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HMRC overpaid £7.3 billion in the four years following the launch of the tax credits scheme, according to a new report from MPs.
The document published by the Committee of Public Accounts shows that the Revenue has paid out £85 billion in tax credits since they were introduced in 2003.
At the end of March 2008, the department had collected £2.7 billion in overpayments and written off £1 billion, while £3.6 billion is outstanding - and the department is unlikely to recover half of that amount.
The report goes on to suggest that policy changes announced in the 2005 Pre-Budget Report have helped the taxman to reduce recoverable overpayments from £1.9 billion to £1 billion annually – but HMRC have not given claimants the support they need in making claims and reporting changes in circumstances, and the department has assumed too much on the part of claimants in their understanding the tax credits system.
The Revenue is now doing more to target those with more complex circumstances and to provide them with more tailored support, says the MPs’ paper, which also shows that tax credits continue to suffer from high rates of error and fraud.
The Revenue estimates that the problem led to incorrect payments of between £1.31 billion and £1.54 billion (7.2% to 8.4% of the final value of awards) in 2006-07.
This led the Comptroller and Auditor General to qualify his opinion on the HMRC Trust Statement for the sixth consecutive year.
In July 2008, the taxman set a target to reduce claimant error and fraud by 2011 to not more than 5% of the value of finalised awards.
