New report says HMRC must learn to reduce Child Benefit fraud and errors

HMRC used Home Office travel data in an innovative attempt to address a major driver of fraud and error in Child Benefit, which totals £270 million annually, but it lacked sufficient governance and risk management and did not consider the impact on claimants, a new National Audit Office (NAO) report finds.

In 2021, HMRC identified an opportunity to match its Child Benefit data against the Home Office’s airline data to identify claimants who were absent from the UK for more than 12 weeks for a possible error and fraud investigation. An early pilot in 2024 prevented an estimated £15 million in incorrect payments.

In August 2025, HMRC began the first rollout of this new initiative, with changes to how the process operated compared with the pilot. It removed an early check in the Pay As You Earn (PAYE) system, leading to many more genuine, eligible claimants having their payments suspended. HMRC also sent out longer, more complex letters and questionnaires to most claimants to prove their eligibility.

By October, HMRC had suspended payments for an initial 23,794 claimants. Some claimants reported financial and emotional impacts from the sudden loss of income, or difficulty and stress in trying to prove eligibility. During October 2025, HMRC reported an increase in calls from claimants in relation to the first rollout – in total, from August 2025 to February 2026, HMRC handled over 22,500 calls.2

After problems began to emerge in mid-October 2025, HMRC took steps to improve claimants’ experience of the process in October and November for the enquiries that remained open. This included reintroducing a PAYE check, automatically reinstating some payments, and allowing claimants to confirm eligibility over the telephone.3 HMRC also issued apologies to claimants who had been impacted by the rollout and as of April 2026, it had paid a total of £3,200 in compensation to 51 claimants.

HMRC accepts there were weaknesses in its transition between the pilot and the first rollout, with shortcomings in its risk assessment and decision-making. For example, key decisions were made without sufficient scrutiny, and there was no formal risk assessment of the implications of decisions. HMRC also did not sufficiently consider the impact of the initiative on those claimants whose claims were incorrectly stopped.

After commissioning an internal audit to review the intervention, HMRC is now adopting a more controlled approach and learning lessons about strengthening governance, managing risk and the impact of its interventions on claimants.

HMRC changed the process when it relaunched the initiative from March 2026. This includes giving claimants a month to prove eligibility before suspending payments and enabling claimants to submit evidence of eligibility online.

HMRC calculated savings of £60 million from the first rollout and it projected that it would achieve savings of £366 million over the five years to 2029-30.4

The NAO’s report recommends that HMRC understands its risk appetite for future decisions and ensures that its performance data allow it to monitor customer experience alongside compliance effectiveness. HMRC should also disseminate lessons learned and seek to share these internally and with wider fraud and error teams in government.

Gareth Davies, Head of the NAO, said “It’s right that HMRC seeks new ways to tackle fraud and error. HMRC’s initial work on using travel data to investigate potential Child Benefit overpayments suggested it could secure significant savings for the taxpayer.   

However, missteps in implementing the first rollout meant HMRC did not strike the right balance between detecting fraud and error and managing the impacts on Child Benefit claimants. While HMRC should not be discouraged from pursuing innovative ways to reduce fraud and error, it must learn and apply the lessons for future initiatives.”