HMRC fails to cut tax fraud

HMRC has missed its own targets for cutting error and fraud in tax credits according to a report from the National Audit Office (NAO), which says there is no sign of a sustainable reduction in the level of losses, reports Harris & Co small business accountants.

While HMRC originally estimated it would tackle £1.4bn of error and fraud in 2010-11, this figure has now been revised down to under £500m after the department admitted it had failed to meet its target of halving losses from 9% to 5%.

The NAO report shows losses for the year of just over 8%, totalling £2.3bn, around £850m higher than if HMRC had hit its target.

Margaret Hodge, chair of the Public Accounts Committee (PAC), said the department needed to ‘get a grip’ having missed its target ‘by a mile’.

Hodge said:

‘HMRC needs to develop a rigorous plan for rooting out error and fraud in each and every category if it is to achieve a sustainable reduction in losses.’

Despite HMRC increasing the number of checks to tackle error and fraud, the NAO found evidence of a substantial number of incorrect awards at the end of each year. In 2010-11, in the case of 1.4m awards, claimants were paid more than they were entitled to.

The NAO said that HMRC has not yet developed an effective response to stop error and fraud recurring after it has corrected a claim. There has also been ‘little progress’ in dealing with people failing to declare partners" income or in checking claimants" stated work and hours. These two areas accounted for £1bn of the fraud and error in 2010-11, while £640m was down to children being wrongly included in claims.

Amyas Morse, head of the NAO, said:

‘HMRC deserves credit for demonstrating innovation, but it has further to go to achieve sustainable reductions in tax credits error and fraud. To tackle error and fraud effectively, there needs to be an improved understanding of risks and better use of information.’

The report is available from the NAO.