Up to £3.5bn in wrong or fraudlent claims may have been paid out by the government through its furlough scheme.
HMRC's top civil servant, Jim Harra, said his staff believe between 5% and 10% of furlough cash could have been handed out wrongly – either through deliberate fraud or error.
The job retention scheme covers up to 80% of an employee's salary while they are on furlough.
The government has so far paid out £35.4bn in furlough money, according to the latest figures, meaning somewhere between £1.75bn and £3.5bn may have gone to the wrong places.
Mr Harra added that an academic study has estimated the level of fraud and error could even be higher than 10%.
"What we have said in our risk assessment is 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," Mr Harra told MPs on the Public Accounts Committee.
"Although we will expect employers to check their claims and repay any excess amount, but what we will be focusing on is tackling abuse and fraud."
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The scheme had been rolled out a breakneck speed during lockdown and was considered a huge feat – but it also caused experts to warn a certain amount of fraud was inevitable.
It is winding down now and expected to end for good next month, but businesses who bring staff back from furlough will receive another £1,000 if the employee is still in work by the end of January.