Tax credits and PAYE : eighth report of session 2007-08, report, together with formal minutes, oral and written evidence

HM Revenue and Customs (HMRC) has paid GBP 65 billion to tax credit claimants since the scheme was introduced in 2003.

Awards are made on an annual basis and payments are initially made on provisional data.

A final assessment is made once the claimant's actual circumstances are known after the end of the year, which can change the final value of the award.

HMRC overpaid GBP 6 billion in the first three years of the scheme.

By the end of March 2007 it had collected GBP 2 billion of this debt and written off GBP 0.7 billion.

GBP 3.3 billion of these overpayments remain to be collected, but HMRC is unlikely to recover GBP 1.6 billion of the debts.Administrative cost has increased from GBP 406 million in 2003-04 to GBP 587 million in 2006-07 but there is little evidence HMRC has the scheme under control.

Many claimants continue to struggle to understand tax credits and why they are overpaid and there have been many complaints about the process for recovering overpayments.Tax credits continue to suffer from the highest rates of error and fraud in central government.

HMRC estimates that claimant error and fraud led to incorrect payments of between GBP 1.04 billion and GBP 1.30 billion in 2004-05.

HMRC still has no targets for reducing error and fraud.In November 2005, HMRC concluded a settlement of GBP 71.25 million with EDS in respect of the computer problems during the introduction of tax credits.

Of the sum, GBP 26.5 million depends on EDS winning future work from the Government but the flow of payments from EDS has been extremely small and it is highly unlikely that new business to EDS will generate the full payment.On separate issue, HMRC has not been collecting income tax on certain small pensions since the early 1980s, with a potential tax loss of some GBP 135 million per annum.