HMRC Tax Credit crackdown misses target by "a mile"

The tax office spectacularly failed to achieve the drop in fraud and errors it had promised for the 2010/11 tax year.

HM Revenue & Customs (HMRC) has missed its 2010/11 target for cutting down on Tax Credit errors and fraud by “a mile”.

HMRC said it would cut losses by £1.4 billion, but actually only managed to reduce them by less than £500 million. This meant overall losses of nearly £2.3 billion for that tax year, mostly due to errors.

This is despite the fact it put 400 extra staff on the two-year project.

The National Audit Office (NAO) said HMRC had “overestimated the impact of its activities”. As a result, over 1.4 million people were paid more than they were entitled to.

HMRC targeted claims at the “greatest risk of containing fraud and error”, but appears to have been spectacularly unsuccessful at pursuing others.

In a report, the NAO said the tax authorities had not developed an effective method of stopping errors and fraud reoccurring after an incorrect claim had been corrected. It also criticised its monitoring of the misreporting of hours worked by claimants, which is a key determiner of whether people can claim Tax Credits, and undeclared partners earning income.

And errors and fraud caused by children being incorrectly included in payouts doubled between 2008/09 and 2010/11.

The NAO said that HMRC was “not yet achieving value for money” in this area. It also said that HMRC won’t achieve its target of £8 billion of Tax Credit savings between 2011 and 2015.

Labour MP Margaret Hodge, chairwoman of the Commons public accounts committee, 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.”

The Government hopes the introduction of the simpler Universal Credit will help prevent these losses in future.

More on tax

HMRC crackdown on tax-dodging Southerners

Middle-income tax dodgers face CPS crackdown

HMRC crackdown on tax-dodging top earners

Calls to HMRC cost us £136 million!

How to claim your Tax Credits

How to renew your Tax Credits

How to make sure you’re on the right tax code