Memorandum submitted by the Citizen's
Advice Bureaux
TAX CREDIT
OVERPAYMENTS AND
RECOVERY
Citizens Advice Bureaux (CABx) across England,
Wales and Northern Ireland dealt with 134,000 tax credit enquiries
in their first year of operation (2003-04).The two most frequent
tax credit problems reported by CABx relate to general poor administration
by the Inland Revenue and to problems associated with overpayments
and their recovery. Citizens Advice currently receives approximately
300 reports about overpayments and recovery every month.
Members of the Committee will have received
a letter on behalf of a number of organisations including Citizens
Advice,[11]
expressing our concern about the harsh recovery of overpayments
that have resulted from mistakes made by the Inland Revenue. In
this briefing we would like to provide Members with a few examples
that illustrate the unreasonable hardship, confusion and anxiety
experienced by CAB clients who find themselves in overpayment
situations.
We are concerned about what CAB evidence suggests
is the thousands of overpayments that have resulted from mistakes
by the Inland Revenue or as a result of the Revenue failing to
respond to claimants reports of changes to their circumstances.
Once made, it is the claimant's responsibility to spot errors.
If unable to spot them, they will later need prove that it was
reasonable for them to have believed their award was correct
if the overpayment is to be written off.[12]
This is very difficult for claimants who commonly struggle to
understand their entitlement in a system that is new and using
award notices that contain inadequate information. In many of
the cases reported by CABx it is unclear how overpayments have
arisen and claimants do not understand by how much their future
payments will be reduced to recover these overpayments.
We believe that a more sympathetic approach
is needed in dealing with recovery of overpayments. Where claimants
are disputing recovery on official error grounds, we are not confident
that the current decisions are being made fairly and would like
to see an independent audit of Inland Revenue decisions that apply
the reasonableness test.
SPECIFIC ERRORS
AND POOR
DECISION MAKING
In addition to the specific computer error that
in April and May 2003 caused 450,000 households to be overpaid
a total of £94 million,[13]
there has been an error that has caused the income of one partner
in a couple to be lost from the records. Many CABx have seen clients
who did not notice the deletion of the income figure and in some
cases the income correctly appeared on the award, but had not
been used in the calculation. The error only came to light when
their payments were suddenly cut and they were informed that they
had been overpaid.
A CAB in Staffordshire reported that their client
had been informed of an overpayment but did not know why this
had arisen. The helpline advised that their information showed
that the client worked 40 hours a week but had no income. The
client had not spotted this error and he found it difficult to
believe that the computer system had not rejected the information
as contradictory.
A Sussex CAB client had been informed that they
had been overpaid over £4,000 as a result of an IR error.
The husband's income was recorded as nil even though he was recorded
as working 37 hours a week. The letter from the Inland Revenue
stated that "We have decided that although the overpayment
was a result of a mistake on our part it was not reasonable
for you to believe that your award and subsequent payments were
correct." In order to recover the overpayment the Revenue
will simply not pay them for the next eight years (assuming entitlement
remains the same).
Claimants with overpayments resulting from this
error received letters from the Tax Credit Office informing them
of the overpayment, apologising for the error and advising of
how it will be recovered. For example:
"I am writing to let you know that your
tax credits have been overpaid since April because we calculated
your award incorrectly, to apologise for our mistake and to explain
the arrangements for repaying this money.
We estimate that the incorrect payments currently
amount to £4,293.19".
A Sussex CAB client received a letter from the
Inland Revenue dated 27 August stating that they had overpaid
tax credits approximately £600 for 2003-04 and £2,200
for 2004-05. The letter stated that they had incorrectly calculated
the clients' award and apologised for the mistake. The client
was alarmed by the huge debt they suddenly found themselves with
as she said she had always informed the Inland Revenue of any
changes to her family's financial circumstances.
Official figures indicate that by the end of
November 2004 67,000 requests for the recovery of overpayments
to be reconsidered on the grounds of official error, but only
about 1,100 families had had them written off.[14]
This seems a very small proportion of cases given that the poor
quality of award notices in this first year of operation has meant
that errors are very difficult to spot and entitlement very difficult
to understand.
From the CAB cases we have seen, responses to
requests are in fairly standard letters where it is difficult
to be confident that all the information needed to make a fair
decision is taken into account in the first instance. The client
who had received the letter, whose extract is quoted above, was
told it was not reasonable for her to have believed her award
was correct. No full explanation was given and the decision seemed
to be based largely on the fact that the amount was so large.
The claimant had continually kept the Inland Revenue up to date
with her changes of circumstances even though she'd had a had
a nil award for most of the year. A change in May had generated
the lump sum back-payment and an award for the current year. Her
award notice showed the correct household income and the amount
she received matched the amounts listed. With no information on
how awards are calculated, it does not seem reasonable to have
expected the claimant to know that this was wrong.
LUMP SUMS
PAID IN
ERROR
It may be reasonable to expect claimants to
be able to spot large sums paid in error, but CABx have reported
cases where claimants have been uncertain about monies paid, queried
it with and received reassurances from the helpline, only to be
later asked for the money back. It is important that when the
Revenue makes decisions about whether claimants' overpayments
should be recovered that they take account of what advise they
have received from the helpline.
A Midlands CAB reported couple with two children
who had been paid a lump sum of £3,500 by the Inland Revenue
in the spring of 2004. She returned the money as didn't believe
she'd been underpaid. The Revenue insisted it was due and paid
it a second time. When she returned it a second time the Revenue
contacted her insisting it was hers and paid it a third time.
A couple of months later she was notified that she had been overpaid
by £4,900. During 2003-04 a CAB client in Wiltshire had received
a lump sum payment into her account around the time when her hours
had decreased from 40 a week to 30. It appeared to be a duplicate
payment as her working tax credits were normally paid through
her wages. She queried it with the helpline several times but
was assured that it was hers and she should spend it. Early in
the new tax year, she was informed that she had been overpaid
and it would be recovered from her future payments.
Citizens Advice believes that the way that the
Inland Revenue are applying the "reasonableness" test
as set out in Code of Practice 26, is itself unreasonable. It
requires a degree of knowledge and understanding of the tax credits
system, which is unreasonable for the vast majority of claimants.
We would like to see an independent audit of Inland Revenue decisions
which apply the reasonableness test.
OVERPAYMENTS NOT
CONNECTED TO
OFFICIAL ERROR
We are also concerned about the number of overpayments
that, whilst not originating from Revenue error, have nevertheless
come as a shock to claimants who didn't fully understand the new
system or their award notices. Claimants can find themselves with
overpayments as a result of an increase in income above £2,500
that they haven't reported during the tax year, or as a result
of changes to their personal circumstances that they did not report
immediately.
During this first year of operation it looks
likely that a large number of overpayments have resulted from
these factors. We do not believe that the Inland Revenue succeeded
in adequately highlighting the fact that awards were only provisional,
based on circumstances remaining as initially reported. CAB evidence
suggests that claimants found it difficult to understand their
entitlement and how their changes of circumstances would affect
their awards. This has not been helped by the lack of relevant
information on award notices.
11 Letter dated 14 January from John Andrews of the
Low Incomes Tax Reform Group on behalf of the Chartered Institute
of Taxation, Child Poverty Action Group, Citizens Advice, the
Institute of Chartered Accountants in England & Wales, Low
Incomes Tax Reform Group, One Parent Families and TaxAid. Back
12
Code of Practice 26, What happens if we have paid you too much
tax credit. Back
13
Inland Revenue Annual Report 2003-04. Back
14
HC Deb, 15 December 2004, c. 1087W Back
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