Fairer way to deal with tax credit overpayments

The heavy-handed recovery of alleged tax credit overpayments continues to be a major headache for claimants and advisers alike. Revenue and Customs, responsible for paying child tax credit and working tax credit, has been heavily criticised (by both the ombudsman and parliament) for its inflexible approach to people who it claims have been overpaid tax credits.

This isn’t surprising when its official line, until now, was that even when the overpayment arose from a mistake that it made (such as failing to act on information that the claimant had supplied), the claimant should have ‘known’ they were being overpaid. Revenue and Customs often simply washed its hands of any liability for its own errors. In its view, the claimant had to repay the money because it was ‘reasonable’ to believe that the claimant knew they were getting too much.

In other words, claimants were supposed to be better at working out tax credits than the Tax Credit Office.

But this is all about to change. Revenue and Customs has just published a new code of practice on overpayment recovery. This is known as COP26. The revised code replaces the “reasonable belief” test with a new “balance of responsibilities” test. This takes on board many of the criticisms made by the ombudsman and is intended to set out a fairer allocation of responsibilities between the claimant and the Revenue. If the claimant has met all their responsibilities, but the Revenue has failed to meet one of its, the overpayment will not now be recovered.

The claimant’s responsibilities are:

● Providing accurate, complete and up-to-date information when making or renewing a claim.

● Notifying changes of circumstances, such as marriage, co-habitation, separation, employment starting or stopping, children joining or leaving the family, wages or benefits changing etc.

● Checking award notices for errors (such as number of children or levels of earnings).

● Checking that the amount of payments made into their bank account matches payments shown on the award notice.

● Reporting errors shown on award notices within one month.

The Revenue’s responsibilities are:

● Giving correct advice.

● Accurately recording information that the claimant provides.

● Paying the right amount of benefit, as assessed.

● Including acknowledgement of the information that the claimant has provided on award notices.

● Sending out new award notices within one month of the claimant reporting a change of circumstances.

For example, where there is a mistake on the award notice, which the claimant tells the Revenue about, any overpayment caused because Revenue doesn’t correct the error will not be recoverable. There is no requirement for the claimant to keep re-notifying of errors.

“Reasonable belief” is not mentioned in the new COP26 at all, so don’t let the Revenue fob you off with that excuse if you are challenging an overpayment. You can find the whole new COP at COP 26 – What happens if we have paid you to much Tax Credit

If you want to help someone challenge a tax credit overpayment ensure the information you hold is reasonably correct, using the clients P60 info if you can. Try and get the recovery suspended pending investigation and if you cannot get the overpayment written off using the guidelines suggested in the COP26 then negotiate repayment using the 10% minimum figure, accompanied by a financial statement if necessary.

Escalate any complaints through the right channels, and send your letters to ‘personal attention of’ – complaints manager, customer services manager, overpayments dispute team, customer support unit, right up to the adjudicator and then the ombudsman (via the MP).

Gary Vaux is head of money advice, Hertfordshire Council. He is unable to answer queries by post or telephone. If you have a question e-mail natalie.valios@rbi.co.uk

This article appeared in the 20 March issue under the headline “Overpayments: now the Revenue has responsibilities”