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HMRC ‘soft on fraud’ in recouping Covid support scheme losses

MPs have accused the UK tax authority of not doing enough to recover billions lost through error and fraud in state Covid-19 support packages and warned it risked being seen as “soft on fraud”.

The House of Commons public accounts committee criticized HM Revenue & Customs, in a report published on Friday, saying it had an “unambitious” plan to recover an estimated £ 5.8bn incorrectly paid out through three business support schemes it administered over the pandemic.

The government has come under growing scrutiny after billions in taxpayer money was lost as a result of fraud and mistakes in relation to Covid support packages, including the furlough scheme and state loans to help small business.

HMRC played a pivotal role in providing financial support to businesses during the pandemic, paying out more than £ 81bn through the coronavirus job retention scheme; self-employment income support; and the eat-out-to-help-out program.

HMRC estimated there was an average error and fraud rate of 7.2 per cent rate across the three coronavirus support schemes.

The tax authority told the committee in December that it expected to recover roughly £ 2bn of lost funds, potentially “writing off” £ 4bn, the MPs on the committee said.

HMRC said that while it would try to recover all the lost money it was focusing on the most egregious examples of fraud and error.

The tax authority told the committee that, in some cases, it would be difficult to establish fraud by furlough claimants had taken place, especially if employers and employees had colluded.

But MPs argued that HMRC’s approach towards recouping the money sent the “wrong signals” and could encourage abuse of tax and grant systems in the future.

“Such inaction risks rewarding the unscrupulous and sending a message that HMRC is soft on fraud,” the report by the committee concluded.

Meg Hillier, chair of the PAC, said the level of fraud and error in the government’s furlough scheme that employers had been allowed to get away with was “a real concern”.

She added: “With the current parlous state of the public finances we can ill-afford to be so cavalier over so much taxpayers’ money.”

The report set out several concerns with “HMRC’s fulfillment of its most basic remit of collecting tax owed”. These included a 240 per cent growth in the use of research and development tax reliefs, over the past four years, which the committee said HMRC could not fully explain.

The extent of error and fraud in R&D relief could be much higher than HMRC’s estimate of £ 336mn in 2020-21, the committee warned. It called on the tax body to do more to improve its understanding of the reliefs.

HMRC said that while it acknowledged that “lessons need to be learned”, it rejected many of the statements made by the committee.

“No fraudulent payments have been written off and we’re taking action on multiple fronts to recover overpayments,” it said, adding that its taxpayer protection task force was expected to recoup up to £ 1bn from fraudulent or incorrect payments.

“The vast majority of payments in the schemes were made correctly to employers, and most error and fraud were legitimate claimants making mistakes or inflating their claims, often small amounts per case,” it added.

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