Billions of Tax Credits 'wrongly paid out'

Fraud and administrative mistakes blamed for billions of overspending.

Around £17 billion of Tax Credits have been wrongly paid out since the scheme was launched a decade ago.

That’s according to a report by the Daily Mail, which blamed fraud and mistakes by the authorities for the huge sums handed out erroneously.

It's the equivalent of more than £23 million a week being given out to people who may have lied to the taxman or failed to inform them of a change in the circumstances which meant they no longer qualified for the benefit.

The report found that fraud and error meant £1.17 billion of Tax Credits were wrongly paid out in 2004/5. By 2010 this annual figure had rocketed to a peak of £2.27 billion, and while it has fallen since then, it still amounted to £1.2 billion in 2013/14.

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How do Tax Credits work?

There are a couple of different versions of Tax Credits.

Child Tax Credit is available for each child you’re responsible for if they are under 16 (or under 20 and in approved education or training). This is made up of the ‘family element’ which is worth up to £545 a year, then extra elements on top for each child of up to £2,780 (which increases if the child is disabled or severely disabled).

However, not everyone qualifies – it depends on your income and circumstances. To see if you qualify, try the Tax Credit calculator on the Gov.uk website.

There is also the Working Tax Credit. Again this consists of a basic element, worth up to £1,960 a year, with additional elements on top such as if you’re a single parent, work at least 30 hours a week, pay for childcare or have a disability.

You must work a certain number of hours to qualify, but even this varies by your circumstances, from at least 16 hours for single parents with at least one child up to at least 30 hours for those aged 25-59. And again, qualification is not just down to income, but rather circumstances. To find out if you qualify, take the Tax Credits questionnaire.

With such hazy rules, it’s little wonder that so much money can slip through the cracks. Relying on people to update the taxman of every lifestyle change is always going to be open to abuse, while equally mistakes will be made. If you break up with your partner, telling the taxman about your changed relationship status may not be too high on your priority list.

The welfare merry-go-round

Tax Credits are under the Government microscope at the moment, with the Prime Minister this week vowing to end the “welfare merry-go-round” where low earners are taxed on their wages then given that money back in the form of Tax Credits.

With the Government needing to find £12 billion of cuts from the welfare budget to meet its election promise, don’t be surprised to see wholesale changes in the Summer Budget on 8th July.

Read Which benefits will the Government cut? for more on the possible changes.

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Which benefits will the Government cut?