News

Tax credit problems continue to rumble on and many social work service users are likely to suffer as a result.

In order to give itself more breathing space to correct the existing faults in the system, the Inland Revenue (IR) has postponed yet again the transfer of income support and jobseeker's allowance (JSA) claimants with children onto child tax credit (CTC). The aim of making income support an "adults-only" benefit, with all support for children channelled through CTC, was a key plank in the reform of benefits that tax credits introduced in April 2003; so this is a major admission of failure.

Since April 2004, parents who have made new claims for income support or JSA have been told that those benefits no longer have any element for children. The claimant has to claim CTC to get money for their child or children. The "migration" of existing income support/JSA claimants was originally planned for April 2004, but was postponed to October 2004. This has now been put back even further to April 2005.

Although the amount of support that families will get remains the same, whichever system is used to deliver that support, there are some families who could lose out because of the delay. Families on income support or JSA who, for example, are receiving an adoption allowance or residence order allowance might be better off switching to CTC as soon as possible, rather than waiting to be transferred. This is because the IR ignores those payments when working out tax credits, but the Department for Work and Pensions count them in part as income when working out the child's income support.

Another concern for social work clients is the potentially massive problem of tax credit overpayments. Tax credits worth almost £100m were overpaid as a result of the IT problems experienced on the introduction of the tax credits scheme in April 2003. Although £37m of this has been written off as uneconomic to recover, this still leaves around £60m awaiting recovery.

In its annual report for 2003-4, the IR reported that around 455,000 households received excessive payments of tax credits totalling £94m, and 23,000 households were underpaid by a total of £8m.

The IR has decided to write-off all incorrect overpayments where the total involved was less than £300. Of the remaining 82,000 cases, the IR reports that "those cases are subject to normal recovery action. Some of these overpayments may not be recovered, for example, where official error is accepted."

The IR is just finalising the 2003-4 tax credit payments for millions of families. It will be looking at how much tax credit a family received compared with what they should have got (based on their actual 2003-4 income). This process will throw up tens of thousands of more overpayments. Insensitive recovery of these will sink many families into severe debt. Advisers are already coming across cases where parents have had their weekly tax credit of £80-£100 cut back to zero, in order to recover the alleged overpayments. Equip yourself with a copy of the IR's recently published revised code of practice called "Recovery of tax credit overpayments" (www.inlandrevenue.gov.uk).

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.