Tax credit mistakes by HMRC cost the taxpayer £1.4bn
Around £1.4bn will be written off this year by Her Majesty’s Revenue and Customs (HMRC) in overpaid tax credits, according to a recent report from a committee of MPs.
The Public Accounts Committee said that this would mean losses due to overpayments of £1.9bn. Since the tax credit system was launched in 2003 it has been bedevilled by complexity, overpayments and fraud, with many people unaware of what their entitlements are and even HMRC staff confused.
Edward Leigh, chairman of the committee, said: “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 to genuine claimants have caused significant suffering to many vulnerable families.
“And HMRC seems incapable of mounting a credible and effective response to the flood of money being wasted in this way,” he added.
To date, £500m of tax credit overpayments from the first three years of the scheme has been written off.
By the end of March 2006 another £3.6bn in overpayments was outstanding, but the MPs think that £1.4bn of this will have to be written off as “unrecoverable”.
However, HMRC said that overpayments had fallen by 20% between 2003-04 and 2004-05.