THE tax office has been implicated in a welfare "scandal" that wrongly denied benefits to tens of thousands of eligible Scots, a damning Westminster report has revealed.

MPs have learned that HM Revenue and Customs was "complicit" in "gross failings" by private US firm Concentrix which had been hired to check for possible fraud and error in tax credit claims in order to reduce or suspend benefits where appropriate.

But the firm has been condemned for its "scandalous" performance which saw 324,000 claimants across the UK being sent letters warning they had 30 days to prove their entitlement of face the loss of benefits.

In the chaos that ensued, some claimants never received their letters and only learned they were being docked when they checked their bank accounts.

A scathing report by the Work and Pensions Committee said poor families had been forced into accepting expensive loans or fall into arrears with their rents.

"The human consequences of the Concentrix scandal are all too real,” declared the committee in the damning report.

“Vulnerable people have been put through traumatic experiences as a consequence of avoidable failures. It is imperative that it is not allowed to happen again."

It called for the thousands affected by Concentrix's actions to have their cases reviewed.

In response, HMRC apologised to "all those who were let down by our contractor" and said it was committed to ensuring tax credits – income top-ups paid to families raising children and workers on low pay - were sent "quickly and accurately".

However, the committee said that "despite protestations to the contrary", HMRC had been negotiating a new contract with Concentrix until just four days before it dramatically pulled the plug on the firm amid a barrage of criticism from the press and MPs.

Concentrix was originally contracted by HMRC in 2014 and handed unprecedented power to determine the fitness of claims.

Phone banks set up by Concentrix to handle queries were understaffed and in August the system "completely collapsed" leaving claimants waiting for hours to speak to an adviser.

Despite growing evidence of the problems, the committee said it took HMRC three weeks to "escalate" the problem to senior staff while it continued to add to the firm's workload by sending out a further 45,000 termination letters.

"HMRC were not only complicit in the decision-making process used by Concentrix: they pressured their failing contractor to subject yet more claimants to it," the MPs argued.

Right from the outset claimants found the system was "stacked against them" with the "merest hint" that a claim contained more than a "zero risk" of fraud or error being enough to trigger a compliance check.

Those who did not - or could not - reply were treated as guilty until proven innocent while the letters from Concentrix contained no details of the suspicions against them, making them "unnecessarily difficult" to disprove.

The flaws in the system were underlined by the fact that in 90 per cent of cases where claimants made an initial appeal against a ruling it was upheld, a figure described as "extraordinary" by the committee.

Labour’s Frank Field, the committee chairman, said they had been "horrified" by the firm's "cut first, think later" approach.

"The damage caused to families' living standards by this 'strike rate' is still being felt by my constituents needing to rely on food banks while their claims are reinstated," he said.

Elsewhere, Damian Green, the Work and Pensions Secretary, insisted benefit sanctions were encouraging people to "look for work harder" despite a scathing report by the public spending watchdog.

The National Audit Office found that sanctions could plunge claimants into hardship, hunger and depression, and were being handed out with little evidence that they worked.

But Mr Green hit back, claiming the system was working effectively with sanctions halving since last year and statistics showing most people only received the reprimand once.

Meanwhile, it emerged that Ken Loach, the film director, whose recent film “I, Daniel Black” explores the effect of benefit sanctions, is supporting a Private Member’s Bill sponsored by SNP MP Mhairi Black, which will be debated in the Commons tomorrow.

It seeks to introduce a code of conduct for Jobcentre staff across the UK to ensure an individual’s personal circumstances are taken into account before any benefit sanction is issued.