MPs call for HMRC to take action on Covid fraud
MPs have called for action from HMRC after discovering the “avalanche of errors and fraud” it faces from the Covid-19 support schemes.
The public accounts committee’s report on HMRC’s performance in 2020/2021 found HMRC’s “unambitious” plans for recovering overpayments of Covid-19 support could lead to government writing off at least £4bn and such inaction “risks rewarding the unscrupulous and sending a message that HMRC is soft on fraud”.
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The report found the taxman estimates that error and fraud across its main pandemic grant schemes totalled nearly £6bn and it only expects to recover £2bn of this.
It said HMRC needs to take a number of actions to reassure Parliament and the public that “it is serious” about tackling error and fraud from the coronavirus support schemes and is taking all recovery action where it is cost effective to do so.
Alongside its Treasury minute response to this report, the committee said the taxman should write to it to set out several things.
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These include the analysis it has undertaken, including the costs and benefits, in determining the amount it plans to spend on recovering error and fraud, and whether its plans mean that it will have pursued all error and fraud where money recovered should exceed the cost which HMRC would incur in doing so.
The committee also wants HMRC to reveal where further action would be cost-effective, commit to recovering more of the support payments lost through error and fraud, and set out how this will be done.
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It also wants the taxman to commit to reassessing whether its plans are sufficiently ambitious after it has improved its estimates of error and fraud for 2022.
The report concluded that HMRC does not have a convincing plan for restoring compliance activity back to pre-pandemic levels.
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“The Covid-19 pandemic has added to HMRC’s workload, at a time when it already faced extreme challenges dealing with the impact of the UK’s exit from the EU and the strain of modernising the tax system,” the report said.
“HMRC performed well in setting up and operating the Covid-19 support schemes in response to the pandemic.
“But responding to Covid-19 and the other pressures HMRC faced, along with a workforce which is much smaller than when the department was established in 2005, has led to poor performance, delays and backlogs in key aspects of tax administration…
“HMRC is keen to return to business as usual as quickly as possible, but this is not the reality it faces. In autumn 2021, aspects of customer service remained poor and HMRC told us it was only just starting to examine compliance cases it had deferred in 2020–21.
“We are therefore extremely concerned about its capacity to clear backlogs while tackling the avalanche of error and fraud it now faces on the Covid-19 schemes, personal tax credits and research & development tax reliefs, delivering its long-term transformation ambitions and responding adequately to tax avoidance schemes.”