Transfer Traumas

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.