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Tax Credits - HMRC blame their mistakes on claimants

Published on 7 September 2006

Immediate Release: 07.09.2006

HMRC blame tax credit claimants for mistakes made by the department. Further, it has emerged that tax credit claimants who have requested HMRC not to recover credit paid to them in error may have fared very differently, depending on when they made their request.

Many overpayments of tax credit arise through HMRC (‘official’) error. Nevertheless, HMRC’s practice is to recover such overpayments from the claimant, unless the claimant can show that they reasonably thought their award was correct. This ‘reasonableness test’ is very stringently applied by HMRC, who not infrequently expect claimants to spot errors which HMRC themselves have not spotted.

But between May last year and February this year, overpayments which claimants disputed on grounds of official error were put through a ‘streamlined’ process. This meant that the decision whether or not to recover them depended on how many award notices the claimant had received, and how great the overpayment was. This test proved far easier to satisfy than the standard ‘reasonableness test’.

The Low Incomes Tax Reform Group (LITRG) has always regarded this as unfair, and the influential Treasury Sub-Committee of MPs has backed that view.

John Andrews, Chairman of LITRG, says: “I think it is a scandal that people on the breadline can be condemned to years of extreme poverty and despair because they did not spot an error when it has conclusively been shown by many external reviews that, prior to May 2005, the Revenue’s tax credit service was a shambles. Day by day we see people whose lives have been devastated by these HMRC mistakes and who had very little chance of understanding that they were not entitled to that which they received and spent.”

LITRG are calling for an independent review of these cases.

John Andrews adds: “While HMRC expect an unrealistically high degree of vigilance from a population that is struggling to understand their award notices, they themselves – and their IT systems – seem able to make errors virtually with impunity.”

The current situation is that there are claimants who applied, or are now applying, to have their overpayments written off and have been refused because they failed the reasonableness test. On the other hand there are those whose write-off requests were granted simply because they fell within the above criteria (even if they knew the overpayment was wrong!). And the only difference between them was the time at which they applied. LITRG have consistently argued that this is unfair, and probably unlawful.

LITRG are calling for the Government to give those claimants whose disputes were decided under the reasonableness test – many of whom are still paying off overpayments that may be years old – the chance to have their cases reconsidered. The Treasury Sub-Committee has echoed that call.

John Andrews concludes: “If these mistakes had been made in respect of people who had professional help to fight their cases at the time, the results would have been very different. But because they are on low incomes and have no collective voice, HMRC has acted as judge and jury.”


Notes to Editors

Between May 2005 and February 2006, HMRC were faced with a huge backlog of tax credit overpayments that claimants were disputing. So they introduced a procedure to fast-track their decision whether to collect or write off the overpayment in individual cases. That was known as the ‘streamlined procedure’.

During that time, HMRC based the decision whether to write off an overpayment on how many award notices a claimant had received, and the size of the overpayment. Overpayments would be written off on grounds of official error in cases which fitted the criteria below, and those which did not would be ‘selected for detailed examination’. See Treasury Sub-Committee Report The administration of tax credits, HC 811-1, para 177.

Criteria for write-off under the streamlined procedure:

  • The overpayment is £600 or less and there are at least 4 award versions
  • The overpayment is more than £600 and less than or equal to £1,300 and there are at least 5 award versions
  • The overpayment is more than £1,300 and less than or equal to £2,000 and there are at least 6 award versions
  • The overpayment is more than £2,000 and less than or equal to £3,500 and there are at least 7 award versions

By contrast, before May 2005 – and since March 2006 – claimants have had to show not only that HMRC was in error, but that it is reasonable for the claimants to have thought their award was right, in order to convince HMRC to write off their overpayment.

That so-called ‘reasonableness test’ has been a particularly difficult hurdle for most claimants ignoring, as it does, the sheer numbers of award notices received or the literacy, numeracy or language difficulties of the recipients.

There was, at the same time as such errors were being made by HMRC, much publicity put out about the generosity of the new system and how people had to get used to a system with more fluctuations in it than the old.

Yet such people had to spot an error of excessive generosity that HMRC could not.

We also question the consistency of HMRC’s decision-making processes before May 2005 and their own ability to put themselves in the shoes of the claimant.

The Low Incomes Tax Reform Group is an initiative of the Chartered Institute of Taxation to give a voice to the unrepresented in the tax system.

The Chartered Institute of Taxation is the premier professional body in the UK for tax advisers.

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