Memorandum submitted by Citizens Advice
SUMMARY
1. In June 2005, Citizens Advice's report
concluded that although welcome additional money was available
to lower income families through tax credits, the operation of
the system and the way overpayments were recovered caused tremendous
hardship and confusion to many families. Our key recommendation
was that significant improvements in the quality of administration
and changes in the recovery of overpayments were vital if key
government objectives were to be met, and confidence in the system
restored.
2. The Pre-budget report recognised the
need for stability as well as flexibility in the tax credit system.
The measures offer hope to families who have faced real difficulties
with varying and unpredictable payments. For the last two years,
Citizens Advice has been urging the Government to introduce limits
to the cuts that can be made to payments. The announcement that
automatic limits to adjustments will be introduced was therefore
very welcome. We are disappointed that they will not be introduced
until November 2006, as this means there is a strong likelihood
that families will suffer hardship over the next few months as
payments continue to be stopped or heavily reduced. The Tax Credit
Office must respond by promoting the take-up of additional tax
credit payments.
3. The higher earnings disregard of £25,000
will protect many families from overpayments and reduce some of
the complications associated with the use of an annual income
measure. People will still need to report increases in income
by the year-end to ensure that payment rates for the new tax credit
year are not set too high. The Revenue has an important and very
difficult message to communicate in this regard. If they are to
avoid being overpaid in the first half of a new tax credit year,
it is essential that families understand that income rises will
affect future tax credit entitlement.
4. Income rises are only one cause of overpayments.
They also arise from changes to family circumstances reported
or actioned late and from unacceptable levels of error. Challenging
the recovery of overpayments must be made easier and a statutory
right of appeal must be introduced. Recovery of overpayments should
be delayed at least until the claimant has been notified of the
reason for overpayment, their right to dispute and/or appeal it.
5. We still have serious concerns about
the quality of administration of the system. Bureaux are still
receiving poor or incomplete advice from the helpline. Responses
to correspondence can take months, and often fail to address the
issues. Quality of administration including all communications
needs to be significantly improved, so that claimants understand
their entitlement and to enable them to meet the responsibilities
that the system places on them.
6. We welcome signs that HMRC is beginning
to recognise the importance of using language in common use. Technical
language and concepts, particularly in the context of tax year
entitlements makes it difficult for families to understand an
already complex system.
INTRODUCTION
1. Citizens Advice is pleased to provide
evidence to the Treasury sub-committee's enquiry on the administration
of tax credits. Last year Citizens Advice Bureaux across the UK
advised on around 150,000 tax credit problems. In the past two
years Citizens Advice has received more than 12,000 reports and
complaints from bureaux about tax credit problems.
Effectiveness of information including clarity
of award notices
2. A fundamental problem is that award notices
do not enable claimants to understand their entitlement. The payments
page in particular is very confusing. Revised notices from April
2006 will provide claimants with a more helpful breakdown of their
entitlement. For some claimants however, award notices may still
be eight pages long because of the complexity of the system.
3. The new notices will still not explain
to claimants why an overpayment has arisen. It is essential that
all claimants who are informed of an overpayment are told how
it has arisen. In the last 18 months although 57.5 million award
notices have been issued, less than 400,000 calculations were
issued.[10]
If a claimant is seeking clarification from the helpline regarding
their award, sending out further breakdown should be routine.
4. HMRC have produced a comprehensive leaflet
(WTC6) of benefits ranging from free school meals and health costs
to access to help with legal costs. This leaflet is not sent routinely
to any claimant and is only available on request. Passported benefits
are of tremendous value to low-income families and we recommend
that leaflets are sent out with all new awards with entitlement
above the family element.
QUALITY AND
TIMELINESS OF
COMMUNICATIONS
5. HMRC are currently undertaking a review
of tax credit communications. HMRC determined that the preferred
method for claimants to contact them is over the telephone. This
may well explain why when flooded with great volumes of written
correspondence the tax credit office was unable to cope. HMRC
have targets to respond to 80% of correspondence within 15 working
days and 95% of correspondence within 40 working days. Performance
figures for last year (the only year for which figures are available)
show that only 50% of correspondents received replies in the target
time of 15 days and 25% of claimants had still not received a
response by 40 days.[11]
6. Personal letters or award notices are
much more powerful in forming a claimant's experience of the tax
credits system than a glossy leaflet, however simple and informative
it is. Automated letters that convey the bad news of an overpayment
with no attempt to explain the cause are very distressing to claimants.
Bureaux also report the anxiety faced by claimants who have questioned
overpayments and received a standard letter advising it will be
looked at within six to eight weeks. This offers no reassurance
that the matter is being looked into urgently. Clients have received
contradictory letters, which not only confuse but also raise questions
about the consistency of decision-making.
A single parent with a disability and a disabled
son received an overpayment demand for £6,000 a few months
after his 16th birthday. She'd kept them informed of changes and
did not know how this could have arisen. She had no idea how she'd
be able to repay it if it was correct.
