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Tax officials are giving the impression they are ‘soft on fraud’ because they are not doing enough to claw back money stolen from Covid support schemes, a report by MPs says today.
A claim by a committee of MPs that HM Revenue and Customs (HMRC) looks "soft on fraud" -has been met by a robust response by the tax authority.
Inaction over tracking down fraudulent claims for Covid support risked "rewarding the unscrupulous", the Public Accounts Committee (PAC) said.
But HMRC said that it rejected many of the statements in the PAC report.
“With the current parlous state of the public finances we can ill-afford to be so cavalier over so much taxpayers’ money.”
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 was legitimate claimants making mistakes or inflating their claims, often small amounts per case,” it added.
HM Revenue & Customs has been accused by an influential group of MPs of “ignorance and inaction” on recouping £6bn of fraudulent Covid-19 support payments, drawing an angry backlash from the tax authority.
The public accounts committee (PAC), which monitors state spending, issued a litany of criticisms of HMRC, warning that money surrendered to fraudsters would ultimately add to the cost of living crisis engulfing Britain.
In a series of criticisms described as “damning” by shadow chancellor Rachel Reeves
HMRC accused of ‘ignorance and inaction’ over £6bn Covid fraud
HM Revenue & Customs is under fire from the Public Accounts Committee
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 criticised 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 the result of fraud and mistakes in relation to Covid support packages, including the furlough scheme and state loans to help small business.
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”.
HMRC ignorance and inaction “rewarding the unscrupulous” and looks “soft on fraud”
In a report published today the Public Accounts Committee says “HMRC’s unambitious plans” for recovering a total of £6 billion it estimates it spent incorrectly in COVID-19 support payments – whether through fraud or mistakes - could lead to “government writing off at least £4 billion” taxpayers’ money. The PAC says this “risks rewarding the unscrupulous and sending a message that HMRC is soft on fraud”.
The Committee says “yet again customer service has collapsed and HMRC’s recovery plans are not clear”, and it is extremely concerned about HMRC’s capacity to clear backlogs while tackling the “avalanche of error and fraud it now faces on the COVID-19 schemes”.
The report describes a litany of longstanding PAC concerns in HMRC’s fulfilment of its most basic remit of collecting tax owed including not responding adequately to tax avoidance schemes, failing on implementing or realising benefits from the ‘Making Tax Digital’ and other long-term transformation ambitions and programmes, and being without “a convincing plan for restoring compliance activity back to pre-pandemic levels”.
The Committee also says HMRC simply doesn’t know why the cost of key tax reliefs has increased, or how much of that is due to abuse.
I have a particular interest in this issue because of the work that I do on tax gaps and tax spillovers.
One of the more controversial inclusions in the tax spillover framework was an appraisal of jurisdictions’ tax politics. This is a qualitative measure of the attitude of the political establishment within a jurisdiction towards its tax administration. Some have questioned whether this can be measured, but along with my co-author, Professor Andrew Baker of the University of Sheffield, I have suggested that in very many cases this measure is easy to appraise on the scale that we use. For example, it is easy to tell that there is a difference in the political attitude towards tax in Sweden and the Cayman Islands. As importantly, whether a jurisdiction, such as the UK, adequately funds its tax authority and simultaneously has an appropriate attitude towards tax transparency and tackling fraud is also something that is relatively straightforward to appraise.
The government objective with regards to funding HMRC has, for many years, been to cut its resources. It is treated as a cost centre, and not as a revenue generating activity, which is utterly bizarre.
Because the UK government is utterly indifferent to transparency, as indicated by the almost totally negligent management of Companies House by Department for Business, Energy and Industrial Strategy, which means that those wishing to undertake fraudulent activity can do so with almost total impunity, the chance of tax abuse in the country is very high indeed.
In the last week we have seen the Business Secretary claim that people in this country are not worried about fraud, presumably because he is not.
At the same time, HMRC publish a tax gap calculation which is not credible, firstly because no one should be marking their own work, and secondly because it always produces an almost identical figure, and has done for more than a decade, which leads me to doubt the credibility of any claim made. My own opinion, based on the VAT gap, is that the overall tax gap in the UK is more than double that suggested by HMRC.
The consequence of HMRC’s management focus being on cost saving, and its indifference towards any other issue including customer service, collecting the right amount of tax, tackling fraud, closing the tax gap or anything else, is the that appropriately summarised by the Public Accounts Committee in its expressed concern over the out-of-control management of Research and Development tax relief. As the Committee notes:
HMRC is responsible for administering Corporation Tax research and development (R&D) reliefs, which support companies that work on innovative projects. There is a scheme for small and medium-sized enterprises, and a research and development expenditure credit scheme, mainly for larger companies. Both schemes are complex and open up opportunities for abuse
It would appear that these costs have escalated, dramatically, in a way that appears unrelated to the likely scale of research and development actually going on within the UK economy
The Professor Richard Murphy: UK needs a new tax politics
