Tackling tax credits error and fraud

HM Revenue and Customs (HMRC) has today opened discussions with the commercial sector about how it could help to reduce tax credits error and fraud. This follows a short trial earlier this year with a private sector supplier.

Key outcomes of the trial included 16,000 cases being reviewed, with 5,500 identified as containing error and fraud, and £20 million of potential losses identified. The trial demonstrated the potential for significant benefits through the use of private supplier technology, for example through sophisticated data analytics.

Ministers have now asked HMRC to explore the types of service the commercial sector can offer on a larger scale, and to engage with potential suppliers to gain an informed understanding of indicative costs, benefits and timelines ahead of an invitation to tender. This includes a focus on potential funding models that could deliver real savings to the public purse, for example using a “payments by and from results” model.

The overall aim is to add capacity to HMRC’s existing workforce in order to significantly increase the number of successful tax credits compliance interventions, and to drive down error and fraud which, although at its lowest level yet, cost the taxpayer £2.09 billion in incorrect payments in 2011-12. 

HMRC already works successfully with the private sector, for example to collect debt and to identify high-risk tax credits claims. The department believes a similar arrangement can deliver a significant reduction in levels of tax credits error and fraud.

Any supplier will be required to operate under strict adherence to HMRC’s legislative framework and must meet stringent security standards.

Notes for editors

1. Tax credits error and fraud is at its lowest level yet, since the introduction of the tax credits system in 2003, and reduced from £2.27 billion (8.1 per cent of entitlement) in 2010-11 to £2.09 billion (7.3 per cent of entitlement) in 2011-12.

2. HMRC ran a small-scale trial from May to July 2013 with Transactis and sub-contractor Bosch. Both were recruited to carry out the small-scale trial in line with standard Cabinet Office rules  

3. A summary of the trial will be published in due course.

4. A Prior Information Notice (PIN) will be published today in the Official Journal of the European Union (OJEU) and will invite potential tenderers to express an interest in attending an Error and Fraud Adding Capacity Event later this year.

5. The issue of the Prior Information Notice or “PIN” today does not commit HMRC to any future expenditure.

6. Follow HMRC on Twitter @HMRCgovuk.