Christmas risk for tax credits claimants

Published on 6 December 2006

The Paymaster General has announced that one of the changes to the tax credit system promised last year – an automatic restriction on how much overpaid tax credit can be recovered at any one time from low-income claimants – has had to be delayed. This could put the more vulnerable claimants at risk of financial hardship, and we are asking HMRC to suspend collection of all overpayments from those claimants until the technology is in place to deliver the improvement.

Announced in last year’s pre-Budget report, the change would have meant that collection of tax credits overpayments from people on low incomes with ongoing awards would have been automatically restricted. Thus, someone receiving maximum tax credits would have had no more than 10% of their continuing award taken away in overpayment recovery. People on less than the maximum rate, but more than the family element, would have no more than 25% taken off. This would have had effect from November this year.

At present, the computer automatically claws back in-year overpayments from ongoing awards by 100 per cent. This can often leave claimants in financial distress by severely reducing their credits, or stopping them altogether. Claimants can ask HMRC for additional payments to make up the appropriate percentage of their award, but too few realise that they can do this.

HMRC have said that the IT should be ready to make these automatic deductions from April 2007. Meanwhile, HMRC will continue to pay additional payments to anyone who is entitled to them, and who asks. Then, starting in January 2007, HMRC will introduce a manual process to identify cases where a restriction should be applied, so that the claimant does not have to ask for it.

While we share HMRC’s disappointment that the technology was not able to deliver the promised improvement by November this year, we welcome the steps being taken from January to introduce some means of identifying those entitled to the deduction. This will avoid putting the onus on the claimant population to know that they are entitled.

Nevertheless, between now and then many will continue to lose out and suffer hardship. We therefore call upon HMRC, until such time as they are able to identify who is entitled to the restriction, to suspend collection of all overpayments from ongoing awards in excess of the family element. This should be a temporary measure which would safeguard the position of the most vulnerable at what can be a difficult time of year, and one at which the helpline will be less accessible than normal.

(06-12-2006) 

Contact: Robin Williamson (Tel: 0844 579 6700 Fax 0844 579 6701)