Tax credit errors cost £2.3 billion in 2010-11

HM Revenue and Customs (HMRC) is to miss its target to reduce tax credit error and fraud by £5 billion, a report by the Public Accounts Committee (PAC) has said.

It warned that failing to do so would 'cost the taxpayer dear.'

HMRC's original target in the 2010 Spending Review was to save £8 billion from reducing tax credits error by 2015.

The tax credit system is designed to provide financial support for parents returning to work, with entitlement taking age, income, hours, number and age of children, disabilities and other costs into consideration. It paid £30 billion in tax credits in 2011-12 to nearly six million families.

However, the committee argues that tax credits are 'difficult for claimants to understand' and 'equally challenging for HMRC to administer.'

It estimates that one in five awards in 2010-11 were subject to error, resulting in claimants receiving more money than they were entitled to. HMRC lost £2.3 billion to error and fraud in 2010-11, £850 million higher than it had expected.

Margaret Hodge, chair of the PAC said: "HMRC's performance in cutting the level of fraud and error in the tax credits system has been hugely disappointing and extremely poor."

"In these strained times, the government cannot afford these failures."

The PAC wants to see more work from HMRC to reduce error and fraud, to improve advice and guidance to claimants, and to speed up the appeals process.

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