The scheme was launched at the height of the coronavirus pandemic in April 2020 and paid 80% of furloughed workers’ wages, up to £2,500 a month.
More than £35.4bn has been paid out to around 1.2 million employers, and HMRC estimates between 5% and 10% of that cash has been wrongly awarded.
Jim Harra, secretary and chief executive at HMRC, said: “We have made an assumption for the purposes of our planning that the error and fraud rate in this scheme could be between 5% and 10%.
“That will range from deliberate fraud through to error.”
Finance Act 2020 gave HMRC powers to claw back any payments employers are not entitled to, including grants they have not passed on in wages to furloughed staff.
Employees are being urged to confidentially report employers who are abusing the scheme, with more than 8,000 calls made to a fraud hotline so far.
In addition, HMRC is looking into 27,000 “high-risk” cases where they believe a serious error has been made in the amount an employer has claimed.
The Revenue will contact those employers and offer the opportunity to correct those claims, with around 10,000 employers expected to face further action.
Speaking to the Public Affairs Committee, Harra added: “We are not going to set out to try to find employers who have made legitimate mistakes in compiling their claims, because this is obviously something new that everybody had to get to grips with in a very difficult time.
“Although we will expect employers to check their claims and repay any excess amount, what we will be focusing on is tackling abuse and fraud.”
The furlough scheme is scheduled to end on 31 October 2020.