HMRC struggles to recover billions in overpaid Covid-19 support and tax debts

Taskforce likely to recover minority of support paid in error and fraud as NAO says department needs to increase its debt recovery capacity
HMRC Source: Adobe Stock

By CSW staff

22 Nov 2021

HM Revenue and Customs (HMRC) is set to recover just two-fifths of an estimated £5.8bn of Covid-19 support paid in error or as a result of fraud by March 2023, according to its head.

Jim Harra, HMRC’s first permanent secretary and chief executive, told the Financial Times that the Taxpayer Protection Taskforce – set up to scrutinise claims made under support schemes set up during the pandemic – has recovered £800m so far and expects to increase this to £2.3bn by the end of the 2022-23 financial year. The government set up the taskforce, which has nearly 1,300 staff, in March 2021 with £100m in funding.

“These are time-limited schemes. We do need to put them to bed at some stage and move on from them,” said Harra, with the taskforce currently planned to end in 2022-23. “Whether there’s anything that goes on beyond that will depend, I think, on what we find and the rate of return that we’re getting.”

HMRC ran three support schemes during the pandemic: the furlough programme for employed workers, an income support scheme for the self-employed and Eat Out to Help Out for the hospitality sector. In its annual report in September, which included a higher fraud estimate of almost £6.5bn, the department said that the furlough scheme accounted for around four-fifths of overpayments.

The department also deferred payments and paused much of its debt collection work, leading to total tax debt rising from £16bn in January 2020 to £67bn in August, according to a report released last week by the National Audit Office. Tax debt has since fallen to £42bn on 30 September 2021 and the department forecasts it will reach £32.8bn by March 2022.

However, the NAO said that HMRC is unlikely to have enough staff to manage the increased level of tax debt, despite plans to recruit 1,000 full-time staff in the current financial year. NAO head Gareth Davies said the department is likely to manage “a far greater level of tax debt than it has seen in recent times” for several years. “HMRC needs to significantly increase its capacity if it is to meet the changed scale and nature of the challenge,” he added.

The report recommended that HMRC should urgently consider increasing its capacity, both through recruitment, accelerated training and use of the private sector. Given taxpayers’ average levels of debt are much higher following the pandemic, it should aim for much higher levels of return and identify how debt management should change, such as by working to maintain contact with as many debtors as possible and using a wider range of data to understand taxpayers’ financial positions. It also said that HMRC should develop tools for managing tax debt, both internally and externally, such as through online methods for setting up payments by businesses.

The Department for Work and Pensions (DWP) has similarly seen a sharp increase in levels of payments fraud and error. MPs recently criticised the DWP for allowing overpayments of benefits to reach £8.3bn in 2020-21, 7.5% of total benefit expenditure excluding state pensions, compared with 4.8% in 2019-20.

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