1 HMRC's performance in reducing
error and fraud |
1. Working tax credits and child tax credits
(tax credits) are payments to support workers on low incomes and
those with responsibility for children and young people. HMRC
paid £30 billion
in tax credits in 2011-12, providing support to just under six
million individuals and families.
The system of tax credits is extremely complex. HMRC calculates
the value of claims based on a range of factors, including hours
worked, the number of dependent children, childcare costs, disability
and household income.
Claimants need to keep HMRC up to date with their circumstances,
but can find it difficult to understand the system and what they
are required to report. This leads to HMRC making incorrect payments
based on incomplete, outdated, or wrong information.
2. Although the tax credits system was launched
in April 2003, HMRC has made very little progress in reducing
levels of error and fraud which are very high in comparison to
other benefits and payments made by other government departments.
In response to our previous recommendations on tax credits HMRC
committed to reduce total error and fraud to no more than 5% of
the amount claimants are entitled to receive by 2010-11.
However, HMRC has missed its target with error and fraud standing
at 8.1% in 2010-11. This equates to an estimated loss of some
£2.3 billion to error and fraud by 31
March 2011, some £850
million higher than it had expected.
In 2010-11, HMRC estimated that one in five awards contained error
3. HMRC agreed with
the Treasury in the 2010 Spending Review to stop £8 billion
in tax credits error and fraud by 2015. HMRC has now confirmed
that they will be unable to achieve this amount and estimates
that it will now only prevent around £3 billion in error
The agreement with the Treasury does not commit HMRC to delivering
cash savings and HMRC does not have to report separately on its
progress. At a time when departments are making cuts this is surprising
and HMRC was unclear as to what
the consequences of missing this commitment to deliver £8
billion in savings would be.
4. HMRC believed it was
on track to meet its targets until summer 2012. It initially estimated
it had reduced error and fraud by £1.4 billion during 2010-11.
Following the publication of the error and fraud estimates, HMRC
revised the estimated impact of its work down to £480 million.
HMRC did not test the assumptions it made in measuring the impact
of its interventions to tackle error and fraud. These included
assumptions as to how long a claim would remain correct following
an intervention and the deterrent effect of its work. HMRC found
that claimants made the same mistakes again and awards become
incorrect quicker than was previously believed. It also found
it difficult to evidence the deterrent effect expected from claimants
telling friends and family about changes HMRC made to their award
and helping them to avoid similar errors.
HMRC has identified the
need to engage with customers' claims more frequently to ensure
they are receiving the right amount of money.
5. HMRC has taken action to improve its understanding
of the impact of its interventions, with the aim of providing
better information on its progress in tackling error and fraud.
HMRC has commissioned an independent company to undertake social
and economic research to establish why some claimants repeatedly
make the same mistakes in providing information to HMRC.
It has also selected 500 tax credits claims to track in real time,
which will allow it to identify when an error reoccurs. HMRC recognised
that 500 claims is not enough and has agreed to track a greater
number of claims in the future.
2 C&AG Report, paras 1-2. Back
Qq 29-30, 67-68 Back
HC Committee of Public Accounts, Tax Credits, Twenty-second
Report of Session 2006-07, HC 487, April 2007 Back
Q 32; C&AG Report, para 1.7 Back
C&AG Report, para 2 Back
Qq 114-117 Back
Qq 158-161 Back
Q 107 Back
Qq107-109; C&AG Report, paras 3.3 - 3.10 Back
Q 109 Back
Q 109 Back
Q 108 Back