“In 2006-07, 1.3 million families had to repay an average of £770 because their tax credits were overpaid. Many families are too frightened to accept a helping hand for fear of a kick in the teeth. What good are tax credits if people are too scared to use them?”

“There are still far too many cases where HMRC’s actions defy common sense. HMRC blames tax credit recipients for not noticing something which they were unlikely to spot, yet HMRC is quite happy to claw back overpayments without even the most basic evidence. HMRC doesn’t let its own rules stop it from clawing back overpayments and this only serves to damage trust in public services.”

“Tax credits did not work properly when times were good. Now that times are bad, the tax credits system will be put under even greater pressure. HMRC needs to double its efforts to make tax credits work and it should start by obeying its own rules.”

Mr Bacon was speaking as the Commons public accounts committee published its report on tax credits and income tax. HM Revenue & Customs (HMRC) has paid £85 billion in tax credits since the scheme was introduced in 2003. Over the first four years of the scheme, overpayments have been substantial, and the obligation to repay them has caused claimants great anxiety. While the overall level of overpayments has fallen year by year, the number of families affected by them is still significant and greater than originally envisaged. In 2006–07 1.3 million families were affected by overpayments and will have to repay the Department on average £770 for the year.

The report finds that, in too many cases, HMRC has not taken account of individual circumstances and has blamed claimants for not spotting something which they were unlikely to notice. There have also been too many cases where HMRC continued to recover overpayments where it could not support its case with the necessary evidence such as the initial application form, the award notice or related correspondence.

The report also finds that HM Revenue and Customs has exceeded its powers under the 2002 Tax credits Act by adjusting some final awards when it is not entitled to do so. In some cases it had enquired into awards without informing the claimant, even though the Act requires it to write to the claimant. In other cases, it had recovered overpayments arising from official error when the Act allows such adjustments only if they are in the claimants favour.

24 March 2009

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See also:
PAC REPORT: Tax credits and income tax
PARLIAMENT: Taxman losing £1bn a year to fraud and error

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