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HMRC says RTI will plug tax fraud hole

May 22, 2013

 

HMRC’s failure to stem tax credit fraud has been strongly criticised by the Public Accounts Committee in a report released today. HMRC responded by immediately making a statement in response to the Public Accounts Committee defending its efforts.

The PAC report highlighted HMRC’s failure to improve its accuracy and  the effectiveness of its fraud prevention measures, stating that HMRC has made “little progress in reducing the amount of money it loses due to error and fraud in tax credits”. HMRC has conceded that it will fail to meet its fraud reduction target agreed with the Treasury to reduce losses from tax fraud by 2015 by £5 billion, and now hopes to save only £3 billion of the original £8 billion target. The National Audit Office in support of the PAC has confirmed these figures.

The PAC has expressed its concern that HMRC has no real obligation to report its progress in reducing losses to the public purse from error and tax credit fraud nor to deliver real cash savings. The targeted sums agreed with the Treasury are merely aspirational as HMRC has not committed to delivering any actual saving. The Public Accounts Committee, chaired by Margaret Hodge MP, has recommended a new more rigorous target should be agreed with the Treasury for the end of 2017.

HMRC’s reliance on private sector contractors to manage its own data was revealed by HMRC’s award of a contact to Experian, the credit checking agency, in December 2011. The contract, jointly awarded by HMRC and the DWP, provided for Experian to deliver value and savings from HMRC’s own data by identifying fraudulent claims and error. It emerged from evidence given to the PAC that HMRC has not always checked tax credit claims against its own child benefit data. The Experian contract had targeted savings of £800 million. However, the PAC report found that HMRC’s savings estimate for this contract were also revised downwards to a saving of £480 million following reports issued in summer of 2012, which suggested that cooperation with the DWP and Experian had not been as effective as HMRC had originally hoped.

HMRC's statement today in response to the report via the www.gov.uk website emphasised their reliance on RTI to reduce losses caused by tax credit fraud and error, stating that ‘From 2014 the new Real Time Information system will provide information for tax credit claims, significantly reducing fraud and error.’

However, in PAC hearings in March of this year, Margaret Hodge accused HMRC of viewing RTI as a “panacea” for a multitude of problems including tax credit error and fraud. Margaret Hodge said she was “shocked” and “hugely disappointed” at the “mega problem” of tax credits error and fraud when she opened the March hearing. HMRC chief executive Lin Homer claimed RTI would be a “real boon in the area of [preventing] tax credits [fraud].”

For RTI to be really effective in reducing the losses caused by tax fraud and error, would require the ability to reconcile payments exactly with employers’ Full Payment Submissions. HMRC’s implementation of RTI does not create any mandatory link between RTI returns and employer payment. Employers who use direct BACS to pay employees are required to link their RTI reporting with their BACS payment files, but BACS usage is not itself mandatory.

This linkage between RTI reporting and payments is achieved for direct BACS users only in RTI payroll software by the use of unique RTI BACS hash codes. Direct BACS is the only payment channel that supports this security feature and demonstrates automatic traceability to HMRC and employers alike.

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