This is a sensible approach and should be done as soon as
possible, taking our comments in this report into account, to ensure that there is
a common understanding within the Department of how to apply the strategy in
determining whether to settle or litigate on individual tax issues
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R8 Summary Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
Stabilising the PAYE Servic
19
Historically the Department faced a number of challenges in its administration
of income tax through the Pay As You Earn system. The increasing complexity of
employments and pensions made it more difﬁcult for it to administer individuals’ tax
affairs without some degree of manual working. In recent years, the number of cases
requiring manual intervention exceeded its capacity to clear them, leading to backlogs in
processing and uncertainty for those individuals with unresolved tax liabilities
20
In June 2009, the Department implemented the new National Insurance and PAYE
Service (NPS). Unlike the predecessor PAYE system, NPS combines all the information
the Department holds on an individual’s employment and pension income into a single
record. The increased automation under NPS offers the Department the opportunity to
process PAYE accurately and on time and reduce the volume of over and underpayments,
which will help to restore taxpayers’ conﬁdence in the system. Over and underpayments
of tax are nevertheless a normal part of the PAYE process, and will continue to occur, for
example, where people move in and out of work or receive changes to taxable beneﬁts
21
The Department encountered a number of operational challenges in 2009-10
following the introduction of NPS. The phased release of the automated reconciliation
functionality led it to defer its reconciliation of approximately 39 million taxpayer records
for 2008-09, delaying the identiﬁcation of over and underpayments of tax by over a year.
It also limited its ability to deal with the backlog of some 17.9 million cases pre-dating
NPS, contributing to the Department having to forego the recovery of underpayments
of tax relating to 2006-07 and earlier years assessed as uneconomic to collect or out of
time. The failure to keep so many PAYE taxpayers’ affairs up to date resulted in signiﬁcant
reputational damage for the Department. It also led the Committee of Public Accounts to
conclude that the Department had failed in its duty to process PAYE accurately and on
time, and deliver an acceptable standard of service to PAYE taxpayers.
22
Against this background, the Department has made signiﬁcant progress in stabilising
its administration of PAYE during 2010-11. By the end of March 2011, it had successfully
reconciled the vast majority of the records available for automated reconciliation for
2008-09 and 2009-10, and processed the associated over or underpayments of tax.
It had also ensured that over 99 per cent of all annual codes for 2011-12 for issue to
taxpayers were dispatched on time. At the same time, it introduced new test procedures
to safeguard against inaccurate tax calculations and codes being issued to taxpayers.
23
The poor quality of PAYE data and initial issues with the NPS speciﬁcation following
its implementation resulted in more processing exceptions (or work items) than originally
anticipated. The Department had to divert its operational resources to review and, where
necessary, correct NPS data before it could undertake its processing of end of year
reconciliations and annual coding. This recovery work was extensive, covering over
11 million records, over 25 per cent of the NPS database. A consequence of diverting
operational resources to recovery is that some in-year changes to individuals’ records
have not been processed, increasing the risk of some taxpayers facing higher under
or overpayment of tax at the year end. In response to this risk, the Department has
established priorities for manual processing and clearing in-year work items.
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24
The Department’s decision to reconcile the 2008-09 and 2009-10 tax years together
also contributed to increased workloads. To keep workloads to a manageable level,
it temporarily raised the threshold for not reclaiming underpaid tax identiﬁed through
reconciliation to £300. After subsequently extending the increase in threshold to 2007-08,
the Department estimates that this had excluded £266 million from recovery by March 2011.
25
The Department began to implement a two-year plan to clear the backlog of cases
relating to its legacy PAYE system by the end of 2012, by prioritising the reconciliation of
416,000 underpayment cases relating to 2007-08 and identifying £228 million for recovery.
While the Department has lost the opportunity to recover underpayments for the 2006-07
tax year, it plans to complete the reconciliation and process the repayment of an estimated
£2.8 billion of tax overpaid in the 2003-04 to 2007-08 tax years by the end of 2012
26
The Department plans to complete the stabilisation of PAYE by 2013. This includes
completing by March 2012, the identiﬁcation and manual clearance of a forecast
6.7 million records relating to the 2008-09 and 2009-10 tax years where it has not yet
received all the information it needs to reconcile automatically. It then plans to accelerate
the identiﬁcation and manual clearance of similar records for the 2010-11 and 2011-12
tax years, and complete this by March 2013. Under NPS, the Department expects
it will need to manually review 3 to 4 million of these records to complete the annual
end of year reconciliation, compared with 16 to 17 million records immediately before
its implementation. It has allocated an additional £34 million in 2011-12 to begin its
clearance of all PAYE processing arrears.
27
The Department recognises that it must address the issue of PAYE data quality if it
is to realise the full beneﬁts of NPS. The need to maintain PAYE data quality will become
even more important with the planned introduction of Real Time Information (RTI) for
PAYE in 2013 and the Department for Work and Pensions’ reliance on this information
to deliver the new Universal Credit. It has launched a PAYE data improvement project to
identify and address the impact of poor data quality on the implementation of RTI.
28
Under RTI, employers and pension schemes will be required to report income
tax and national insurance deductions at the same time as they pay them. RTI data
will initially be passed to NPS on the same timescales as it comes from employers
today and over time, NPS will be updated more frequently. The potential increase in the
volume of in-year changes to taxpayer records could, if not accurately matched to NPS
records, adversely affect the accuracy of codes issued from NPS at a time when the
Department’s capacity to deal with them will be diminishing. As part of its cost reduction
programme, the Department plans to reduce the headcount in its Personal Tax business
area from some 24,900 currently to around 16,400 by April 2015
Recommendations
29
The Department has established plans to complete the stabilisation of PAYE by
bringing its reconciliation of all outstanding tax years up to date by March 2013 and
introducing further efﬁciencies to NPS in April 2012, but its plans for dealing with in-year
processing, including manual clearance of work items, are not yet ﬁnalised. It should
develop a fuller understanding of the impact of work items to develop a comprehensive
plan which embraces in-year work management.
.
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R10 Summary Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
30
The Department has signiﬁcant work to complete in stabilising PAYE on the new
NPS platform by 2013, which is an essential foundation for the introduction of RTI and
the headcount reductions in its Personal Tax business area by April 2015. It should
deﬁne its operating model for PAYE and how it plans to transform that model as it moves
to the RTI environment.
31
The Department has had to divert signiﬁcant resources to PAYE recovery to deal with
the higher volumes of work following NPS implementation. The change in the frequency
of information passed to NPS from RTI has the potential to increase the number of in-year
changes in PAYE records and introduce further challenges to data quality. In the light of its
experience with NPS, the Department needs to thoroughly test the adequacy of its plans
for implementing RTI, and in particular its capacity to manage the risks presented by poor
data quality and their impact on processing
Tax credits error and fraud
32
Based on the latest information available, the Department estimates that in 2009-10
it overpaid between £1.75 billion and £2.14 billion to tax credits claimants due to error
and fraud and underpaid between £0.25 billion and £0.55 billion to claimants due to
error. The levels of error and fraud are material within the context of the £28.1 billion
spent on tax credits. As this expenditure has not been applied to the purposes intended
by Parliament and does not conform with the requirements of the Tax Credits Act 2002,
the Comptroller and Auditor General has qualiﬁed his opinion on the regularity of the tax
credits expenditure reported in the 2010-11 Trust Statement.
33
The Department’s target is to reduce tax credits error and fraud to no more than
5 per cent of the value of ﬁnalised entitlement by the end of March 2011; this cannot
be measured until 2012. In April 2009, it launched a revised strategy for reducing error
and fraud. As part of an increased focus on preventing error and fraud, the Department
aimed to target high-risk claims and correct the awards before they enter the tax credits
system (‘Check First, Then Pay’). There is evidence that this new approach is working.
In the ﬁrst year of the strategy, 2009-10, the Department estimates that error and fraud
fell from between 8.3 and 9.6 per cent to between 6.6 and 8.1 per cent
34
During 2010-11, the Department has signiﬁcantly increased the number of
interventions to 1.8 million and prevented an estimated £792 million in error and fraud
losses, a threefold increase in the losses prevented before the strategy was introduced.
A key feature of its approach were 450,000 new checks against high risk cases completed
before new claims, changes of circumstance and renewals were processed, preventing
an estimated loss of £200 million. The Department has worked to improve its targeting of
high risk awards, but accepts that there is scope to reﬁne its methodology, to increase the
proportion of error or fraud identiﬁed above the 13 to 16 per cent currently achieved
.
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Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts Summary R11
35
To provide a measure of its progress, the Department has set itself a series of
proxy targets based on the error and fraud prevented as a result of its interventions.
It estimates that in 2010-11 it prevented £1,054 million of error and fraud, marginally in
excess of its £1 billion target. We found that while the Department continues to develop
its measurement of interventions which form the basis of this estimate, there is scope
to improve the consistency and accuracy of measurement processes and the related
assurance activities
36
In October 2010, the Department launched a joint fraud and error strategy with the
Department for Work and Pensions. In the context of that strategy, the Department has
a target to prevent £8.0 billion of tax credits error and fraud over the period of the 2010
Spending Review.
Tax credits debt
37
At the end of March 2011, the overall level of tax credits debt stood at £4.7 billion,
compared with its target of £4.3 billion. The Department estimates that without any
further intervention tax credits debts could increase to £7.4 billion by 2014-15.
38
The Department’s plan to develop a more active approach for managing tax credits
debt has so far met with limited success. By the end of April 2011, some £380 million
of the £550 million of recent debt included in the current tax credits debt campaign
remained to be collected or otherwise cleared. It has assessed the value for money
of collecting £1.7 billion of tax credits debt not under active recovery, and expects to
decide what debt should be remitted by the end of July 2011
Recommendations
39
The success of the Department’s strategy to reduce error and fraud depends
on its ability to target those cases that are most likely to yield the highest levels of
error and fraud. This is in turn informed by the quality of the management information
on the outcome of its interventions. The Department needs to ensure that results of
interventions are accurately measured and recorded in its systems.
40
The Department is now expected to prevent losses of £8.0 billion through error
and fraud interventions over the period of the 2010 Spending Review. The measurement
of losses prevented will be central to the assessment of its performance. To inform this
assessment, it should develop its existing assurance activities on the measurement of its
interventions to support a statistical evaluation of the level of uncertainty in the estimate
of error and fraud identiﬁed against the proxy target
41
The Department faces a signiﬁcant increase in tax credits debt without further
intervention. It should reassess its plan for reducing tax credits debt to determine
whether the campaign strategy and the level of resources dedicated to its delivery are
sufﬁcient to actively manage all new tax credits debt and clear uncollected debts from
previous years
.
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R12 Part One Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
Part One
Introduction
Tax revenues in 2010-1
1.1
In 2010-11, total revenues accruing to the Department were £468.9 billion,
£33.1 billion (7.6 per cent) greater than in 2009-10. Figure
shows the tax revenues
reported in the Department’s Trust Statement in the last ﬁve years.
1.2
Figure
shows the changes in tax revenues between 2009-10 and 2010-11.
Revenues from the largest taxes – Income Tax and National Insurance contributions, Value
Added Tax (VAT) and Corporation Tax – account for the majority of the increase in revenues
from the previous year. Other taxes contributing to the increase in revenues include Capital
Gains Tax, Hydrocarbon Oils Duties, and the new Bank Levy. Bank Payroll Tax accrued
revenue of £2.5 billion was initially recognised in 2009-10; the actual receipts were higher
than this estimate. This difference has been accounted for in the current year.
1
1
2
Figure
 1
1
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Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts Part One R13
1.3
The increase from the prior year reﬂects the improving economic situation, as
well as the impact of rate and duty rate changes. The increase in VAT revenue is also
affected by the temporary reduction of the VAT rate to 15 per cent that decreased
receipts in the prior year, and the increases due to the return to the 17.5 per cent VAT
rate in March 2010 and increase to 20 per cent in January 2011
Assets and liabilitie
Receivable
1.4
Receivables represent all taxpayer liabilities which have been established for which
payments have not been received at the year end; this has increased by £1.4 billion
(5.0 per cent) to £29.5 billion, after taking account of changes to accounting policies.
A provision for doubtful debts has been estimated as £10.0 billion, based on the
Department’s expectation of the value that is likely to be collected.
1.5
In our 2009-10 report on the accounts, we reported on the Department’s efforts
to improve debt collection through new approaches such as the use of debt collection
agencies and the introduction of tailored debt campaigns that targeted debt by
its characteristics.
.
s
s
Figure
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2
8
6
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2
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R14 Part One Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
1.6
In 2010-11, £11.7 billion of debt was assigned to campaigns, leading to the
collection of approximately £7 billion. The Department is developing and reﬁning its
approach to campaigns, including their evaluation, and it is too early to conclude on the
effectiveness of this approach.
Bank Levy
1.7
Legislation in the Finance Bill 2011 introduces a new bank levy based on the balance
sheets of UK banking groups and building societies, effective from 1 January 2011.
The ﬁrst payments are due through Corporation Tax instalment payments following
commencement of the legislation. The Trust Statement includes revenue of £0.7 billion,
which is the Department’s estimate of the amounts due in the period.

