HMRC accused of missing its target "by a mile" during crackdown on tax fraud and error

HMRC accused of missing its target 'by a mile' in attempted crackdown on tax credit fraud and error 2.27billion lost in 2010/11 due to tax credit fraud and error despite efforts to curb lossesTax bosses had hoped to reduce losses by 1.4billion
But they only cut 500million as a fifth of cases resulted in overpayment
Margaret Hodge said that senior officials needed to 'get a grip' and resolve 'deeply worrying' issues

By
Mario Ledwith

PUBLISHED:

01:36 GMT, 14 February 2013

|

UPDATED:

02:07 GMT, 14 February 2013

A HMRC crackdown on tax credit fraud and error missed its target 'by a mile', as tax bosses failed to stop losses of more than 850 million.

Despite instigating a plan to tackle inefficiencies, error was still rife in the taxation system throughout 2010/11 as 2.27 billion was lost.

Watchdogs criticised the failed approach, demanding that tax bosses 'get a grip' and saying that the money could have been spent on 'schools and hospitals'.

Inefficiencies: Despite instigating a plan to tackle inefficiencies, tax worth 2.27billion was lost in 2010/11 due to error and fraud

Inefficiencies: Despite instigating a plan to tackle inefficiencies, 2.27billion was lost in 2010/11 due to tax credit error and fraud

There was also criticism of the system as it was revealed that the majority of the loss was due to error rather than fraud.

HMRC had hoped to reduce losses by 1.4 billion in 2010/11 but was only able to reduce the total by 500million, despite deploying 400 staff to address systematic problems.

While it was hoped that error and fraud rates would be cut from nine per cent to five per cent, the push only resulted in a decrease to 8.1 per cent.

Action: Margaret Hodge, chair of the Commons public accounts committee, demanded that senior officials resolve the 'deeply worrying' issues

Action: Margaret Hodge, chair of the Commons public accounts committee, demanded that senior officials resolve the 'deeply worrying' issues

One fifth of all claims, an estimated 1.4 million, still resulted in people being overpaid.

The National Audit Office said that there had been 'little progress' in dealing with
people failing to declare partners' income or in checking claimants'
stated work and hours.

The two areas accounted for 1 billion
of the fraud and error in 2010/11 while 640 million was down to
children being wrongly included in claims.

The chair of the Commons public
accounts committee demanded that senior officials resolve the 'deeply worrying' issues.

Labour MP Margaret Hodge said: 'It
set itself a target, which it missed by a mile. In 2010/11 error and
fraud was still at 8.1% with 2.27 billion lost to the taxpayer – 850
million higher than expected and money that could have been spent on our
schools and hospitals.

'According to HMRC's own figures, the
majority of this 2.27 billion – 1.6 billion – was due to error rather
than fraud by claimants.

She added: 'I also find it deeply worrying that even after HMRC has taken action, one in five claims still contain error or fraud.'

Mrs Hodge did draw attention to some signs of improvement,
noting that HMRC had 'tried to be smarter and sharper'.

But she said there was 'little progress' elsewhere, adding: 'HMRC needs to develop a rigorous plan for
rooting out error and fraud in each and every category if it is to
achieve a sustainable reduction in losses.

'It needs to inject much more rigour
into its collection and analysis of data, particularly around changes in
claimants' circumstances, where mistakes are most likely to be made.'

HMRC had hoped to reduce losses by 1.4 billion in 2010/11 but was only able to prevent 500million, despite deploying 400 staff to address systematic problems

HMRC had hoped to reduce losses by 1.4 billion in 2010/11 but was only able to prevent 500million, despite deploying 400 staff to address systematic problems

Mrs Hodge warned HMRC not to 'take its eye off the ball', despite the fact that tax credits are to be
replaced by a new universal credit.

Tax credit payments are based on estimates of income – which critics say leaves the system 'wide open to abuse'.

HMRC estimates that up to 4 billion
of tax credit debt is unlikely ever to be recovered and has already been
forced to write-off large sums.

NAO head Amyas Morse, who last year declined to sign off HMRC's accounts because of tax credit fraud and error, said it faced 'significant challenges'.

'The tax credit system is complicated, and HMRC will have to overcome significant challenges if it is going to achieve value for money.

'HMRC deserves credit for demonstrating innovation, but it has further to go to achieve sustainable reductions in tax credits error and fraud.

'To tackle error and fraud effectively, there needs to be an improved understanding of risks and better use of information.'