HMRC expects to take big hit from fraud and errors in Covid support schemes

The head of the UK’s HM Revenue & Customs has said it will struggle to recoup more than half of the estimated £5.8bn it paid out in error or due to fraud from three Covid-19 state support schemes it administered.

HMRC played a pivotal role in providing financial support during the pandemic, paying out just over £81bn in total through the Coronavirus Job Retention Scheme, the Self-Employment Income Support Scheme and Eat Out to Help Out scheme.

Jim Harra told the Financial Times the dedicated taskforce set up by the tax authority to claw back the money expected to recoup just £2.3bn over the next 18 months.

He set up the taskforce, with almost 1,300 staff, this year after receiving £100m in government funding to pursue faulty and fraudulent claims. Harra said the Taxpayer Protection Taskforce had already recovered £800m and was expected to secure a further £1.5bn by the end of the financial year in March 2023.

He said that, although the taskforce was close to hitting its three-year target for the number of investigations it had opened, it was unlikely all the money would be recouped. “We will not be able to recover it all. You will reach a point of diminishing returns in terms of good use of resources.

“These are time-limited schemes. We do need to put them to bed at some stage and move on from them. And 2022/23 is the year for which our plans go up [to]. Whether there’s anything that goes on beyond that will depend, I think, on what we find and the rate of return that we’re getting,” he added.

One HMRC official said there was a small percentage of fraud and error present in its core activities, such as payments of tax credits, where the average rate is 4.9 per cent. This compares with an average 7.2 per cent rate across the three coronavirus support schemes.

HMRC has won praise for the speed at which it set up the schemes, which Harra attributed to prior investment in systems and data but he acknowledged there were “trade-offs” to ensure they reached as many people as quickly as possible.

As the UK tentatively emerges from the pandemic, the knock-on effects from HMRC having to provide pandemic support are emerging. Its annual report to the end of March, published this month, revealed a drop in customer service performance. The amount of unpaid tax secured from compliance investigations, which were paused for several months during the first lockdown, fell to £30.4bn, from almost £37bn a year earlier.

Last week, the National Audit Office raised concerns about HMRC’s ability to recover approximately £42bn in tax debt built up during the pandemic, which more than doubled from pre-pandemic levels.

The government spending watchdog said the tax authority did not have enough staff after years of jobs cuts in its debt management department, although it had reduced the amount outstanding from a record high of £67bn in August 2020.

Harra conceded he could “always do more with more” staff and was looking at the issues affecting the department. He said he hoped to cut the outstanding debt figure to £33bn by the end of the 2021/22 financial year.

He promised the approach HMRC took to debtors would be balanced. “We will agree affordable time to pay arrangements with people who are in debt. But insolvency is a part of the economy and I have no doubt there will be cases where the best solution is insolvency action.”


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