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Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts Part Two R15
Part Two
The resolution of tax disputes
Introduction
2.1
A tax dispute is a disagreement between the Department and the taxpayer that is
not readily resolved. There are broadly two types of disputes. Disputes can be about the
facts in a particular case or about the interpretation and application of tax law.
2.2
At 31 March 2011, the Department was investigating over 2,700 issues with the
largest companies, including enquiries where facts had still to be established or veriﬁed,
and cases involving disputes. The estimated tax under consideration in these open
issues was £25.5 billion
2.3
Tax disputes are a long-established feature of the United Kingdom’s and other
countries’ tax systems. Many businesses, especially the largest, now trade and operate
in multiple countries. Corporate structures and the nature of transactions have both
become more complex, and new technologies and other developments mean that
most businesses operate in a climate of rapid change. These complexities mean that
establishing tax liabilities is often far from straightforward, leaving scope for differences
of opinion which can develop into tax disputes.
2.4
In November 2010, the Committee of Public Accounts examined the Department
on its arrangements for settling tax disputes with large companies.2 In the light
of this, the Comptroller and Auditor General decided to undertake a review of
these arrangements.
2.5
Our review considered two questions:
Are the Department’s processes for resolving tax disputes adequate to secure an
effective check on the assessment and collection of tax revenue
Has the Department complied with its processes for resolving tax disputes
2
HC Committee of Public Accounts, HM Revenue & Customs’ 2009-10 Accounts, Eighteenth Report of Session
2010-11, HC 502, February 2011.
.
●
?
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R16 Part Two Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
2.6
Our review focused on the Department’s processes for resolving tax disputes with
the largest companies. The 770 largest companies are dealt with by the Department’s
Large Business Service, and in aggregate accounted for over a third of all revenues
from Corporation Tax, VAT, PAYE Income Tax and National Insurance contributions in
2010-11. We examined a sample of 27 disputes, to assess whether the Department had
complied with statutory requirements and its own processes for resolving disputes. Our
review considered whether the Department’s processes were adequate to establish a
sound position on the amount of tax due; it did not involve coming to an independent
judgement on the tax liability in individual cases. The disputed issues we examined
mainly involved Corporation Tax, with a smaller number about Value Added Tax, or the
payment or administration of employee taxes. We examined disputes that were resolved
in or after 2006, as this was when the Department adopted a revised approach to
resolving high value tax disputes with large companies. Figure
shows the number of
open issues over the last ﬁve years, for the companies dealt with by the Large Business
Service. Figure
shows the value of open issues over the last ﬁve years, stratiﬁed by
issue value.
3
4
Figure
 3
3
.
.
2
4
7
0
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0

