LITRG Press Release: Big increase in tax credit errors – but how reliable is HMRC’s methodology?

Campaigners are calling on the UK government to explain the reasons behind a spike in tax credit errors after official figures found inaccuracies by claimants had risen by more than a third in the space of a year.

The Low Incomes Tax Reform Group (LITRG) was responding to the publication of HM Revenue and Customs’ Child and Working Tax Credits Annual Error and Fraud Statistics 2015 to 2016.

The report found that in 2015/16, £1.2 billion in tax credit payments were paid to claimants because of errors in claims that led to them receiving more than they were entitled to.  At 4.2% of the overall tax credit budget of £28.3 billion, the figure represented an increase of 35% on the 3.1% recorded the previous year (2014/15).

LITRG warned that “flawed” practice on the part of HMRC in assessing the 4,000 sample cases used to compile the statistics would fail to provide an accurate picture of the true extent or causes of error arising in the tax credit system and lessen the chances of remedy; a concern the group has previously highlighted. For example in 2010, LITRG provided written evidence to the House of Commons Treasury Select Committee on the Administration and Effectiveness of HMRC – the tax gap and error and fraud.

In particular, LITRG was concerned that:

  • The statistics do not appear to take into account successful appeals by claimants against HMRC, resulting in the reinstatement of tax credit awards
  • Almost a quarter of the cases in the sample involved claimants who did not reply to HMRC’s compliance investigation. In those cases, HMRC will have made a decision based on information they held and would have been forced to classify the case as claimant error, fraud or HMRC error without any direct dialogue with the claimant
  • The reported figures materially underestimate official error in the system with little or no attention paid to ‘contributory error’ (where the error is primarily a claimant error but to which HMRC have contributed in some indirect way).

Contributory errors are likely to have been exacerbated by the transfer of HMRC information to the www.gov.uk portal, which has resulted in the loss of online content vital to understanding the tax credit process.

LITRG recommend that HMRC engage directly with claimants to provide better support and prevent errors from entering the system in the first place.  It suggests that talking to claimants who have made mistakes would be a good first step to understanding where additional support might be helpful in order to reduce future incidences of error.

Commenting on the figures, Anne Fairpo, chair of LITRG, said:

“For many years, LITRG has voiced concern about the methodology used by HMRC to calculate the true level of error within the tax credit system.

“The numbers themselves may be statistically valid, but they do little to aid understanding of the true extent and cause of mistakes within the system and perhaps most crucially, their impact on claimants, many of whom find the tax credits process unwieldy and complicated.

“We think that HMRC could do more to ensure that its compliance officers are able to investigate the sample cases further in order to determine with certainty what errors exist on a claim and crucially, to understand why the claimant (or HMRC) made those errors. This is necessary if HMRC wish to reduce future incidences of error.

“Although the tax credits system is being phased out and gradually being replaced by Universal Credit, HMRC still has time to reduce the levels of error in the system. This needs to start with better analysis of the cases used to produce these statistics which will allow HMRC to provide better support to claimants to get things right first time and stop error entering the system in the first place.”

The report also found that the overall level of people owed money from HMRC because they under-claimed what they were entitled to in error remained static for the third year in a row at 0.7%.

LITRG has written an article on the report, which can be accessed on the LITRG website: Tax credits error – on the rise again?

(14-06-2017)

Contact: Victoria Todd (please use form at http://www.litrg.org.uk/contact-us) or follow us on Twitter: @LITRGNews

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