Failure to hit tax credit fraud targets 'costing the taxpayer dear', say MPs

22nd May 2013

A committee of MPs has revealed HM Revenue and Customs’ (HMRC) inability to hit their target of reducing tax credit fraud and error is "costing the taxpayer dear".
 
Back in 2010, HMRC was challenged by the Government to reduce fraud and error by £8bn by 2015. However, HMRC has predicted within a report by the Public Accounts Committee (PAC) that it will only be able to reduce this by £3bn.
 
The tax credit system has been attributed as being one of the main obstacles to reducing tax error. The scheme, aimed at providing financial support for parents returning to work, was designed to be flexible as parents’ financial circumstances changed. The entitlement takes into account age, income, hours worked, number and age of children, childcare costs and disabilities.
 
Families must therefore update HMRC of any changes to their circumstances. However, the PAC claims the system is difficult to understand and equally difficult for HMRC to administer.
 
One-in-five tax credit awards included an error or fraud which meant claimants were overpaid. In total, £1.7bn of overpayments has been written-off simply because claimants were never likely to pay it back.
 
Margaret Hodge, chair of 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. In these strained times, the government cannot afford these failures."

The biggest problems in cross-checking information from claimants were inaccurate records of claimants’ working hours, or HMRC being unaware of a claimant’s partner’s income.
 
Additionally, the committee believes not enough resources are being used to cover tax credit appeals after payments were reduced or cancelled in error, causing "unnecessary distress and hardship".
 
However, an HMRC spokesman insisted that extra checks had saved £390m in three specific areas. Meanwhile, links with the private sector had improved the data used to make sure claimants’ information was accurate and to guard against identity fraud.
 
He said: "We are also getting tougher with claimants about the proof they need to support their claims; for example on childcare costs and on school leavers.
 
"We will continue to improve the service and quality of information we provide, while clamping down on the minority who seek to abuse the rules."

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