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Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts Part Two R17
The Department’s processes for resolving tax disputes
The process for identifying and resolving issues
2.7
The Department uses risk assessment techniques to examine returns from
taxpayers to identify issues where the taxpayer’s self-assessment may be incorrect or
incomplete. The risk assessment of larger companies also considers the likelihood of the
company providing information that is inaccurate or incomplete, or not fully disclosing all
relevant information and judgements. The Department can open enquiries and carry out
compliance checks on any tax returns. Not all enquiries develop into disputes, and the
issue can be resolved by agreement at any point. Figure
overleaf shows the process
for resolving enquiries and disputes
5
.
Figure
 4
4
0
5
3
4
1
0
2
0
8
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5
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R18 Part Two Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
Figure
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5
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Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts Part Two R19
Figure 5 Cont in ued
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R20 Part Two Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
2.8
If there is still a difference of opinion following the enquiry, the Department will
usually issue an assessment of the amount of tax it thinks is due. Since 1 April 2009,
taxpayers have been entitled to ask the Department to review its decision
3, including
assessments. This review is carried out by someone in the Department who was not
involved in the original decision. The review may result in the Department’s assessment
being either cancelled (effectively reinstating the taxpayer’s self assessment), varied or
upheld. If the assessment is not cancelled, or the taxpayer does not ask for a review, the
taxpayer can refer the matter to the First-tier Tribunal (Tax Chamber). The Tribunal is part
of HM Courts and Tribunals Service, an executive agency of the Ministry of Justice, and
independent of the Department.
2.9
Either side can withdraw at any stage before the Tribunal hears the case and agree
to settle 4 Following the First-tier Tribunal’s decision, either side can appeal to the upper
Tribunal (Tax and Chancery Chamber), then to the Court of Appeal and Supreme Court.
Any tribunal or court may refer the case to the Court of Justice of the European Union.
Litigation and Settlement Strategy
2.10 The Department’s Litigation and Settlement Strategy5 sets out its framework
for concluding tax disputes, whether by agreement with the taxpayer or by litigation
(which includes referral to the Tribunals as well as referral to the courts). The Litigation
and Settlement Strategy applies to all disputes involving tax, duties, or tax credits.
It was introduced in May 2007 with the aim of bringing consistency to the way that the
Department resolves disputes, and ending the practice of agreeing settlements for a
proportion of the tax under dispute (‘compromise deals’) or settling several issues for a
single sum (‘package deals’).
2.11 The Litigation and Settlement Strategy encourages settlement of disputes by
agreement, and sets out the terms under which settlement may be reached. It requires
each issue to be considered on its own merits and resolved in accordance with the
law. Where the nature of the issue is such that there is a range of plausible outcomes,
settlement must be for not less than the Department would reasonably expect to get
from litigation. The Strategy states that, in general, cases should be dropped where the
Department does not have a strong case, or the evidence is weak.
3
The right to a review is under Sections 49A to 49H of the Taxes Management Act 1970, introduced by The Transfer
of Tribunal Functions and Revenue and Customs Appeals Order 2009, SI 2009 No. 56.
4
The law provides a statutory basis for tax appeals to the Tribunal to be determined by agreement between the
Department and the taxpayer, notably Section 54 of the Taxes Management Act 1970 for direct taxes and Section
85 of the Value Added Tax Act 1994 for indirect taxes.
5
Litigation and Settlement Strategy, HM Revenue & Customs, 2007 (http://www.hmrc.gov.uk/practitioners/lss.pdf
s
.
)

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Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts Part Two R21
Processes applying to the largest disputes
2.12 The Department has ﬁve Commissioners, who have ultimate responsibility for
collecting and managing tax revenues.6 In practice, Commissioners are normally only
directly involved in signing off the settlement of the largest tax disputes. Figure
overleaf
shows an extract from the Department’s organisational structure for Business Tax. The
resolution of most large and complex tax disputes will involve several Directorates, for
example, experts in Corporation Tax and accountancy specialists, and also legal and
policy advisers where relevant. Each company in the Large Business Service has a
Customer Relationship Manager, who is responsible for managing the Department’s
ongoing relationship with the company across all taxes and duties, and for coordinating
all the Department’s technical specialists relevant to the company’s tax affairs.
2.13 The Department established a High Risk Corporates Programme (the Programme)
in 2006, and settlements totalling over £9 billion have been reached with the companies
participating in the Programme since it began. At the time, many large companies had
multiple, long-unresolved tax disputes, and in some cases were involved in extensive
avoidance activity. The Programme was set up to address this situation, with the aims of:
reducing avoidance and improving the compliance of the largest businesses
improving the relationship between the Department and the businesses7; an
establishing and collecting the right amount of tax.
2.14 The High Risk Corporates Programme involves an intensive process for resolving
the participating company’s issues. The approach includes Board-to-Board, or other
high level, engagement between the Department and the company with a commitment
from both sides to apply high levels of resource to providing information and resolving
issues within an accelerated timeframe. In addition, the Department seeks agreement
from the Board of a company within the Programme that it will in future work more
constructively with the Department.
6
Commissioners for Revenue and Customs Act 2005, Section 5 (1).
7
The need for a more professional relationship and speedier resolution of tax issues were also identiﬁed in
Sir David Varney’s 2006 Review of Links with Large Business report (http://www.hmrc.gov.uk/large-business
review-report.pdf) which built on the Hartnett Review ‘Inland Revenue’s Review of Links with Business 2001’.
6
;
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R22 Part Two Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
2.15 The Director General for Business Tax has overall accountability for the
Programme and the Director, Large Business Service is the Programme’s owner. There
is a Programme Board, responsible for agreeing which companies will be admitted to
the Programme (based on factors such as the size, age and wider application of the
issues under consideration), endorsing proposed settlements, and for the priorities,
development and governance of the Programme. The Programme Board is chaired
by the Director, Large Business Service and its membership includes the Directors
of VAT; Corporation Tax, International and Anti-Avoidance; and Special Investigations
and representatives from the Solicitor’s Ofﬁce. Each case has an Enquiry Coordinator,
whose responsibilities include bringing together the work of the Customer Relationship
Manager and all the Department’s technical specialists, policy advisers, caseworkers,
consultants and solicitors that have an interest in the case. Figure
on page R24
shows the governance structure for the Programme.
7
Figure
 6
6
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e
.
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x

