Tax officials were forced to apologise on Thursday after Whitehall's spending watchdog found HM Revenue and Customs had incorrectly claimed it was bringing in billions of pounds in extra tax.
The discovery by the National Audit Office was an embarrassment for HMRC and led Margaret Hodge, chair of the public accounts committee, to question how tax inspectors could expect the public to file their own tax returns correctly when the tax office was making such errors.
The NAO found HMRC had reported that it exceeded its performance targets by £1.9bn in 2011-12 and £2bn in 2012-13.
The error arose because tax officials had set the baseline to measure their performance £1.9bn too low when it began the measurement process in 2010.
Hodge said poor governance at HMRC meant the mistake had not been picked up. "Put simply: it has not been able to track its performance accurately, which is absolutely crucial to long-term success. If HMRC can't get its own numbers right, how can it ask the same of others?
"It is truly depressing that HMRC's failure to take appropriate action has led to its unwittingly misleading ministers, parliament and the taxpayer."
HMRC officials will appear before her committee on 16 July. An HMRC spokesman said the tax authorities would work closely with the NAO.
"We regret a historic error made in 2011 when we wrongly calculated the baseline against which our performance was measured," he said.
"We have corrected this error and even against the corrected baseline we have still exceeded our targets."
The discovery follows what has been HMRC's best year for collecting tax revenues, bringing in £506m, or 6%, more than the year before – and almost £24bn in additional tax through its investigations into avoidance.
The taxes which contributed to this increase were income tax and national insurance, which was 6% higher at £16.2bn, value added tax, which rose 7% to £7.2bn, and stamp duties, which rose 35% to £3.4bn.
Amyas Morse, head of the NAO, acknowledged that HMRC had met its objective of bringing in extra tax but said: "I am concerned, however, that an error of as much as £1.9bn in HMRC's baseline calculation led it to report the trend in its performance in a way that inadvertently exaggerated the improvement since 2010-11."
As a result of the error, HMRC said in May that it had brought in £9bn of extra taxes over three years but this was actually £7bn extra over the period.
It is still on track to exceed the £16bn target it was set by the chancellor, George Osborne, in 2010.
The NAO said the tax authority had been "inadvertently" making the overstatement of its achievements
"The way HMRC has measured compliance yield during this spending review period is substantially different to the way it reported its yield in 2010-11 and before, preventing a like-for-like comparison. Until it identified the error in its baseline, HMRC was not aware that such comparison was significantly flawed," the NAO report said.
However, the watchdog credited HMRC with improvements to the "accuracy, compliance and transparency" of the way it was reporting its additional revenue collection.
"I am satisfied from the evidence we have seen that HMRC's compliance performance has improved throughout the spending review period and that its effectiveness continues to increase as HMRC develops new ways to deter, detect and prevent abuse of the tax system," Morse said.
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