Member Article

Too Much Credit Given To Tax?

With Watson Burton LLP Law FirmIf you receive tax credits or benefits of any kind, you may want to keep a close eye on what you are receiving - if it is too low and more importantly if it is too high!The tax credit system has lost at least £460m over the last two years because of mistakes or fraud by claimants.

Although fraud and error is lower than previous years, it is still unacceptably high.

Tax credits were introduced in 2003 in the form of child tax credits and working tax credits. They are intended to help people on low incomes or with families. However, the new system has received severe criticism this year for being too complex, chaotic and unreliable. The Public Accounts Committee recently called the tax credit system an administrative “nightmare”.

The system has been widely criticised for frequently paying out too much money and then clawing it back, often leaving families in financial trouble. The culture of overpayment has left the system wide open to abuse by gangs who usually engage in benefit fraud. As a result of the fraud, the HM Revenue and Customs has shut down its online application website. The increasing concern is that organised crime is starting to see tax credits as a low-risk, high-reward form of fraud, using false or stolen documents and applying for credits from internet cafes.

The HMRC has been accused of knowing about the problem for at least two years, and that basic checks, such as demanding a birth certificate to be sent in as proof, were not put in place to prevent the problem. Applicants started reporting that their tax credits were being paid into other people’s bank accounts. HMRC left its online tax credit system open for more than two months after being warned that fraud may have been taking place. The identities of staff at the Department for Work and Pensions (DWP) were stolen to make illegal claims.

The key to success for fraudsters is that, to make an online application for tax credits, a member of public has to supply very few details. The online tax credit system is seen as an easy target by organised gangs. Multiple online applications were being made from internet cafes using false identities. The fraudsters then disappear before repayment can be demanded. This leaves honest claimants to suffer the cost of overpayment recoveries.Always be aware of how much you should receive in tax credits and if you receive too much, report it immediately, as not only will you be committing a fraud, but you will also face the financial backlash if you are asked to return the ill-gotten funds!

If you have any queries relating to this article, please contact Clare Fegan at Watson Burton LLP (clare.fegan@watsonburton.com)

This was posted in Bdaily's Members' News section by Ruth Mitchell .