Last April in this column we warned social work staff that the real problem with tax credits would come later in 2003 and in 2004 when the Inland Revenue began clawing back “overpaid” credits.
Overpayments can occur for a number of reasons – claimant error or inaction, or because of mistakes by the Inland Revenue in calculating credits in the first place. Either way it seems as if the recovery process takes little or no notice of why the overpayment occurred, nor the individual circumstances of the claimant.
The recovery action that is now taking place is known as an “in-year revision”. From April 2004, it will be called “end of year reconciliation”.
Routinely at present, the Inland Revenue is claiming back the whole alleged overpayment at a rate designed to clear the debt by the end of the tax year. Some families have lost more than half of their tax credit award, losing £100 a week or more.
The Inland Revenue’s new code of practice on overpayments (www.inlandrevenue.gov.uk/leaflets/cop26.pdf) states that the maximum deductions from a current award for recovery of an overpayment in the previous year will be 10 per cent (for people getting their maximum tax credit entitlement), 100 per cent (for people getting the family element only of child tax credit), or 25 per cent for all other claimants.
But it is important to make sure that claimants do not end up paying back overpayments which could be challenged. The code of practice says: “We may decide that you should not be asked to pay back all or part of an overpayment, if you were paid too much because of a mistake by us and it was reasonable to think your award was right; or it would cause hardship to you or your family if you had to pay the tax credit back.”
Ministers recently allowed claimants the option of asking for “hardship” or additional payments. But this would mean overpayments are, in practice, simply recovered over a longer period as hardship payments are themselves recoverable. Hardship payments can be claimed by taking two forms of ID into a local tax enquiry office, where circumstances will be checked to see if a payment is appropriate. Telephone the Inland Revenue on 0845 300 3900 for more information.
People who also get income support (IS) face particular hardship, as the social security system takes into account tax credit entitlement when assessing how much IS is payable, not what is paid. So, if the amount of tax credit being paid is less than the claimant’s entitlement, IS payments will not increase to compensate for this – leaving claimants on income which is below IS levels.
On the other hand, housing and council tax benefit is calculated taking into account the amount of tax credit actually received. So where the weekly amount of tax credit is reduced, housing benefit and council tax benefit should increase to reflect the claimant’s reduced income.
The real question, and one posed by this column before, is whether the Inland Revenue is the right agency to be running what is, in effect, a weekly benefit as opposed to its normal annual assessment of a person’s income.
Gary Vaux is head of money advice, Hertfordshire Council. He is unable to answer queries by post or telephone. If you have a question to be answered please write to him c/o Community Care.