HM Revenue and Customs: Annual Report and Accounts - Public Accounts Committee Contents

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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© Parliamentary copyright 2012
Prepared 3 December 2012