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Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts Part Two R23
2.16 For disputes dealt with outside the Programme, the Customer Relationship
Manager is initially responsible for bringing together the relevant specialists in resolving
tax issues. The Department encourages these parties to reach consensus on how the
issue should be resolved but, if they cannot agree, then the issue is escalated to the
relevant Directors for a decision.
2.17 There are deﬁned procedures for signing off settlements for cases within and outside
of the Programme. For cases outside the Programme where the tax under consideration
is less than £100 million, agreement must be reached between the relevant stakeholders.
Since November 2009, cases must be referred to the Programme Board before settlement
where the tax under consideration exceeds £100 million, and there is a proposal for the
Department to concede one issue or more, or to accept less than 100 per cent of the total
tax under consideration, or where the case and issues are particularly sensitive.
Figure 6 Continued
T
x
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R24 Part Two Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
Figure
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Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts Part Two R25
2.18 For companies within the Programme, the decision is taken by the Programme
Board if the tax under consideration exceeds £20 million for one issue or £50 million
for a combination of issues in a settlement, or where there are issues of particular
sensitivity, difﬁculty or with wider signiﬁcance. Issues of lower value are also referred to
the Programme Board where the Department’s stakeholders cannot reach consensus.
The Programme Board must reach a consensus on the matters referred to it; it does
not take decisions by majority. Any issues where the Programme Board cannot reach a
consensus are referred to Commissioners for sign off.
2.19 All individual issues where the tax under consideration is more than £250 million,
or where there is potential for adverse national publicity or for questions to be raised
in Parliament, or which represent a signiﬁcant departure from previous policy, must be
signed off by Commissioners. In practice, two Commissioners are required to sign off
settlements, usually the Permanent Secretary for Tax, as the Department’s senior tax
specialist, and the Director General for Business Tax.
Are the Department’s processes adequate
Strengths of current processe
2.20 There are elements of the Department’s current processes that contribute strongly
to ensuring that the correct tax liabilities are established and the associated tax is
collected in a timely way. In complex tax disputes, establishing the amount of tax due
is not straightforward. The Department has established teams of specialists for taxes,
aspects of taxes and policy and legal matters and has processes for involving relevant
specialists in considering each tax dispute. The requirement for consensus among these
specialists, and deﬁned procedures for escalating issues where agreement cannot be
reached, help to ensure that the relevant knowledge and expertise are deployed.
2.21 The Litigation and Settlement Strategy sets out a clear framework for resolving
disputes. When settlements are authorised, whether by Commissioners, the Programme
Board or at lower levels, there is a requirement to conﬁrm that the settlement complies
with the Litigation and Settlement Strategy.
2.22 The Litigation and Settlement Strategy encourages settling disputes by agreement
where possible. This reduces costs for both the Department and the taxpayer, and
means issues can be settled more quickly, which is again in the interests of both parties.
The Department is also moving towards more real time working, discussing issues
with taxpayers before returns are submitted so that issues are resolved before they
become disputes. Where there are differences of opinion and litigation looks likely, the
Department has sought to share technical arguments with the taxpayer, ensuring that
each side fully understands the other’s perspective. This allows the area of disagreement
to be identiﬁed before the case goes to litigation and, in some cases, removes the
disagreement entirely.
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R26 Part Two Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
2.23 The Programme Board is a forum that brings together relevant expertise and
subjects arguments to challenge, especially as a consensus rather than a majority is
required for a decision 8 The requirements for settlements above a certain value, or
otherwise of signiﬁcance, to be signed off by the Programme Board and in some cases
also by Commissioners should ensure that the most important decisions are taken at an
appropriately senior level.
2.24 There has been a signiﬁcant reduction in the number of open issues with
companies dealt with by the Large Business Service since 2006. This is in line with the
recommendations made by the Committee of Public Accounts in 2008 for the Department
to shift towards focusing on high risk businesses, close down long-running enquiries and
deal more quickly with new tax risks.9 The Programme has contributed to the reduction of
high value open issues and brought in a yield of £9.2 billion to March 2011.
2.25 As part of our review, we interviewed major accountancy ﬁrms and six of the UK’s
largest businesses to get their views on the Department’s performance in resolving tax
disputes. In general, both groups welcomed the impact of the Programme in allowing
them to resolve long outstanding disputes within an accelerated timescale. This has
provided large businesses with certainty on major tax issues and helped to improve their
relationship with the Department.
2.26 In September 2010, the Department reviewed the impact of the High Risk
Corporates Programme on company behaviours, focusing on the earliest cases where
sufﬁcient time had elapsed to make an assessment. This indicated that the Programme
had helped to improve the levels of openness, cooperation and disclosure in these
companies. The review also suggested that the companies concerned had reduced the
scale of their aggressive and artiﬁcial tax avoidance activity. However, the review was
unable to establish the degree to which these changes were due to the direct impact
of the Programme, as opposed to other factors, such as changes in the economic
environment and in share ownership and control, the outcome of other litigation cases
involving other companies, and changes to the tax avoidance disclosure regime 10
2.27 Some of the accountancy ﬁrms and companies we interviewed held the view
that the Litigation and Settlement Strategy and the Department’s willingness to resolve
issues more quickly had reduced the incentives for creating avoidance schemes.
Whereas previously there might have been an incentive for companies to create multiple
avoidance schemes (to enable trade-offs during the settlement process), the Strategy’s
focus on individual issues, together with the Department’s readiness to litigate where
issues cannot be settled, has helped to reduce the advantages of this approach.
8
Our review identiﬁed one case where the Board could not reach a consensus, so the case was escalated to the
Commissioners for a decision
9
HC Committee of Public Accounts, Management of large business Corporation Ta , Thirtieth Report of Session
2007-08, HC 302, October 2008
10
The ‘Disclosure of Tax Avoidance Schemes’ (DOTAS) regime requires promoters of avoidance schemes to notify
the Department of the details of the scheme, and users of avoidance schemes to notify the Department when they
are using an avoidance scheme. The regime was introduced in 2004, was widened in 2006 to include Corporation
Tax, among others, and now covers most of the largest taxes.
.
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Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts Part Two R27
Shortcomings in current processe
2.28 In four of the largest settlements we examined, the Department operated speciﬁc
governance arrangements. The Department considered each of these cases to involve
a single issue, with a range of possible outcomes for the tax du
11, rather than being the
‘all or nothing’ cases normally dealt with by the Programme Board. The arrangements
involved reducing the size of the team dealing with the case, and sign off by Commissioners
without a prior reference to the Programme Board. In each case, the team included the
relevant Director, supported by Deputy Directors, and Commissioners were involved.
These arrangements meant that decisions were taken at the most senior level, and
relevant technical and legal expertise remained available. The Department’s view is that the
Programme Board would not have added value to the decision-making process in these
particular cases given the involvement of senior staff, including the Commissioners and
members of the Programme Board, and relevant internal and external experts.
2.29 In two of the four cases, one of the Commissioners approving the settlements had
participated in the negotiations and, in another case, both Commissioners had done so.
Where Commissioners are directly involved in negotiating settlements, particularly where
the Programme Board is not used, there is less independent oversight of settlements
to provide assurance, internally and externally, that these have been reached on an
appropriate basis. The Department has attracted criticism from Parliament and its own
staff because of the absence of adequate separation between the analysis, negotiation
and approval processes for major tax settlements. The complexities of the issues in
these cases make it more difﬁcult to demonstrate that an appropriate tax liability has
been assessed and legal restraints over taxpayer conﬁdentiality mean that the details of
these cases cannot be released subsequently 12
2.30 We found cases where large companies wanted early engagement with
a Commissioner to secure an authoritative view of the Department’s position.
The Department’s strategy for board level engagement with large business means that
contact between Commissioners and business leaders on speciﬁc and general issues
will continue to be a feature of its approach. The Department believes that a degree of
Commissioner involvement in resolving some tax disputes is inevitable. However, the
Department recognises that it needs to build its capacity to negotiate settlements on
major cases in staff below Commissioner level. This should help to reduce the frequency
of taxpayers requesting the involvement of Commissioners on speciﬁc issues as
settlement discussions are continuing.
11
Examples of cases where there is a range of possible outcomes for the tax due are those with transfer pricing
issues, which require a determination of the share of taxable proﬁts
12
Commissioners for Revenue and Customs Act 2005, Section 18
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R28 Part Two Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
2.31 There is currently a difference between the criteria for referral of decisions to the
Programme Board and those for referral to Commissioners. The threshold for referral to
the Programme Board is based on the total value of a settlement with a taxpayer, which
usually covers more than one issue. The threshold for a referral to Commissioners is,
however, based on the value of individual issues. We found a settlement worth more than
£400 million, with issues totalling over £400 million conceded by the Department because
it considered its position was weak, which was not referred to Commissioners because no
single issue exceeded £250 million.
2.32 The Department has a clearly deﬁned approach to settling disputes, as set out in
the Litigation and Settlement Strategy. An internal review of the Litigation and Settlement
Strategy in December 2009 found that, when it was launched in May 2007, the extent to
which it was understood by the Department’s staff varied. Some staff did not appreciate
the ﬂexibility it offered, or thought it emphasised litigation. This initially led to delays in
some cases, and inconsistent application, creating an adversarial relationship with some
taxpayers. The Department does not currently intend to revise the substance of its
Litigation and Settlement Strategy as its core message does not need to change, but is
planning to relaunch the Strategy to make the messages clearer. This should assist in
developing a common understanding within the Department on how to apply the Strategy
in the resolution of tax disputes.
Has the Department complied with its processes for resolving
tax disputes
2.33 We examined 27 settlements, involving 21 companies and assessed the extent to
which the processes applied by the Department were consistent with
statutory requirements, for example, the provisions for the exercise by
the Commissioners of their discretion under their statutory ‘collection and
