Today LITRG has issued a press release calling upon HMRC to do the right thing and announce that they are reviewing again these very hard cases.
The early days of tax credits
In the early days of the tax credits regime HMRC’s predecessor department the Inland Revenue made many errors in relation to claims submitted to them. Mostly these were due to poor programming of their computers; but many others were due to lack of appropriate procedures, poor staff training and just getting to know the very complex set of rules that is tax credits.
With this background the Revenue introduced the “reasonableness test”. Was it reasonable to think that someone should have spotted the Revenue’s error? If, in the Revenue’s own judgment, they should have, then the overpayment write-off was denied.
In those early days it was difficult to get any rational explanation from the Revenue as to how this new tax credit system worked and how overpayments might arise in the normal course of events, let alone after Revenue error. So many claimants did not know what to expect, although they knew, because the government kept telling them, it was a generous system.
So it was against that backdrop that claimants were deluged with horrendously complex award notices (since annotated and then improved). Those notices were filled with errors which claimants with poor literacy, language or numeracy skills were expected to spot. If they failed, they were expected to repay the overpayments that Revenue error had brought about, some of them many thousands of pounds.
When claimants objected to having to repay money they thought was theirs and had spent, they found that there was no independent right of appeal. Instead, a government department unfamiliar with this new type of customer would decide whether or not it was reasonable to expect them to spot errors made by officials or by government computers.
This was bad enough, but so many claimants disputed having to repay overpayments that had arisen through the Revenue’s fault that a huge backlog built up. Therefore, between about May 2005 and February 2006, the Revenue tried to clear the backlog by operating a “streamlined procedure” for deciding which official error overpayments should be written off and which should be recovered.
Instead of deciding in each case whether it was reasonable for the individual claimant to have thought their award was correct, the streamlined procedure applied a formula. Cases which fell within the formula were written off, while those which did not were subject to further investigation. The result was that many more overpayments were written off than had been the case under the ‘reasonableness test’.
This treatment, clearly more favourable to the claimant, was applied only to resolve disputes which arose after the procedure had been introduced – it was not extended to claimants who had already been refused write-off under the ‘reasonableness test’. .
LITRG want this position changed because we see the results of these refusals. We see families that are driven deep into debt and hopelessness. HMRC are still trying to collect these debts, which run into thousands of pounds, from some of the poorest in the land.
Now is the time for HMRC to be generous and to acknowledge that they may not have got some of this right prior to May 2005. For many of those families the debt will never be able to be repaid anyway, but HMRC can relieve them of that stigma, worry and real distress.
Contact: Robin Williamson (Tel: 0844 579 6700 Fax 0844 579 6701)