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Revenue and Customs takes harsh line on tax credit overpayments

Sorting out notional overpayments of tax credits can cause a lot of worry but, although there are guidelines, the rules are not friendly, writes Gary Vaux

Imagine being told by your tax office that you owed £1,000 because you hadn’t told them your partner had moved in with you, even though the tax you pay has nothing to do with your living arrangements.

That’s the situation in which many tax ­credit claimants find themselves because of what are known as “notional overpayments”: they are being asked to pay back large amounts of allegedly overpaid tax credits, despite not receiving a penny more than they should have.


Joanne is a single parent on income support. She receives the full rate of child tax credit for her nine-year-old child. In April 2009, Joanne’s unemployed boyfriend Oliver moved in with her, but Joanne foolishly didn’t tell the income support and child tax credit offices until September. Both she and Oliver continued to claim benefits as two separate people. Once this was discovered they had, rightly, to repay the income support and JSA they had received. However, the DWP can make an allowance when calculating what they owe for the fact that they would have had the couple’s rate of benefit if they had declared their new living arrangements.

Revenue and Customs, which administers tax credits, takes a different, much harsher view. It insists that all the tax credit that Joanne has received between April and September has to be repaid. This is despite the fact that, if they had declared their new arrangements, they would have received the same amount of child tax credit as Joanne did as a lone parent. There is no loss to the public purse from their failure to declare Oliver’s presence in the house but Joanne and her partner are nevertheless faced with a hefty repayment. All they can do to partly offset the overpayment is to ask for their new claim to be backdated by three months.

Revenue and Customs says it is willing to look at this sort of situation on a case-by-case basis, but only where the overpayment arises from an accidental error at the start of a claim, which seems quite a hard line to take.

The Revenue has produced a new 15-page booklet for advisers dealing with tax credit overpayments. How HMRC Handle Tax Credit Overpayments provides more details on how the code of practice on overpayment recovery (COP26) operates and includes examples of letters sent and an income and expenditure form that the Revenue uses to calculate what someone should repay. It is available from www.hmrc.gov.uk. The leaflet includes the following information:

● If an appeal is made against a decision which created an overpayment, then any recovery action will be suspended until the outcome of the appeal is known.

● Claimants who contact the Revenue because they do not understand why they have an overpayment will be given a ­written explanation.

● If a claimant cannot afford the reduction in payments from an ongoing award they should contact the Revenue to work out a reasonable amount.

● Time to pay of 12 months is offered as standard, but the Revenue can negotiate a longer repayment period of up to three years.

Form TC846 “Recovery of overpaid tax credits disputed (request to reconsider)” is the form for challenging the recovery of an overpayment.

HMRC has also introduced new processes within its Customer Service and Support Group (CSSG) teams dealing with disputes. This includes a new Intermediaries Dispute and Complaints Team. The Intermediaries Helpline is 0845 300 3946.

Gary Vaux is head of money advice at Hertfordshire Council. E-mail a query for him

This article is published in the 5 November 2009 edition of Community Care under the headline “Unwary couples are in danger from backfiring tax credits”

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