management’ powers13
the Litigation and Settlement Strategy; an
internal guidelines on the arrangements for approving settlements.
2.34 Fifteen of the settlements we examined were in the High Risk Corporates Programme,
and a further thre
14 were presented to the Programme Board for a decision. The
settlements involved between one and 236 issues, with values (which totalled £8.8 billion)
ranging from some £70 million to more than £1 billion. In selecting settlements to examine,
we aimed to select the largest issues by value, irrespective of the type of tax involved.
We selected our sample to include issues where a large amount of tax was under
consideration, even if the ﬁnal settlement value was small. We selected a sample of cases
settled since April 2006 meeting one or more of the following criteria:
13
The Commissioners have a limited discretion with regard to their duty for the collection and management of taxes
under Section 5 of the Commissioners for Revenue and Customs Act 2005. In certain limited circumstances,
they can forego the collection of tax, for example if there is a higher net return from not collecting the tax. The
judgement in Wilkinson-v-Commissioners of Inland Revenu
in the House of Lords 2005 set out the limits of the
circumstances in which the collection of tax could be foregone.
14
Four of the cases not referred to the Programme Board for a decision were those subject to the special governance
arrangements noted in paragraph 2.28
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Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts Part Two R29
Settlements reached by companies in the Programme
Other settlements considered by the Programme Board.
Settlements where the issues involved the tax under consideration of more than
£250 million, whether the company was in the Programme or not.
Any settlements where we were made aware of speciﬁc concerns about the
governance of the dispute resolution.
Collection and management powers
2.35 Our review identiﬁed a number of cases where the Commissioners had been
asked to exercise powers available to them under Section 5 of the Commissioners for
Revenue and Customs Act 2005 to forego the collection of tax. We did not identify any
instances where these powers were exercised inappropriately. We noted, however, some
differences of view within the Department on the implications of the Wilkinson judgement
on the Commissioners’ ability to exercise these powers to resolve tax disputes. If
the Commissioners apply powers inappropriately, they may face a Judicial Review of
their decision.
2.36 In one case, we identiﬁed that Commissioners had been asked to exercise their
collection and management powers on the basis of oral advice from the Department’s
Solicitor’s Ofﬁce. In our view, in the particular circumstances of this case, it would have
been helpful to have secured conﬁrmation of that advice in writing to provide a clearer
audit trail.
Adherence to the Litigation and Settlement Strategy and guidelines for
approving settlements
2.37 We found that the Department had complied with the requirements of the Strategy
and with internal guidelines for managing cases in a substantial majority of the cases we
examined. Technical and legal expertise was sought and received as appropriate and
the available documentation indicated that individual issues had been considered on
their merits. We did, however, note exceptions in the following cases which were referred
to the Programme Board as the tax under consideration exceeded £100 million:
A case was settled before the Department recognised that it should have
been referred to the Programme Board. The Board identiﬁed a ﬁnancial error,
demonstrating its value as a check on settlement proposals.
A case where the Department came under pressure from a company to agree a
settlement on a single issue very quickly. The Department judged that it should not
wait until the next monthly Programme Board meeting, so the proposed settlement
was put to the Programme Board by email and Board members were given a
week to respond. The settlement proposal was agreed even though not all Board
members responded by the deadline.
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R30 Part Two Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
2.38 The High Risk Corporates Programme approach assists in resolving long outstanding
issues within an accelerated timeframe. However, there is a risk that the pressure to reach
resolution quickly will be at the expense of considering issues properly. There is also a
risk that, in settling a range of issues in a short timeframe, weaker issues will be dropped
in the wider interest of obtaining a settlement, where they might have been pursued if
considered in isolation. We have seen examples where the Programme Board has agreed
not to pursue issues involving ﬁnely balanced arguments. Whilst this is consistent with the
Litigation and Settlement Strategy, the Department accepts that it could be more explicit in
describing the criteria used to make marginal decisions.
Future developments
2.39 The Department is currently piloting ‘Alternative Dispute Resolution’ procedures,
to try to resolve disputes earlier in the process. The aim is to save both the Department
and the taxpayer time and money by resolving disputes sooner through the early use
of mediation. The Department is also piloting a dispute resolution process that involves
an internal facilitator for smaller cases. These pilots have so far been well received by
taxpayers and the accountancy ﬁrms.
2.40 The Department is also keen to build on the successes of the High Risk Corporates
Programme. It is looking to extend its principles and disciplines to dealing with tax
disputes with the next tier of businesses who are overseen by the ‘Large and Complex’
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Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts Part Three R31
Part Three
Stabilising the PAYE Service
Introduction
3.1
Pay As You Earn (PAYE) is the Department’s largest tax collection process.
In 2010-11, it collected £157.2 billion in Income Tax and £96.9 billion in National
Insurance contributions, of which nearly 90 per cent was collected through PAYE.
There are approximately 39 million individuals with an active PAYE employment record,
including 10 million receiving pension income, administered through 2.1 million PAYE
schemes. Each year the Department processes around 57 million returns for separate
employments and pensions
3.2
The PAYE process embraces the Department, employers and pension scheme
administrators (collectively referred to as employers), and individuals. Employers
administer PAYE by ensuring that the correct amounts of tax and National Insurance
contributions are deducted from employees’ earnings and paid over to the Department
each month. After the Department has received information on earnings and tax
deductions from employers at the end of each year, it reconciles each individual’s
record to conﬁrm that the correct amount of tax has been paid though PAYE. Whilst
most people pay the right amount in-year, over and underpayments are nevertheless a
normal part of the PAYE process and can occur, for example, for people moving in and
out of work or receiving changes to taxable beneﬁts. Figure
overleaf outlines the main
stages in the PAYE process
3.3
Up to 2009, the Department’s information on individual employments was structured
around employers and held on 12 separate regional databases, making it difﬁcult for it
to obtain a complete view of an individual’s income. The limitations of the system and
changing employment patterns led to an increasing number of cases where it was not
possible to reconcile an individual’s tax without manual intervention. This led to the
numbers of unreconciled (or ‘open’) cases in the PAYE system to outstrip the Department’s
capacity to work them. At its peak this backlog reached 32 million in 2008. After the
Department’s efforts to reduce this number in advance of system changes, the backlog of
open cases relating to 2007-08 and previous tax years stood at 17.9 million
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R32 Part Three Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
3.4
This Part of the report examines the Department’s administration of PAYE
by considering
the improvements in PAYE processing that are intended under the new National
Insurance and PAYE Service (NPS);
the difﬁculties encountered in the operation of PAYE following the introduction of NPS;
the short-term progress made in stabilising the delivery of PAYE in 2010-11,
including the progress in clearing the backlog of cases pre-dating NPS; an
the plans for stabilising the delivery of the PAYE service by 2013
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Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts Part Three R33
The National Insurance and PAYE Servic
3.5
In June 2009, the Department implemented the new National Insurance and PAYE
Service (NPS) to replace its former PAYE computer system. NPS introduced a number of
important system changes which offer the opportunity to process PAYE accurately and
on time, and reduce the volume of over and underpayments of income tax.
3.6
Under NPS, PAYE records are structured around the individual rather than the
employer or pension scheme. The creation of a single taxpayer record brings all of an
individual’s sources of income together for the ﬁrst time, increasing the Department’s
ability to conﬁrm that individuals start the tax year on the correct code. This will help
ensure that the correct amount of tax is deducted in-year, reducing the number of over
and underpayments identiﬁed at the end of the tax year
3.7
NPS increases the opportunity for the Department to complete its end of year
reconciliation of taxpayers’ records automatically. This allows it to conﬁrm that the right
amount of tax has been collected and, where necessary, process over or underpayments
of tax earlier than in the past. The increased automation of PAYE processes under NPS
also allows the Department to focus its manual processing on clearing exceptions caused
by unexpected data or missing information, or where processing is overly complicated or
not cost-effective to automate
Operational difﬁculties following NPS implementatio
3.8
As we reported in July 2010, problems in the quality of the PAYE data transferred
from the predecessor system and the NPS system speciﬁcations led to difﬁculties in the
timeliness and accuracy of PAYE processing. The Department only fully appreciated the
extent of the data inaccuracies when it started processing annual codes for 2010-11,
in January 2010, leading it to suspend the production and issue of codes. As part of
its recovery programme, it isolated and cleansed in excess of nine million NPS records
which it had assessed as having a high risk of error, before processing through NPS.
Although it corrected the majority of codes by the start of the 2010-11 tax year, the
recovery was not completed until the end of September 2010
3.9
The phased release of NPS also meant that the functionality to support the
automated reconciliation of individuals’ PAYE records was not available to the Department
between July 2009 and April 2010. This led the Department to defer its reconciliation of
approximately 39 million taxpayer records for 2008-09 to September 2010, delaying the
clearance of these records and the identiﬁcation of over and underpayments of tax by over
a year. It also meant that it was not able to process the bulk of the backlog of 17.9 million
unreconciled cases from 2007-08 and earlier tax years
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R34 Part Three Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
3.10 The delay in clearing the processing backlog and the effect of legislative changes
mean that the Department will now not recover underpayments of tax relating to the
2006-07 and earlier tax years. The Finance Act 2008 reduced the time limit for collecting
tax from six years to four years, so a notional £150 million of tax underpaid in the
2004-05 and 2005-06 tax years could no longer be pursued.15
3.11 The Department had intended to start processing the backlog of 2006-07 cases
in the summer of 2010, but was not able to implement its plan due to the diversion
of resources to support the annual coding recovery. In October 2010, it decided not
to pursue the notional £500 million of tax underpaid relating to these 2006-07 cases,
because it estimated that only £25 million was recoverable at that stage, outweighing
the cost of recovery. The Department accepts that, had it commenced the processing
of these cases in the summer of 2010 as planned, it may have had the opportunity to
recover up to £100 million of those underpayments.
3.12 The problems encountered in the annual coding for 2010-11, the delay in
reconciling the 2008-09 tax year and the backlog of cases from previous years has
resulted in reputational damage for the Department. In October and November 2010, the
