Tax credit errors top £1bn

Mispayment and fraud in the tax credit system have forced the government's auditor to question the taxman's accounts for the sixth year running.

The National Audit Office's (NAO's) annual examination of HM Revenue and Customs' (HMRC) accounts has resulted in another qualified verdict, issued on Monday.

The government's chief auditor, Tim Burr, said the level of tax credit error and fraud was "significant" when compared to the money spent on the scheme.

He has also criticised the department for the time it took to issue VAT registrations and highlighted problems with reconciling some individuals' PAYE records, including those relating to 420,000 pensioners.

The chairman of the Commons public accounts committee, Edward Leigh, described the rate of tax credit fraud and error as "unacceptable" and pointed out that it was "vulnerable families" who were left with long-term payments "through no fault of their own".

Between £1.31bn and £1.54bn of tax credits paid out in 2006/07 was above people's entitlement. HMRC paid out a total of £20bn in tax credits during 2007/08.

The HMRC's decision to introduce targets for reducing fraud and error – to under five per cent by 2011 – have been welcomed, although Leigh said it was "long overdue".

The committee chairman also welcomed plans to hold individuals' employment and pensions income together into one place on its IT system, although he expressed concern at news of a delay.

"Bringing all information on is an important step forward in the processing of PAYE," he said. "I am concerned that HMRC has now delayed the implementation of a solution."

A spokesman for HMRC said the department would not be issuing a statement in response.