3 Tax credits
20. HMRC had a target to reduce tax credits error
and fraud to no more than 5 % of the value of awards finalised
by March 2011. However, in June 2012 HMRC announced that it had
not achieved this target. It estimated that the level of error
and fraud in tax credit payments made in 2010-11 was between 7.5
% and 8.8 %. This level of error was higher than the previous
year, when the estimate was between 7.0 % and 8.6 %. In 2010-11
HMRC had made incorrect tax credit payments amounting to between
£2.08 billion and £2.46 billion because of error or
fraud.[63]
21. HMRC acknowledged that it was clearly disappointing
that the level of error and fraud had not dropped to 5 %.[64]
The assumptions underpinning the target about the deterrence effect
of the Department's interventions and the length of time for which
an award stays correct were not borne out in practice.[65]
HMRC is working to understand why these assumptions did not reflect
reality and expect to, consequently, revisit their strategy in
the next couple of months.[66]
22. HMRC is likely to generate a further £1.6
billion in new personal tax credit debt in 2012-13[67]
and, without any further intervention; total debts could increase
to £6.5 billion by 2014-15.[68]
This may mean that there will be a further substantial write-off
or affected taxpayers will see their new, and in all probability
lower, Universal Credit benefit cut at source to make repayments
on tax credit debt.[69]
This and the fear of being pursued for overpayments may discourage
entitled individuals from claiming tax credits. The Department's
latest estimate for the take-up of tax credits show that in 2009-10
around 2.7 million households did not claim tax credits.[70]
HMRC has not done any research on the reasons why people who are
entitled to tax credits do not claim.[71]
63 C&AG's Report, paras 4.9-4.10 Back
64
Q 154 Back
65
Qq 154-156 Back
66
Qq 156-158 Back
67
Q 163 Back
68
Q 163; C&AG's Report, para 4.28 Back
69
Q 165 Back
70
Ev 50 Back
71
Q 171 Back
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