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LITRG's Kelly Sizer and Victoria Todd want HMRC to do more to help people to avoid mistakes in their Tax Credits claims.

Distinguishing between ‘error’ and ‘fraud’ shouldn’t be difficult, should it? Like sheep and goats, they are two very different animals with different characteristics – error is a person’s honest mistake, whilst fraud is a person’s deliberate intention to obtain a benefit not rightfully theirs.

Yet as we have already read in last week’s editorial The Public Accounts Committee - the Clue's in the Name and news item HMRC and Tax Credits - Public Accounts Committee Criticises HMRC - Again, making a clear distinction between error and fraud in the tax credits system still seems to be elusive.

For many years, the Low Incomes Tax Reform Group (LITRG) has been saying that HMRC and government should not conflate fraud and error as the two are quite separate concepts, having different causes and different means of resolution.

Whilst a focus on combatting fraud is what the general body of taxpayers would of course support – that is, making sure part of our own contribution to the Exchequer is redistributed only to those in genuine need and not to those who try to ‘fiddle the system’ – LITRG’s experience is that many tax credits claimants who have made entirely innocent errors are caught up in HMRC’s anti-fraud strategies.

As well as recognising that fraud and error are two very different beasts, LITRG is concerned that HMRC do not adequately break down and investigate the causes of error. One particular hole in the current analysis is recognition of official error – that which is caused directly by HMRC. For a number of years, HMRC have maintained that there is virtually no official error in the tax credits system. This is a claim which LITRG has long doubted, given that our past mystery shopping exercises into the quality of guidance given out by HMRC’s Tax Credits Helpline have produced worrying results.

Neither do HMRC recognise another element of error which LITRG has named ‘contributory error’. This is where, although not directly caused by a HMRC mistake or wrong advice, a lack of guidance or information from HMRC meant the claimant made the error.

Tax credits can be fiendishly complicated and LITRG has often found HMRC guidance on key areas of the system – both in print and on the HMRC website – to be lacking or misleading, even for what would seem to be very basic points such as who is and is not part of a couple (and therefore whether a joint or single claim should be made). Yet to date we have seen little evidence of HMRC acknowledging that this does in fact contribute to eventual claimant error.

The importance of distinguishing between fraud and error and breaking down error into different types cannot be overstated. If HMRC cannot identify where things are really going wrong, can we be sure that the figures quoted for error and fraud are accurate? And how can there be any certainty that HMRC’s strategies for tackling the problems are the right ones if they haven’t truly got to the root of those problems?

This would certainly go part of the way to explaining why HMRC have not been able to meet their error and fraud targets despite significantly increasing the amount of compliance checks they do. 

LITRG will continue to do battle on these issues!

Meanwhile, LITRG is doing its best to help advisers (both in the welfare rights world and paid professionals) to deal with tax credits matters by providing comprehensive guidance on the RevenueBenefits website. Do pay the site a visit if you are grappling with a case involving a tax credits compliance check!

Kelly is Technical Officer for LITRG and a volunteer adviser with Tax Help for Older People and has contributed to the Office of Tax Simplification’s two reports on pensioner taxation.

Victoria Todd is a welfare rights technical officer for the Low Incomes Tax Reform Group and member of the Association of Tax Technicians. She leads LITRG’s work on tax credits and benefit interactions as well as working on various LITRG projects including www.revenuebenefits.org.uk which won a LexisNexis Taxation Award in 2012.