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Justice still denied to tax credit overpayment cases

Published on 12 August 2005

The Government Minister responsible for tax credits has now rejected the Ombudsman's recommendation that all tax credit overpayments that arose through official error during the first two years of the scheme should be written off. But people now have a far better chance of getting their overpayments written off under the new 'streamlined procedure' than those whose requests were dealt with in accordance with earlier practice. This raises issues of natural justice.


HMRC, and former Inland Revenue, policy is that they will consider writing off tax credit overpayments that are due to official error, provided that the claimant could reasonably have thought that their award was right ('the reasonableness test').

But tax credit award notices are notoriously difficult to understand, and claimants are given too little information about how their award is made up for the majority to be able to comprehend it. This has led to many feeling aggrieved when HMRC refused their request for a write-off on the grounds that they should have spotted the error that led to their being overpaid. How could they have spotted something that not even HMRC could see was wrong?

In her critical report Tax Credits: Putting Things Right the Parliamentary Ombudsman took account of the strength of feeling on the issue, and recommended that:

'Consideration should be given to writing off all excess and overpayments caused by official error which occurred during 2003-04 and 2004-05.'


In replying to that recommendation, the Paymaster General has said:

'HMRC has to balance their duty of care to all their customers with regard to the public purse. Current policy is for overpayments to be written off where there was a mistake by HMRC and it was not reasonable for the claimant to have spotted the error. The Government believes that this reasonableness test, which mirrors long established HMRC tax practice, strikes the right [sic] between being fair to those claimants who have been paid the incorrect amount and being fair to the taxpayer in general.'




Natural justice

LITRG has consistently campaigned for an independent review of the way in which HMRC exercised its judgment in rejecting claims, or the introduction of an appeal right against the refusal to reconsider the recovery of an overpayment. We maintain that it is wrong for the Revenue to be both judge and jury in its own cause.

Also substantial numbers of the HMRC's new customer base of tax credit claimants consist of people with low levels of literacy; people with learning difficulties; those whose first language is not English; or simply those unskilled in dealing with mountains of complex paperwork. Is it reasonable to expect such people to realise when they are being overpaid, given the paucity of information available to them?

We know that by December 2004 HMRC had refused write-offs to 39,400 people. These were people who had written to HMRC asking for their overpayment to be written off on the grounds that there was an error but they reasonably believed their award was right. HMRC turned them down without any right of appeal and with no suggestion that if the claimant was aggrieved they could take their case further, for example to judicial review. More cases will have been rejected since December 2004 and before the new streamlined procedures were introduced.

What is happening now?

Since the new streamlined procedures were introduced in May this year we know that HMRC are writing off overpayments without investigating each case in depth. They are not identifying any HMRC error or attempting to determine whether the claimant could reasonably have known that their award was incorrect.

So people are getting overpayments written off where there was no error whereas those previously, who had an agreed error, did not get a write-off because HMRC decided that they should have known that their award was incorrect.

We also know that some claimants, who were not cowed by the HMRC refusal and wrote to their MP and complained, later had the refusal rescinded.

LITRG believes this is contrary to natural justice, particularly considering the complexities of the tax credit system. A variety of commentators have now noted that the paucity of information (and in some cases the unreliability of the award notices) means that it is often impossible to know if an award is correct.

LITRG considers that the case for review of the decisions made in the cases of the "write-off rejects" is overwhelming. It is time for HMRC to announce that they are revisiting their earlier decisions to see if, in the light of better information, they can now write off a further selection of overpayments.

A failure to do so will only lead to further work for HMRC down the road as the evidence emerges of how they exercised their judgment in practice.


Contact Name: John Andrews (Tel: 0844 579 6700 , Fax: 0844 579 6701)

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