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Last Updated: Monday, 31 October 2005, 11:07 GMT
Tax credits 'targeted by gangs'
By Jeremy Scott-Joynt
BBC News business reporter

Little children
Families with children are meant to benefit most from tax credits
Organised fraudsters are targeting tax credits because they see them as an easy target, BBC News has learned.

Tax credits are intended to help people on low incomes or with families.

But they have been widely criticised for frequently paying out too much money, 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, sources have told BBC News.

'Low-hanging fruit'

Overall, the tax credit system paid out 13.8bn in the financial year which finished in April 2005.

No figure is available for the proportion which was overpaid that year - either through error or fraud.

But for 2003-4, according to the House of Commons Treasury Select Committee which is investigating tax credits, 2.2bn was overpaid.

Now, though, concern is building that organised crime is starting to see tax credits - and particularly the online applications system - as a low-risk, high-reward form of fraud, using false or stolen documents and applying for credits from internet cafes.

HMRC has evidence that tax credits have been targeted by organised criminals
National Audit Office

They then disappear before repayment can be demanded - leaving honest claimants to bear the brunt of overpayment recoveries.

"Organised crime goes after the low-hanging fruit," one senior official told BBC News.

"Tax credits rely on paying the money out then recovering it - and that's the weakness they can exploit."

Banks and building societies were reporting increasing fears that money linked to this kind of scam was being laundered through their accounts, the official said.

Financial institutions, for their part, say they are keen to co-operate on this kind of fraud investigation - and swap information with each other to try to shut out serial fraudsters.

But the institutions are not allowed to share that data with government departments unless they specifically ask for it, one private sector fraud investigator told the BBC.

'Robust measures'

HM Revenue and Customs (HMRC), the government department responsible for tax credits, said that organised gangs had tried to take on the system.

"But we have robust measures in place to combat such criminal behaviour," an HMRC spokesman said.

Money
More than 2bn was overpaid in 2003-4

"We regularly share information with other agencies and have highly developed safeguards to detect fraud, analyse trends and ensure that our security systems are constantly being strengthened."

The National Audit Office's annual review of HMRC, published earlier in October, found that more than 80% of investigations into possible fraud or error were carried out after an award had been made because "information on some risks was not available at (the pre-award) stage".

HMRC was now putting more effort into pre-award inquiries and was rethinking the resources targeted at serious fraud, it said.

The NAO report continued: "The department have evidence that tax credits have been targeted by organised criminals, particularly where they can make claims over the internet without providing identity.

"The department's Internal Audit Office concluded that there was a lack of comprehensive information to allow a robust analysis of the problem."

HMRC's Special Compliance Office - which normally deals with suspicions of high-value tax evasion or fraud - had intended to deal with any fraud case worth more than 1,500, the NAO said.

But it warned that the office had been swamped, and had passed the cases back to local tax offices.


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