19 06 2017

Concern After Uptick In UK Tax Credit Errors

HM Revenue and Customs, the UK tax agency, has reported that tax credit errors in claims from taxpayers have risen by more than a third in the space of a year.

The authority's Child and Working Tax Credits Annual Error and Fraud Statistics 2015 to 2016 said that during this period GBP1.2bn (USD1.5bn) in tax credit payments were paid to claimants because of errors in claims that led to them receiving more than they were entitled to.

At 4.2 percent of the overall tax credit budget of GBP28.3bn, the figure represented an increase of 35 percent on the 3.1 percent recorded the previous fiscal year (2014/15).

The Low Incomes Tax Reform Group (LITRG) called on the Government to explain the reasons behind the spike in tax credit errors.

It warned that "flawed" practice of HMRC assessing just 4,000 sample cases fails to provide an accurate picture of the true extent or causes of error. This lessens the chance of the agency being able to pinpoint problems and remedy the situation.

In particular, LITRG added:

The statistics do not appear to take into account successful appeals by claimants against HMRC, resulting in the reinstatement of tax credit awards;
Almost a quarter of the cases in the sample involved claimants who did not reply to HMRC's compliance investigation. In those cases, HMRC will have made a decision based on information it held and would have been forced to classify the case as claimant error, fraud, or HMRC error without any direct dialogue with the claimant;
The reported figures materially underestimate official error in the system, with little or no attention paid to 'contributory error' (where the error is primarily a claimant error but to which HMRC have contributed in some indirect way).
LITRG said that contributory errors are likely to have been exacerbated by the transfer of HMRC information to the www.gov.uk portal, which has resulted in the loss of online content that LITRG said is vital to understanding the tax credit process.

LITRG recommend that HMRC engage directly with claimants to provide better support and prevent errors from entering the system in the first place.

"We think that HMRC could do more to ensure that its compliance officers are able to investigate the sample cases further in order to determine with certainty what errors exist on a claim and crucially, to understand why the claimant, or HMRC, made those errors," said LITRG Chair Anne Fairpo.

The tax credits system is being phased out and gradually being replaced by Universal Credit.