HMRC errors result in £4.3 billion overpaid tax credits

15 July 2008

The government is still waiting to recover a whopping £4.3 billion in overpaid tax credit, of which £1.8 billion is “in doubt”, according to the National Audit Office (NAO).

New figures show that £1 billion was overpaid to tax credit claimants in 2006/07, while £1.7 billion was overpaid during the previous tax year.

Several years of overpayments mean that, as of 31 March 2008, HM Revenue & Customs is owed £4.3 billion in outstanding overpaid tax credits. The NAO says that of this around £1.8 billion may never be recovered.

In addition, in 2006-07, up to £1.54 billion was lost to fraudulent tax credit claims.

The Conservative Party says the figures mean around 1.5 million families now face clawbacks as a result of overpayment.

In an official Parliamentary question, the Treasury admitted that it has issued 1.53 million notices ordering people to pay back tax credits – with 684,000 notices issued in one month alone.

Shadow financial secretary, Mark Hoban, says the clawbacks come at a time when many families are already financially squeezed.

“It is shocking that 1.5 million people are being forced to pay back money given to them by the government because of Labour’s incompetent administration of the tax credits system,” he adds. "At a time when family budgets are being squeezed, this could cause real hardship to some of the poorest families.”

The NAO says HMRC now has a target to reduce the “significant” amount of error and fraud, which it will monitor carefully going forward.

Tim Burr, head of the NAO, adds: “Levels of tax credits error and fraud are significant when compared with the expenditure on the scheme.”


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