Committee of Public Accounts examined the implementation of NPS and concluded that
the Department had failed in its duty to process PAYE accurately and on time, deliver an
acceptable standard of service to PAYE taxpayers, and to understand the risks of poor
quality data
Stabilising PAYE in 2010-1
3.13 Following the problems encountered in the initial implementation of NPS and
execution of annual coding for 2010-11, the Department established a programme to
stabilise NPS, and to allow it to realise improvements in efﬁciency and productivity under
the new system
3.14 In this section, we consider the Department’s progress in stabilising the
administration of PAYE by:
learning the lessons from annual coding for 2010-11;
bringing taxpayers’ affairs for 2008-09 and 2009-10 up to date, by completing the
end of year reconciliations for these tax years
getting taxpayers on the right codes, by delivering annual coding for 2011-12;
managing work items arising from in-year PAYE changes; an
clearing the backlog of legacy open cases.
15
The Department cannot determine the precise make-up and value of the open case population until the cases are
actually worked
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Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts Part Three R35
Lessons learned from annual coding for 2010-1
3.15 The Department reviewed the lessons learned from issues encountered during
annual coding for 2010-11. In the light of this review, it introduced a more rigorous process
for testing NPS releases to conﬁrm that the system functionality was operating as intended
and accurate outputs were being generated. The principal changes involved
greater business stakeholder involvement in development and approval of the test
strategy as well as in the testing and implementation;
the detailed testing of NPS outputs to taxpayer records performed and quality
assured by personal tax experts to ensure that accurate PAYE calculations and tax
codes were issued to taxpayers;
excluding NPS records from live processing where results of testing fell below
pre-determined accuracy targets, while the underlying causes of inaccuracy were
investigated and corrected; an
the Department’s senior management taking the formal ‘go/no go’ decision on the
live running of end of year reconciliations and annual coding
3.16 The Department ﬁrst implemented these changes in its approach as part of
its testing of NPS functionality and data quality in preparation for the end of year
reconciliation of the 2008-09 and 2009-10 tax years. It further reﬁned its testing
approach in the delivery of annual coding for 2011-12, to improve its analysis of errors
and their tax effect, and to continue to monitor the accuracy of annual coding notices
issued to taxpayers during live processing
3.17 The Department assessed the overall accuracy of annual coding against an internal
target of 97 per cent prior to its decision to start live processing. It continued to monitor
the accuracy of codes issued to ensure that the overall accuracy target was being
achieved. The Department plans for this approach to be the standard test process to be
applied to NPS in advance of all key PAYE business events
3.18 The poor quality of the data and the NPS speciﬁcation has continued to have
a major impact on the processing of PAYE. To undertake its processing of the end
of the year reconciliations for 2008-09 and 2009-10 and annual coding for 2011-12,
the Department has reviewed over 11 million taxpayer records, almost 25 per cent
of the NPS database, and as necessary, repaired the records. It still has to repair
approximately 2.4 million of the reviewed records before reconciliations for 2008-09 and
2009-10 can take place
3.19 The need to review and repair NPS records in advance of processing should
reduce signiﬁcantly in the future as the Department improves the quality of data on NPS
and introduces changes to the system’s functionality. It currently estimates that between
5 and 8 per cent of NPS records will need to be reviewed and repaired as part of the
end of year reconciliation for the 2010-11 tax year
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R36 Part Three Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
End of year reconciliations for 2008-09 and 2009-1
3.20 Having decided to defer the end of year reconciliation for 2008-09, the
Department had to complete the 2008-09 and 2009-10 reconciliations together.
It started these reconciliations in September 2010, once it had completed its testing of
the NPS end of year reconciliation functionality. By March 2011, the Department had
completed the reconciliation of the vast majority of the 2008-09 and 2009-10 records
where it had all the information necessary for automated reconciliation.
3.21 In April 2011, the Department started the review of a forecast 6.7 million taxpayers’
records relating to the 2008-09 and 2009-10 tax years where it had not yet received
the information from the employer or the information had not matched automatically to
the NPS record. It is necessary for the Department to investigate each of the records
manually. Under NPS, the Department expects to manually review 3 to 4 million of these
records annually, compared with 16 to 17 million records in each year immediately before
its implementation. The Department plans to clear the remaining 2008-09 and 2009-10
end of year reconciliations by March 2012. It also expects that when the information
has been received and matched to NPS, some 85 per cent of the records will reconcile
without resulting in an over or underpayment of tax.
3.22 The Department estimates that at 31 March 2011, its reconciliation of the 2008-09
and 2009-10 tax years had identiﬁed 5.6 million overpayments of tax totalling £1.9 billion
and 1.1 million underpayments of tax totalling £1.1 billion across the two years. Figure
shows the total volume and value of overpaid and underpaid tax for the two years
combined to date
3.23 To keep workloads to a manageable level, the Commissioners used their
collection and management powers to temporarily raise the threshold for not reclaiming
underpayments of tax identiﬁed as part of the end of year reconciliation for 2008-09 and
2009-10 from £50 to £300. The temporary rise in the threshold to £300 was applied to
all underpayments of tax from PAYE reconciliations processed from September 2010 to
March 2011, including 2007-08 legacy open cases. By March 2011, this had excluded
underpayments of tax totalling an estimated £266 million from recovery across all
open years
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Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts Part Three R37
3.24 The Department’s decision to delay its reconciliation of the 2008-09 tax year has
also resulted in it foregoing the recovery of some underpayments of tax. Some taxpayers
have successfully claimed under Extra Statutory Concession A19 (ESC A19) that the
Department had failed to make proper and timely use of the information available to it.
By June 2011, the Department had received 111,000 claims for the remission of income
tax underpayments for 2008-09 and 2009-10 under ESC A19, of which it had remitted
28,000 at a cost of £41 million
3.25 The Department also chose to forego the recovery of underpayments of income
tax from 250,000 pensioners where their tax codes for 2008-09 and/or 2009-10 had
failed to reﬂect they were receiving state pension as well as other income, because
it considered that a substantial number of this group of pensioners could reasonably
claim a remission under ESC A19. The Department has been unable to obtain a reliable
estimate of the value of the tax foregone in these cases.
Annual coding for 2011-1
3.26 Between January and the end of March 2011, the Department issued 17.4 million
coding notices for the 2011-12 tax year, representing 99.4 per cent of the total expected
to be issued 16 The high levels of accuracy achieved in annual coding for 2011-12 led to
lower levels of taxpayer contact, with only 4 per cent of coding notices issued leading
to calls to the Department’s contact centres, compared with 8 per cent for the annual
coding for 2009-10.
PAYE work management
3.27 Work items are produced by the PAYE work management system for manual
clearance when user intervention is required to complete the automated processing
in NPS. The system has produced high volumes of work items from in-year
processing, compounded in the short term by the recovery work associated with
annual coding and end of year reconciliations, including the need to work two years
of reconciliations together
3.28 The Department has had to actively manage the higher volumes of work items
to keep them within the work management system’s operating capacity of 12.5 million
work items. This has included staggering the production of items for manual end
of year reconciliation and focusing its resources on the highest priority work items.
Additionally, it has reviewed categories of work items to determine if their production can
be temporarily inhibited where they are considered redundant or low priority. It has also
deleted work items that were redundant or no longer relevant
16
The Department will issue a coding notice to an individual and their employer where changes in income or
circumstances have an impact on the tax they will have to pay. This includes those in receipt of a state pension,
taxable state beneﬁts and changes to beneﬁts in kind
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R38 Part Three Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
3.29 Outstanding work items may result in some taxpayers’ records not being up to
date for a period. A potential consequence of not processing these work items is that for
some taxpayers, over and underpayments identiﬁed as part of the Department’s end of
year reconciliation may be higher than they would otherwise have been. In response to
this risk, the Department prioritised its clearance of work items based on its assessment
of the impact on the taxpayer, the tax involved and the availability of resources to
undertake the work
3.30 The Department is still working to fully understand the impact of not clearing work
items that are generated by NPS on the PAYE process, including whether it is necessary
to clear certain categories of work item at all. It is aiming to reduce the volume of work
items produced through enhancements to NPS functionality. The Department plans to
introduce changes to NPS functionality in April 2012. It is also working to increase the
efﬁciency of its manual clearance of work items through improvements to operational
instructions issued to staff
Clearing legacy open case
3.31 The Department established a programme in late 2010 to work the 2007-08
underpayment cases manually to allow it time to recover any underpaid tax within the
four year statutory window 17 By the end of March 2011, it completed processing of
416,000 underpayment cases, against a target of 400,000, and identiﬁed £228 million18
in underpaid tax. It is collecting £100 million of this through adjustments to the 2011-12
tax codes where individuals have sufﬁcient income subject to PAYE to make the
recoveries and has written to taxpayers to arrange direct payment of the remaining
£122 million. The Department estimates there is a further £136 million in underpayments
of tax to be identiﬁed from cases yet to be worked for the 2007-08 tax year
3.32 The Department has committed to completing clearance of all outstanding legacy
cases by the end of 2012. It is currently testing an automated solution based on NPS
functionality, which it expects to implement in October 2011. It will use this solution
to classify the remaining population of 16.8 million cases and target its resources in
clearing overpayments of tax across the tax years 2003-04 to 2007-08. It estimates
that the new functionality will allow it to clear at least 60 per cent of these cases
automatically, leaving the residual to be cleared by clerical staff. This ﬁgure may be lower
if the automated solution can be applied to a larger proportion of the population. The
Department’s best estimate is that overpayments of tax of up to a total of £2.8 billion19
may have to be repaid for the period 2003-04 to 2007-08.
17
The Commissioners extended their decision to temporarily raise the threshold for not reclaiming underpayments of
tax below £300 identiﬁed through PAYE reconciliations to include 2007-08.
18
£6 million of the £228 million has been set off completely against overpayments in other years (or reduces the
underpayment to below £300 once set off)
19
The Department has recognised a provision of £2.5 billion in its 2010-11 Accounts as not all of the £2.8 billion
repayments issued as payable orders will be cashed, for example, where the taxpayer is not contactable
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Cost
3.33 The stabilisation of PAYE was initially managed under two programmes, one to
stabilise NPS and the other to clear legacy open cases. The Department has estimated
the cost of the programmes over the period 2010-11 to 2012-13 at £23.6 million and
