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New procedure accelerates tax credit overpayment write-off

Published on 8 August 2005

Recent efforts by the Government to improve the administration of the tax credits system include a 'streamlined procedure' for deciding disputes about whether overpayments should be recovered. Recent figures show that this streamlined procedure may already have benefited claimants.


On 26 May 2005, the Paymaster General responded to growing concern about what has widely been perceived as maladministration of the tax credit system. In particular, she focused on criticism of the criteria used to decide whether an overpayment arising from official error should be recovered or written off. In a statement to Parliament she announced a series of steps which HMRC was taking to improve the administration of tax credits. Among them was the introduction of:

'new streamlined procedures to decide cases where the recovery of an overpayment is disputed'.


We published the full text of the Paymaster's statement when it was issued.

More recently, in a written answer to David Laws MP, the Paymaster revealed that in May 2005 overpayments to the value of £30,823,000 had been written off. By contrast, in the four months from January to April this year, the total value of written-off overpayments amounted to less than £7m.

The text of the written answer can be found in Hansard for 4 July 2005, column 95W.

Details of the procedure

Representative bodies are now able to reveal some of the details of how the streamlined procedure operates. Its purpose is to clear the current backlog of cases where claimants or their advisers argue that overpayments should not be recovered on the grounds that they arose from official error.

The new procedure is applied to cases which HMRC find, after applying certain risk assessment tests, to be 'low risk'. It involves a limited investigation and a shortened calculation of the amount that should be written off. This amount is communicated to the claimant in a standard letter known as TC859A.

Claimants may either accept the amount offered, or they may ask for a full calculation. It is usually to the claimants' advantage to accept the shortened calculation, because of the risk that a full calculation and investigation might show that:

  • there was no official error after all; or
  • the actual official error was less than that arrived at by the shortened calculation; or
  • the claimant should reasonably have known that their award was wrong.


The streamlined procedure is being used to decide outstanding disputes about end-of-year overpayments from 2003-04 and in-year overpayments from 2004-05. It will continue to operate until the backlog is cleared. Cases that have already been decided on the normal principles will not be reopened.

Other cases, which do not meet the 'low risk' criteria, are being decided on the normal basis that applied before the streamlined procedure was introduced. They will be subjected to a full examination. Claimants falling into this category can expect to receive one of three standard letters:

  • TC859B, indicating that the overpayment arose from official error which the claimant cannot reasonably be expected to have spotted and the whole overpayment will be written off;
  • TC859C, which is sent to claimants who HMRC decide should reasonably have known that their awards were wrong and whose overpayment will be recovered in full;
  • TC859D where only part of the overpayment arose from official error and that part only will be written off (provided the claimant could not reasonably have known that their award was wrong).

It may be generous - but is it fair?

As stated above, claimants who had already disputed their overpayments and received an adverse decision cannot ask for their case to be re-examined under the streamlined procedure. This is likely to create a situation where some people who claimed official error relief before the streamlined procedure was introduced have had their claims rejected, while others who have claimed subsequently are having theirs accepted on similar facts.

While LITRG welcomes the fact that the streamlined procedure seems to be operating to most claimants' advantage, we question the legality of a move that results in some claimants being treated worse than others in similar circumstances, where the only real difference is in the timing of their claim.

Review of COP26

The Paymaster General has also announced that COP26, HMRC's code of practice on overpayments, is to be reviewed. We hope that the review will result in an altogether fairer procedure.

Further information

For a more detailed account of how the streamlined procedure operates, see the website of the Chartered Institute of Taxation.


Contact Name: Robin Williamson (Contact tel: 0844 579 6700, Fax: 0844 579 6701)

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