Source · Select Committees · Public Accounts Committee
Recommendation 3
3
Accepted
HMRC’s plan to only recover a quarter of losses due to fraud and error on...
Conclusion
HMRC’s plan to only recover a quarter of losses due to fraud and error on its COVID-support schemes does not go far enough. HMRC estimates that total error and fraud across the lifetime of the COVID-support schemes is £4.5 billion, representing 4.6% of the £96.9 billion total support provided. This is lower than HMRC’s previous estimate, though the actual level of fraud and error remains very uncertain. HMRC has drawn together a wider set of data to improve its estimate, but 6 HMRC performance in 2021–22 this is limited by the shortage of data that HMRC collected on taxpayers’ working patterns at the time the schemes were running. HMRC has been given £100 million to fund a temporary taskforce to investigate fraud and error on the schemes and has opened about 40,000 investigations so far. However, of the £4.5 billion in fraud and error losses, HMRC forecasts by the time the taskforce closes it will have recovered only around £1.1 billion, with the rate of return for the funding expected to be less than if invested in tax compliance. HMRC is yet to demonstrate it has done all it reasonably can to recover the losses and avoid the dent to public finances. HMRC risks rewarding those taxpayers that were dishonest if it does not pursue more of the losses than currently planned. Recommendation: In determining what further recovery action to take on fraud and error on the COVID-19 support schemes, HMRC should: • keep under review the return on investment of spending more resources on recovery; and • set out how it will ensure it maintains a level playing field for individuals and businesses that did not abuse the schemes, rather than being seen to reward those that were dishonest.
Government Response Summary
HMRC maintains performance indicators for compliance performance and will continue to address COVID-19 compliance risks, transitioning the Taxpayer Protection Taskforce into 'business as usual' compliance activity from April 2023. This will allow HMRC to consider the risk of overclaims of COVID-19 grants alongside other tax compliance risks when prioritising cases for a compliance check.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. Recommendation implemented 3.2 During 2021-22, the Taxpayer Protection Taskforce prevented over £125 million of grants being paid out on claims made fraudulently or in error and recovered over £225 million from its compliance activities. This is in addition to circa £536 million recovered and circa £304 million prevented in 20/21 before the taskforce was in place. 3.3 HMRC maintains a suite of performance indicators which record compliance performance, and which are considered alongside HMRC’s assessment of the overall risks in the tax system, and regular appraisal of returns on investment and compliance outcomes, to inform decisions about the deployment of compliance resources. 3.4 Currently, the rate of return on investment for fraud and error in the COVID-19 schemes administered by HMRC is £0.25 million per full time equivalent officer (FTE) under the Taxpayer Protection Taskforce. For business-as-usual tax compliance work, the expected rate of return is £1.3 million per FTE. 3.5 HMRC can get a better rate of return from its resources by deploying them on wider tax compliance risks and including work on the COVID-19 support scheme risks. Therefore, as planned, the compliance activity undertaken by the Taxpayer Protection Taskforce will be transitioned into “business as usual” compliance activity from April 2023. This will allow HMRC to consider the risk of overclaims of COVID-19 grants alongside other tax compliance risks when prioritising cases for a compliance check. 3.6 This is the most efficient way to ensure HMRC protects and recovers taxpayers’ money, as it allows HMRC to deal with all aspects of a customer’s potential non-compliance in a single check. 3.7 HMRC will continue to address COVID-19 compliance risks and recover over- payments, where it is cost effective to do so, for many years to come.