£57.3 million, respectively.20
A Stabilised PAYE Servic
3.34 The Department’s aim for a stabilised PAYE service is that it would be dealing
with only three open years in any one year. This means that in any year the Department
would be
completing the reconciliation of taxpayer accounts for the previous year;
making in-year adjustments to reﬂect changes in circumstances, thereby keeping
taxpayer accounts up to date; and
calculating and issuing correct codes for the following year
3.35 The Department plans to deliver a stabilised PAYE service by 2013. It intends to
achieve this by focussing on three areas:
efﬁcient clearance of post – it plans to speed up the turnaround of taxpayer
correspondence, including a target clearance of 80 per cent of post in 15 days,
by the summer of 2011, in order to minimise the level of repeat taxpayer contact
chasing progress and thus free up resources
clearance of arrears – it plans to clear outstanding end of year reconciliation cases
for 2008-09 and 2009-10 by March 2012, and legacy open cases relating to the
2003-04 to 2007-08 tax years by December 2012; an
advancing the processing timetable – it has announced plans to start the
automated end of year reconciliation for the 2010-11 tax year in July 2011, two
months earlier than the previous year. Initially the Department will prioritise the
processing of overpayments of tax so taxpayers will receive the money they are
owed promptly. It will then begin its processing of underpayments in the autumn
so they can be included in the tax codes for 2012-13.21 It will then identify and
manually process incomplete records excluded from automated reconciliation.
Figure 10 overleaf illustrates the estimated timeline to meet the Department’s target of a
stabilised PAYE service by 2013
20
The cost of NPS stabilisation excludes the costs of the manual working of cases by the Department’s
operational staff.
21
The reconciliation is expected to generate 1.7–3.5 million repayments to the taxpayer by the end of September 2011,
and approximately 1.2 million underpayment notices between September and December 2011
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3.36 The Department has recognised the priority of PAYE recovery and stabilisation in
allocating the Personal Tax business area for 2011-12 another £34 million for recovery
activity through manual processing in addition to the amounts stated in paragraph
3.33. The Department has informed us that it will recognise this priority again when
considering the allocations for 2012–13 as part of the business planning process, which
will take place in the autumn of this year
3.37 The Department has not been resourced to clear all exceptions arising from in-year
processing while it is engaged in clearing processing arrears and cleansing NPS data.
While it plans to accelerate its end of year reconciliation and clear legacy backlogs, as
well as introduce further efﬁciencies to NPS in 2012, the Department will not be able to
ﬁnalise its plans until it fully understands the volume of work items that will be produced
from in-year processing and its capacity to work them. Until it has a comprehensive plan
that embraces in-year work management, the Department cannot achieve its goal to
deliver a stabilised PAYE service.
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Real Time Information for PAYE and Data Improvemen
3.38 The Department plans to introduce Real Time Information (RTI), where employers
will be required to report employees’ Income Tax and National Insurance deductions at
the same time as they pay them rather than at year end. Under RTI, some elements of
the PAYE process will no longer be required, such as employer end of year returns and
in-year forms for starters and leavers.
3.39 RTI is a key component in the Department for Work and Pensions’ plans for the
introduction of Universal Credit from 2013, where it will use real time PAYE information
on employment and pension income to award and adjust Universal Credit. To meet this
timetable, the Department will begin to pilot RTI in April 2012 with volunteer employers and
software developers for a full year. Employers not already on RTI as a result of the pilot will
be mandated to join RTI in the period April to October 2013. Small and medium employers
will be brought on in April 2013 with the remaining larger employers progressively taken on
in the period to October 2013. All employers will be under RTI from October 2013.
3.40 The Department identiﬁed poor data quality as the key cause of the issues
experienced during annual coding for 2010-11 and the current volumes of over and
underpayments. It recognises that it has to address these data quality issues in PAYE if it
is to realise the beneﬁts of NPS. It also recognises that improvements in PAYE data quality
are a precursor to the successful implementation and operation of RTI and Universal
Credit, where the maintenance of data quality will be critical. In particular, PAYE information
submitted in real time will need to be matched to the correct taxpayer’s record on receipt.
3.41 The Department launched a PAYE data improvement project, within its wider
RTI programme. The objectives of the data improvement project, include amongst other
things, to
understand and address the root causes of data quality issues that could impact
on the successful implementation of RTI;
improve the current standard of data quality within PAYE to reduce the risk to the
RTI programme
deliver changes to the PAYE operating model to ensure that data quality
improvements can be sustained; an
support and inform data cleansing activities required in advance of the delivery
of RTI.
The detailed planning phase of the project was completed at the end of June 2011. The
Department has now entered into the evaluation and pilot phase from July to October,
prior to full implementation from November 2011
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R42 Part Three Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
Cost reduction
3.42 The Department faces further challenges in the delivery of the PAYE service beyond
its plans to stabilise the service by 2013, and the implementation of RTI. Following
the 2010 Spending Review, the Department committed to reducing running costs by
25 per cent in real terms by 2014-15, which will involve signiﬁcant cost reductions in
the administration of personal tax. The Department’s Personal Tax business area is
currently expected to reduce its overall stafﬁng from 24,900 as at April 2011 to 16,400 by
April 2015. It is planned that the full time employee and cost reductions will be enabled
by a number of new programmes, including RTI, under the umbrella of a central Change
Programme identiﬁed in and funded through the Spending Review settlement. We intend
to report separately on the Department’s cost reduction proposals.22
22
National Audit Ofﬁce report on Reducing Cost in HMRC with a publication date of 20 July 2011
s
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--- PDF page 199 ---
Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts Part Four R43
Part Four
Tax Credits
Introduction
4.1
Child and Working Tax Credits (tax credits) offer ﬁnancial support to more than
seven million families, supporting around 10 million children. Tax credits form part of
the personal tax system. The Department accounts for this expenditure in its Trust
Statement for taxes, duties and other revenues and related expenditure. In 2010-11
it spent around £28.1 billion on tax credits.
4.2
The tax credits scheme is designed to be ﬂexible and to react to the changes in
claimants’ circumstances. The process is complex, however, and claimants have not
always understood their obligations to tell the Department when their circumstances
change and to report their actual income and circumstances at the end of the year.
Claimants also make genuine errors in their applications that result in incorrect awards,
for example, because they misunderstand what should be reported as income, or
calculate childcare costs incorrectly
4.3
In February 2011, the Government announced its intention to introduce a new
Universal Credit to replace many of the current working-age beneﬁts, including working
and child tax credits, with a single means tested payment. The aim of the Universal
Credit is to create a single streamlined working age beneﬁt, to reduce or remove
some of the current complexities around beneﬁt entitlement, veriﬁcation of customer
circumstances and administrative burden that can increase the opportunities for error
and fraud. The Universal Credit is scheduled for introduction in 2013, but it is anticipated
that some tax credits claimants will not be transferred onto the new scheme until 2017
Reducing error and frau
4.4
The Department’s latest estimate, based on ﬁnalised awards for 2009-10, indicates
that the overall level of error and fraud has decreased from between 8.3 and 9.6 per cent in
2008-09 to between 6.6 and 8.1 per cent in 2009-10. This equates to payments of between
£1.75 billion and £2.14 billion being made to claimants incorrectly because of error or fraud
and further amounts of between £250 million and £550 million not being paid to claimants
due to error Figure 11 overleaf). The levels of error and fraud are material within the context
of the £28.1 billion spent on tax credits. As this expenditure has not been applied to the
purposes intended by Parliament and does not conform with the requirements of the Tax
Credits Act 2002, the Comptroller and Auditor General qualiﬁed his opinion on the regularity
of the tax credits expenditure reported in the 2010-11 Trust Statement.
.
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--- PDF page 200 ---
R44 Part Four Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
4.5
In July 2008, the Department announced a target to reduce tax credits losses due
to error and fraud to no more than 5 per cent of the value of ﬁnalised entitlement by
March 2011. It will only be able to measure its performance against this target in summer
2012, once the estimate of error and fraud in the ﬁnalised awards for 2010-11 is available.
4.6
In April 2009, the Department launched a revised strategy to reduce the level of
error and fraud in tax credits. The strategy is based on getting a better understanding
of tax credits claimants and their behaviours to support a tailored approach to reducing
error and fraud. It includes:
better support to claimants – by offering more support to claimants to help them
get their claims right ﬁrst time by assisting them through the claim and renewals
process and by contacting existing claimants to conﬁrm that information held
is accurate
preventing error and frau
– by increasing the Department’s focus on
stopping error and fraud from entering the system at the application, change of
circumstance and renewal stages; an
tackling non-compliance – by continuing to identify tax credits claims for
compliance and other enquiries based on speciﬁed veriﬁcation and risk scoring
criteria applied at the time awards are processed.
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--- PDF page 201 ---
Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts Part Four R45
4.7
Since the introduction of the revised strategy in 2009, the Department has
signiﬁcantly increased the number of interventions to almost 1.8 million in 2010-11
and identiﬁed losses attributable to error and fraud of £792 million, compared with
£253 million in 2008-09 Figure 12).
(
Figure 1
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)
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)
d
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)
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.
.
4.8
A key feature in the Department’s delivery of the strategy has been to increase the
number of interventions against those tax credits awards likely to contain error and fraud
and, in particular, to identify error and fraud before awards pass into payment (‘Check
First, Then Pay’) rather than limit the checks to compliance enquiries against awards in
payment. During 2010-11, it increased its interventions at the primary points where error
and fraud enters the tax credits system – application, changes of circumstance and
renewals – to deliver 450,000 checks against high risk awards and prevent an estimated
loss of £200 million. In comparison, in 2009-10, it performed 34,000 of these pre-
capture checks, identifying an estimated £5 million of error and fraud losses.
4.9
There is scope for the Department to improve its targeting of high risk awards.
We found that between 13 and 16 per cent of high risk awards selected for intervention
prior to processing resulted in the identiﬁcation of error or fraud. We also found
that rules-based guidance applied to support the selection of high risk change of
circumstances and renewal cases did not allow the Department to identify which of its
risk criteria were most likely to target error or fraud. Work to develop this functionality
has now been commissioned.

