Error and fraud in tax credits cost the taxpayer £1.3bn in 2016-17 alone, and the department expects the rate of overpayments to grow further, the Public Accounts Committee found.
The committee said it was “disappointing” that HMRC says it will be unable meet its target of keeping error and fraud below 5% of tax credit payments.
HMRC expects the fraud and error rate to rise to 5.5% in 2017-18 and to 6% in 2018-19.
Tax is also subject to too many reliefs and HMRC has only a limited understanding of whether they represent value for money, according to the PAC.
Meg Hillier, chair of the PAC, said: “HM Revenue & Customs is under pressure and in some areas the cracks are showing.
“The authority expects fraud and errors in tax credits to exceed its target in successive years, driven in part by policy changes that have effectively removed HMRC’s incentive to bring fraud and errors under control.
“It lacks understanding of the costs of a vast swathe of tax reliefs, which means it cannot take an informed view on their value for money.”
The PAC recommended that HMRC takes more responsibility for ensuring tax reliefs provide value for money and should set out an approach to improving its understanding of the cost of certain tax reliefs it does not understand.
HMRC faces a “daunting task” as it prepares for Brexit, the report noted, flagging concerns about the “risks to customs and border post Brexit and the impact on British business”.
The cross-party group of MPs said the delay to the new Customs Declaration Service means the border is unlikely to be ready for exporters by the time of Brexit.
Hillier said: “Our committee recognises the scale of the challenges facing HMRC and the time-critical nature of its Brexit work. But the authority must not lose sight of its wider responsibilities to UK taxpayers.”
