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News - 29 May 2013

HMRC to miss tax credit fraud target, says PAC

A report by the Public Accounts Committee (PAC) has stated that the UK tax authority's failure to hit a target of reducing tax credit fraud and error has "cost the taxpayer dear."

In 2010, the Government challenged HMRC to cut fraud and error by £8bn by 2015, but the PAC report claims that HMRC predict that this will only be reduced by £3bn

Lavinia Newman, founder of ABDS comments:
“The tax credit system was aimed to provide financial support for parents returning to work. This was designed to be flexible as parents' financial circumstances changed. As a result, entitlement takes into account age, income, hours worked, number and age of children, childcare costs and disabilities. Families must update HMRC of any changes.”

However, the PAC said that the system was difficult for claimants to understand and equally challenging for HMRC to administer.

As a result, the latest figures showed that:
• One in five awards featured an error or fraud which meant the claimants were overpaid
• A total of £1.7bn of these overpayments was written off because claimants were never likely to pay it back
• Some £2.3bn was lost to fraud and error in 2010-11, which was £850m more than HMRC expected
• A target to reduce the proportion of fraud in relation to the total amount of money spent on tax credits to 5% in 2010-11 was missed. It stood at 8.1%
• The 2015 target, set in the 2010 Spending Review, will now be missed by £5bn, according to HMRC estimates

Margaret Hodge, who chairs the PAC, said:
"HMRC's performance in cutting the level of fraud and error in the tax credits system has been hugely disappointing and extremely poor; the department's failure to cut the fraud and error rate to 5% has cost the taxpayer dear.”

The committee suggested that HMRC be given a "more realistic target" for reducing fraud and error.

The biggest problems were inaccurate records of claimants' working hours, or HMRC being unaware of a claimant's partner's income.

More people have contacted Citizens Advice as a result of an increasing number of checks by HMRC. In turn this increased the number of appeals after payments were reduced or cancelled.

A spokesman for HMRC said that these extra checks - which had increased tenfold in the last four years - had saved £390m in three specific areas, in addition, links with the private sector had improved the data used to make sure claimants' information was accurate and to identify fraud.

The Low Income Tax Reform Group, which speaks on behalf of claimants, said that HMRC needed to look at its own inaccuracies, rather than solely targeting incorrect claims.

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