--- PDF page 202 ---
R46 Part Four Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
Measuring performanc
4.10 The Department can only measure the underlying level of tax credits error and
fraud in any year once the awards for that year are ﬁnalised. It has therefore developed
proxy indicators to allow it to track progress in reducing error and fraud through the year.
It estimates that by the end of March 2011 it had identiﬁed £1,054 million of error and
fraud in 2010-11 awards against a target of £1 billion. The Department has a target to
identify £1.4 billion of error and fraud by July 2011, once the majority of 2010-11 awards
are ﬁnalised. For 2011-12, it plans to identify £1.2 billion of error and fraud by March 2012
and £1.7 billion by July 2012
4.11 The Department’s estimate of £1,054 million of error and fraud identiﬁed by
March 2011 comprises £792 million of loss prevented from its interventions on
individual awards, plus estimates for the wider deterrent effect of its strategy and for
sustained improvements in compliance as a result of interventions in previous years. It is
undertaking a review of its estimated level of error and fraud for 2009-10, and plans to
link the outcome with the direct and indirect effect of its interventions measured against
its proxy target
4.12 In our 2009-10 report, we recommended that the Department improve the
accuracy and reliability of its measurement of intervention yields. During 2010-11, it
issued new guidance and training for tax credits teams on measuring interventions and
introduced new assurance arrangements. We have continued to ﬁnd inconsistency in
measurement and some instances where the results of interventions were inaccurately
recorded, resulting in both the over and under reporting of loss prevented. However,
the Department is strengthening its approach to quality assurance including the
independent sampling of intervention results.
Joint Fraud and Error Strategy
4.13 In October 2010, as part of the Spending Review, the Department launched a Joint
Fraud and Error Strategy with the Department for Work and Pensions. Within the context
of the Strategy, and as part of Spending Review 2010, the Department has a target to
prevent £8 billion of tax credits losses, through interventions, over the next four years
4.14 The Joint Strategy commits the departments to delivering an integrated approach
to tackling error and fraud based on ﬁve fundamental components: prevent; detect;
correct; punish; and deter. The departments are developing a common governance and
reporting framework and have established a new Joint Programme Management Ofﬁce
and a senior level Joint Strategy Programme Board to manage delivery of the Strategy.
The integrated approach will include better data sharing between the departments and
the creation of integrated teams to provide the departments with a combined risk and
intelligence, analytical, fraud investigation, and mobile task force capability
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--- PDF page 203 ---
Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts Part Four R47
Recovering tax credits debt
4.15 In 2009-10, the Department prepared a Tax Credits Debt Tactical Delivery Plan,
designed to reduce tax credits debt. The plan included objectives to reduce the amount
of tax credits debt by £0.2 billion to £4.3 billion by March 2011, and reduce the level of
tax credits debt going forward. As we reported last year, during 2010-11 the Department
intended to work to
stem the creation of debt by reducing the amount of error and fraud entering
the system and by better understanding and measuring the impact of other
interventions that reduce overpayments;
develop a more active approach to engaging with claimants with a tax credits
debt and support Debt Management and Banking directorate in its 2010 Debt
Campaign; and
review and remit uneconomic and unenforceable debts where there is no
possibility of collection by March 2011.
4.16 The Department has not met its target to reduce the overall level of debt.
At 31 March 2011, the total value of tax credits debt was £4.7 billion, compared
with £4.5 billion at March 2010. Not all of this balance is likely to be recoverable as,
at 31 March 2011, the Department estimates that the collection of £3.0 billion as
doubtful (£2.5 billion at 31 March 2010). The majority of the debt for which collection
is assessed as doubtful relates to the £2.6 billion of terminated tax credits awards
which have been passed to the Department’s Debt Management and Banking
directorate for direct recovery
4.17 Tax credits debt will continue to increase if the Department does not take any
further steps to improve the recovery and clearance of debt. In 2010-11, £1.5 billion of
new tax credits debt was generated which was almost £300 million more than expected.
This increase is in part a consequence of the increase in overpayments identiﬁed as a
result of the increase in the number of error and fraud interventions. Tax credits debt
levels are likely to increase further from 2011-12 onwards, as Budget changes affect
eligibility to tax credits and the threshold for disregarding income changes affecting
awards is reduced. The Department estimates that £1.7 billion of new tax credits debt
is likely to be generated in 2011-12 and, without any further intervention, overall debts
could increase to £7.4 billion by 2014-15.
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--- PDF page 204 ---
R48 Part Four Report by the Comptroller and Auditor General on HM Revenue & Customs 2010-11 Accounts
4.18 The Department’s efforts to increase engagement with tax credits debtors
through its 2010 debt campaign has so far had a limited impact on debt recovery.
The Department’s current tax credits debt campaign, launched in December 2010,
is focusing on 330,000 overpayment cases totalling £550 million passed to the Debt
Management Directorate between April and November 2010. By the end of April 2011,
fewer than 9,000 cases with a value of £12 million had been recovered by payment,
£103 million put into time to pay arrangements for recovery over a number of years
or other recovery activity, and 21,000 cases totalling £55 million had been remitted or
otherwise cleared.
4.19 The Department also sought to identify uneconomic and unenforceable tax credits
debt and assess the scope for remission. During 2010-11, it undertook an exercise to
assess the value for money of collecting £1.7 billion of tax credits debt not under active
recovery, and will make decisions about what debt should be remitted by the end of July.

--- PDF page 205 ---
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Foi 1120-12 Acknowledgement
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Fax 
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Julian 
 
By e-mail to: 
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Date 
23 January 2012 
 
 
Our ref 
FOI 1120/12 
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Your ref 
 
DX 
 
 
 
 
 
 
 
Dear Julian 
 
 
Freedom of Information Act 2000 
 
Thank you for your communication of 23 January 2012 which has been passed to HMRC’s 
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We have allocated the above reference which you should quote if you need to contact us. 
 
The Team will arrange for a reply to be sent to you which will either comply with HMRC’s 
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need to address under the terms of the Act, let you know why. If it is the latter we will, if 
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