Tax credits chaos victims urged to claim compensation

Published on 13 January 2004

LITRG urges tax credit claimants on low incomes, whose payments have been delayed even though they applied in good time, to claim compensation from HMRC, if appropriate, for costs they incurred as a result of the delay. HMRC publish a Code of Practice entitled 'Putting things right when we make mistakes’ (COP1) which states that they will refund reasonable costs and compensation for distress which a taxpayer/tax credit claimant incurs as a direct result of their mistake or unreasonable delay.

Tax credits chaos

According to press reports and the evidence of many claimants, the start of the new system of tax credits has been marred by chaos. Even those claimants who did what HMRC asked by returning their claim forms by 31 January 2003 have in some cases still not been paid. Of these, some have not even been given any information about the progress of their claim, and on phoning the tax credits helpline to find out, have been unable to get through. For those who have managed to get through, the helpline has often not been able to give them the information they need. Queues have built up at HMRC Enquiry Centres, stretching the capacity of the system, and the forbearance of both HMRC staff and claimants, to the limit.

People on very low incomes, who are dependent upon their tax credits payments to house, feed and clothe themselves and their families, are the worst hit by these delays. Many will have had to borrow in order to tide themselves over, often at extortionate rates. Some will have had to take time off work to stand in queues at HMRC offices, and will have lost earnings.

How do people who have been put to this extra expense by HMRC's delay get their money back?

Claiming compensation

John Andrews, Chairman of the Low Incomes Tax Reform Group advised:

'You do not need to obtain a copy of COP1 before making a claim. In any event, the guidance given is impractical in current circumstances so we have suggested a way forward later in this release.'

In COP1, apart from encouraging people to complain when they feel they have cause, and describing their complaints procedure, HMRC state that they will reimburse 'reasonable costs' a complainant has incurred as a 'direct result' of their 'mistake or unreasonable delay'. Among those costs they list 'postage, phone calls, travelling expenses, professional fees, financial charges, and interest on overpaid tax and National Insurance'.

Lost earnings

They also say that, while they will not normally compensate complainants for the time they spend sorting things out, they will do so where they can 'show lost earnings as a direct result.

Compensation for distress

Many of those caught up in the latest tax credits crisis will be suffering acute levels of stress and anxiety. COP1 states:

'If our actions have affected you particularly badly, please let us know. We may be able to pay you an amount of compensation to acknowledge and apologise for the way we have treated you. These payments, which are not intended to put a value on the distress you have suffered, will usually range from £25 to £500'.

Indeed payments have sometimes been known to exceed these amounts in appropriate cases.

Practical action

As the major problem at the moment is actually talking to someone who can discuss your situation, the most practical way forward is to write, ensuring that you keep a copy.

Those who feel that they have lost out should write to:

The Director, Tax Credits Office, Cop Lane, Preston PR1 0SB

(or at Dorchester House, 52-58 Great Victoria Street, Belfast BT2 7WF if they live in N Ireland)

quoting their National Insurance Number (NINO) and that of their partner if they have claimed tax credits jointly. Their letter need not be long or detailed. Just say when they first sent their claim form in (an approximate date will do) and briefly what the delay in receiving the tax credit payment has meant to them and their family in terms of:

  • financial hardship
  • the need to borrow money
  • lost earnings (or income for self-employed people) and costs in trying to get through to the helpline or visiting a tax office
  • worry and distress over the whole episode


and then ask for compensation.


This information has been provided for you by the LITRG on 30 May 2003. Please address any queries to John Andrews on tel 0844 579 6700; fax 0844 579 6701.

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