The taxman says three and a half million people are due a refund, but two million will have to fork out for underpaid tax.
Farming subsidy fines total £500m
The National Audit Office refused to sign off Defra's accounts due to concerns over EU fines
Failures to pay subsidies to farmers correctly have cost taxpayers around half a billion pounds in EU fines in the last few years, the National Audit Office said.
Auditor general Amyas Morse has not signed off the accounts of the Environment Department (Defra) due to the latest penalties worth £46 million for failing to meet EU regulations for payments to producers.
He also qualified the accounts of Defra and the Rural Payments Agency, which administers the subsidies in England, because of failures in making an accurate assessment of how much farmers had been over or underpaid since the scheme began.
The Rural Payments Agency has been beset with problems in administering the system of subsidies brought in in 2005, which pay farmers based on the amount of land they have rather than, as previously, how much they produce.
The National Audit Office said the penalties had been incurred as a result of weaknesses in management and administration of the agency, particularly during the early years of the "single farm payment" subsidy scheme. The total value of the fines is currently £590.4 million since 2008-2009, including provisions for an estimated £125.4 million in penalties which have not yet been finalised.
In the last year Defra recognised fines of £46 million imposed by the European Commission for earlier failings in administering EU schemes, including £29 million penalties in respect of a scheme for fruit and vegetable producers.
The report from the NAO said that the Rural Payments Agency continued to experience considerable difficulties in quantifying the overpayments and underpayments made to farmers under the scheme.
Mr Morse did not sign off on the accounts last year or the year before. But progress has been made by the Rural Payments Agency in the last year.
Mr Morse said: "I have again had to qualify the accounts of the Department for Environment, Food and Rural Affairs. This is because the department has had to pay penalties to the European Commission for non-compliance with regulations over a number of years up to 2009 which led to incorrect payments to farmers and others.
"While I welcome the progress made by the agency in the last financial year, there continues to be a significant loss to the taxpayer because of weaknesses in the administration of the single payment scheme by the Rural Payments Agency."
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