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
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"