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5 November, 2021 Open access

NAO qualifies opinion on HMRC’s 2020/2021 accounts due to levels of fraud and error in Covid-19 support schemes

While acknowledging that HMRC has demonstrated considerable agility in responding at pace during the pandemic, Audit Office highlights that more than £5 billion in Job Retention Scheme payments are estimated to have been subject to fraud or error

The National Audit Office (NAO) has qualified its opinion on HMRC's 2020/2021 accounts due to levels of fraud and error in the Covid-19 support schemes, including the Coronavirus Job Retention and Self-Employment Income Support Schemes (CJRS and SEISS).

In his foreword to the accounts, Jim Harra, HMRC's Chief Executive and First Permanent Secretary, highlights that when the first lockdown was announced in March 2020, HMRC built vital support schemes from scratch in under 7 weeks and that its priority was to get the right level of support to individuals and businesses quickly. Mr Harra says that robust measures were put in place to minimise and mitigate the risks of erroneous and fraudulent overpayments in the schemes as far as possible while not holding up payments, and that -

'Our initial planning assumptions in the financial year 2020 to 2021 about error and fraud in the CJRS was 5-10 per cent [and] the Self-Employment Income Support Scheme (SEISS grants 1 to 3) of 1-2 per cent ... These assumptions were based on the best information available at the time ...'

Mr Harra adds that -

'The risks presented in the schemes were opportunistic fraud, criminal attacks and genuine error in submissions and calculations. To mitigate these, we designed the schemes to prevent incorrect and fraudulent claims being accepted, promoted good compliance and stepped in when we thought something had gone wrong. As a result, we have stopped over 29,000 claims [including to the Eat Out to Help Out Scheme] valued at approximately £347 million from being paid out incorrectly and committed around 1,200 full-time equivalent employees to post payment compliance activity, enabling us to ensure taxpayer money is used as intended.'

However, while the NAO acknowledges that HMRC demonstrated considerable agility in implementing substantial aspects of the government’s response to Covid-19 to support businesses and individuals at pace, and that the pandemic had a significant impact on its operations during 2020/2021 - for example, additional spending on IT systems, contractors and temporary staff, and the redeployment of permanent staff from within HMRC to support Covid-19 activity - it has nevertheless qualified its opinion on the regularity of its accounts due to the material levels of error and fraud in the main Covid-19 support schemes -

'HMRC recognised the pace of implementation, and the need to process payments quickly, would limit its opportunities to mitigate error and fraud. HMRC’s current most likely estimate of the level of error and fraud in the 2020/2021 Covid-19 support scheme payments is £5.8 billion, of which £5.3 billion relates to CJRS. Its estimate of the most likely rate of error and fraud, along with upper and lower-level estimates, are 8.7 per cent (range of 6.7 per cent to 12 per cent) for CJRS [and] 2.5 per cent (range of 1.8 per cent to 3.2 per cent) for SEISS ...

HMRC’s estimates are subject to considerable uncertainty and the actual levels of error and fraud in the schemes could differ significantly from the estimated rates and values currently reported. HMRC is aiming to improve its estimates of error and fraud, based on a random enquiry programme and post-payment compliance checks for CJRS, and analysis of 2020/2021 Self Assessment tax returns for SEISS. HMRC plans to have revised estimates of error and fraud which reflect these improvements in 2022.'

NB - the NAO also qualifies its opinion on HMRC;'s accounts as a result of the continued levels of fraud and error in the tax credit system -

'The most recent available estimates indicate that overpayments in 2019/2020 by HMRC were 5.0 per cent of tax credits expenditure, similar to the previous year (4.9 per cent). Errors in tax credits resulting in underpayments amounted to 0.8 per cent of expenditure, an increase of 0.1 per cent from the rate in 2018/2019. These rates equate to overpayments of £880 million from an estimated 490,000 claims, a reduction of £220 million compared with 2018-19 and underpayments of £150 million from an estimated 350,000 claims, a reduction of £20 million compared with 2018/2019. HMRC estimates that action it took to respond to Covid-19 from April 2020 contributed around £150 million to overpayments reported in the 2019 financial year. To enable it to quickly pay the £20 per week uplift to tax credits for 2020/2021, and release staff to help with other Covid-19 support measures, HMRC relaxed its approach to checking tax credits renewals and reduced its compliance activity.'

For more information, see HM Revenue & Customs 2020/2021 Accounts from nao.org.uk