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£1.4billion tax credit write-off: PAC lays into HMRC

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9th May 2007
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A new report by the Committee of Public Accounts (PAC) on tax credits has described HMRC as “incapable”. The department has already written off £500million in overpayments, and is unlikely to recover a further £1.4billion, the paper concludes. Rob Lewis reports.

PAC chairman Edward Leigh MP said “This is the fourth time that this Committee has had to examine the current tax credits system – and it will not be the last. Billions of pounds, far more than those who thought up the system ever envisaged, are still routinely overpaid to claimants. Very large amounts have to be written off. And the attempts to recover overpayments from genuine claimants have caused significant suffering to many families.”

Tax credits suffer from the highest rates of error and fraud in government, the report stated, yet HMRC has no up-to-date information on the money lost, not even routine estimations. Nor has it set targets for reducing the levels.

The Committee also criticised Revenue and Customs for dragging its heels over their proposed raising of the threshold for in-year increases in income. The Committee asked HMRC to supply the cost of this measure last year, but received no response until this week’s hearing. In the meantime they had to rely on the National Audit Office to provide an estimation.

HMRC’s failure to rely on the mandatory guidance issued by the e-envoy when opening its tax credits internet site is also mentioned. Following attacks by organised criminals, the site had to be closed down in December 2005.

The accounting bodies have been quick to join in the chorus of criticism. Chas Roy-Chowdhury, head of taxation at ACCA, described the situation as “shocking.”

“There is a real sense of déjà vu with this report,” he said. “A year ago, the ACCA called for better planning, co-ordination and management to tackle overpayment and fraud in the UK’s tax system. And we find ourselves saying the same today.”

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By User deleted
11th May 2007 15:29

The great thing is...
that HMRC now have an extra 100 staff to deal with the problem...

That's a joke, but actually they are totally under resourced (how do you honestly try and chase up £5 billion in this system?). They are probably better of creating an "onshore disclosure tax credit amnesty" because that way people could own up to receiving overpayments...

if they can work them out...

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By MBowles
10th May 2007 09:50

Discrimination
Is it not discrimination to write off some debts but not all of them?

What about those already repaid?

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the sea otter
By memyself-eye
09th May 2007 11:58

Gordon in wonderland...
No surprises fraud and error thrive under this barmy system. I have a client routinely asked to repay thousands - she is not sure the exact amount as the figures keep changing - from payments made years ago. Another friend routinely adjusts his 'income' to maximise his tax credits which largess pays for his three cars.
I doubt this government will ever learn.

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By User deleted
11th May 2007 09:12

I agree with Darrin...
...it would have been far more simple for those working to have increased the personal allowance for example. However, my cynicism would lead me to believe that the government writes out tax credit cheques because they know that people will remember receiving a cheque more vividly than they would notice an increase in their take home pay that they may not fully understand.

As the saying goes money talks, and in this case it's saying, 'look what a caring, compassionate government you have.'

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By martinfoley07
10th May 2007 23:15

the person...
...who personally and passionately masterminded the strategy leading to the fraud is about to become our next PM.

The strategy cannot can be defended on the grounds that "the strategy was OK, but the detailed implementation was the problem".

The detailed implementation is ALWAYS the problem.
With any strategy.
As anyone with a brain or experience does (or should) know.

The tax credit system was born a [***] due to utter negligence on attending to any level of detail from its inception.

The tax credit system, this love child of GB, will only (eventually or never) become a sensible system when the Govt, Treasury and HMRC get the details right.
Now THAT is a big ask.
But why should GB worry about that? He feels he had a good strategy.

But hey, why worry about strategy when members of the cabinet lead the way by telling us that it is a citizen's right to decide which taxes are moral and payable?
Step up our very own Dawn.
Oh, I forgot. If SHE says the taxes are moral and payable, other citizens should just pay up meekly. Only she has the right to be able to judge whether the Govt's invitation to pay taxes is moral.

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By User deleted
09th May 2007 12:47

Oil the wheels
Complex tax or benefits systems can only work with the co-operation of the thousands of clerical people who are regularly approached to assist often informally and unpaid.

IMHO Tax Credits would only work if they were a true 'reverse tax' system processed through the tax code. This would often mean exempting small employers.

I would gladly operate such a sensible system if National Insurance were merged with Income Tax and other no loss/gain simplifications were implemented first.

What was guaranteed to alienate me and others is a further strata of nonsense landing on the accountants desk for which Gordon and Dawn are solely responsible.

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