HMRC condemned for ‘astonishing’ tax practices as fraud soars – how can risks be reduced?

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HMRC has been criticised recently by the Public Accounts Committee (PAC) who highlighted the most recent estimate of the tax gap (the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid) may not be accurate given a wide range of inaccurate estimates and errors. Additionally, the PAC note the furlough scheme has exacerbated fraud problems.

The PAC highlights HMRC currently estimates hastily devised employment furlough schemes could have contributed up to 10 percent of fraud or error.

This means around £3.5billion of furlough payments made in mid-August may have been paid incorrectly.

Meg Hillier, the chair of the PAC, was particularly hard on HMRC: “Best estimates really won’t do when you’re talking about multi-billions of pounds that could be being collected to support public services, and particularly when billions of pounds is being spent on Covid support.

“We expect HMRC to be doing more to collect the tax owed, whether from individuals or companies.

“With families and businesses straining every sinew to stay afloat it is just as critical that the government collects tax effectively and efficiently, as it is that the government spends money wisely.

“Our finding of the astonishing lack of economic planning for a pandemic shows how the unacceptable room for fraud against taxpayers was allowed into the government’s hastily drawn up economic support schemes.

“I would like to see the government publish a list of the companies which received furlough money.

“Where taxpayers money is being used, transparency should be a given.

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“HMRC must act now to minimise fraud and error and ensure that taxpayers do not pay time and time again in the years to come.”

HMRC’s most recent estimate of the tax gap was £31billion in 2018-19 but as mentioned, this could be drastically inaccurate.

Reportedly, small businesses are responsible for more than 40 percent of the tax gap, followed by large business with 17 percent.

Wealthy taxpayers, which HMRC classifies as people earning more than £200,000 a year, or holding assets of more than £2 million, account for six percent of the tax gap.

In response to the PACs findings, Gus Tomlinson, a General Manager of Identity Fraud at GBG, noted what actions could be taken to reducing fraud risk: “Ultimately, the rise of furlough fraud during this pandemic highlights the opportunity for the private sector and the government to work closer together to stop fraudsters.

“Underpinning this is the importance of improving digital identity in the UK.

“For example, if the government were able to quickly match applications to the furlough fraud scheme by cross checking with wider records, such as tax or universal credit schemes, then we would be better set up to significantly reduce fraud.”

Under current rules, the furlough scheme will end on October 31.

From November, a “Job Support Scheme” will be introduced to replace furlough payments.

This new scheme is designed to protect viable jobs in businesses who are facing lower demand over the winter months due to coronavirus, to help keep their employees attached to the workforce.

It will run for six months and the Chancellor of the Exchequer also confirmed recently the Self-Employment Income Support Scheme will be extended into 2021.

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