A bureau helped a client with severe mental health
problems to dispute the recovery of working tax credit as soon
as he was informed of it in September 2004. In November they received
a standard reply advising that the Revenue would reply in six
to eight weeks. In February the Revenue said that although the
overpayment originated from their error it wasn't reasonable to
have thought the award was correct. The CAB adviser replied in
April and June detailing the client's mental health problems and
providing reports from his social worker explaining why the overpayment
should be written off. They sent several chaser letters and faxes
and in early September received another letter advising that they
would reply in six to eight weeks.
Each piece of correspondence from the Revenue
only mentioned one piece from the bureau which meant it was not
clear whether all information received had been taken into account.
When they finally received a full response in mid-September it
inaccurately advised that they had taken all the details of the
case into account when making the original decision in February.
This was simply not the case as information about the client's
mental health had not been submitted until after this date. This
has now been acknowledged verbally by the tax credit office. The
bureau is waiting for a proper response.
7. Timely response to correspondence is
particularly important given that there is no routine explanation
of causes of overpayments, and because the helpline is unable
to explain complex cases. Many bureaux report writing several
letters chasing their original as they receive no response and
cannot clarify by speaking to the helpline whether their letters
have been received.
Recommendation:
— Improved management information
to ensure all correspondence regarding the same household are
linked and accessible to an official looking at the case.
INFORMATION TARGETED
TOWARDS PEOPLE
MOST AT
RISK OF
OVERPAYMENTS
8. The announcement in the Pre-Budget report
to increase the income disregard from £2,500 to £25,000
means that waiting until the year end to report income changes
will now be unlikely to result in an overpayment. It will however
still be important to report the change promptly at the year-end
to ensure that the award is set right for the next year.
9. Changes in personal circumstances will
still need to be reported quickly to avoid overpayments and in
future reported within a month or else face penalties. The Tax
Credit Office will need to improve its ability to process changes
of circumstances quickly and efficiently. Two and a half years
into the new system bureaux still report that claimants are being
told by the helpline to wait to report income until reconciliation
at the year-end. On other occasions the helpline just seems to
simply fail to take down the changes reported.
A woman visited her bureau at the end of September
because she was worried about her building overpayment. Her income
had increased and she'd informed them at the end of March but
despite further contacts could not get her award revised. The
bureau helped to calculate her correct entitlement and advised
her to keep the rest of the money aside for repayment.
10. CAB evidence suggests that the system
is not yet responsive enough and poor quality administrative systems
result in hardship and confusion.
A single mother had problems getting her tax
credits stopped when her son moved to live with his father. On
separating her son lived with her initially, but then moved to
live with his father until March 2005 when his father began to
face difficulties. He moved back to live with her and she claimed
tax credits. By the time she received payments in June he had
returned to live with his father and she phoned to end the claim.
Three months later she sought help from the bureau as she was
still receiving tax credit giros despite having phoned several
times and even returned giros in the post. The helpline advised
that they had record of all this information but because of system
failures the change had yet to be processed.
Recommendation:
11. Keeping up with families' changes of
circumstance is a significant challenge, and HMRC must be equipped
with adequate resources to meet it.
Improving the Quality of Service from the Tax
Credits Helpline
12. We welcome the recognition by the Paymaster
General that the quality of service by the helpline needs to improve.
We understand that HMRC are considering introducing better tools
for enabling high quality advice—this is essential for the
provision of an adequate service let alone a high quality one.
CAB advisers commonly report that, when things have gone wrong,
the helpline has been unable to explain what is happening with
the case. In one case a helpline adviser told a woman that her
CAB or MP would be better able to help. Poor helpline advice causes
serious problems for claimants.
A couple in Hampshire had been awarded £545
for 2004-05 and were surprised on renewal to find themselves awarded
£6,000. The wife had stopped work but the husband's income
had changed very little. They called the helpline several times
and though they were advised of a possible error they had great
difficulties in getting any assurance that it would be looked
at. Shortly afterwards the wife phoned again only to be assured
that the award was correct. The wife has health problems which
are being accentuated by this and they are unable to budget or
make any plans based on what income they should be receiving and
what they are likely to have to repay.
13. Early in 2005 a difficult cases team
was introduced to enable helpline advisers to pass on cases that
they were unable to handle. This team takes ownership of a query
in conjunction with other appropriate areas of Tax Credit Office
until it is resolved. Instead of reporting an improvement however,
bureaux continue to highlight the need for caseworkers. One bureau
recently advised that although they seem to being seeing fewer
errors, when things do go wrong it still takes as long to get
them resolved. We would like to see the role of this team extended
to ensure that all problem cases get referred and dealt with by
a caseworker until the problems with the case are resolved. This
would save time for both helpline staff and CAB workers.
Since April a bureau has been helping a client
whose payments have "fallen off the system". Because
a computer problem she has to be paid manually each month. The
problem for the claimant is that these payments have often failed
to arrive when promised and the amounts have varied with no explanation.
On three or four occasions the adviser has had to go through the
case in detail with different helpline advisers explaining the
calculation in order for the correct payment to be made.
One family of four had to manage on just £12
a week tax credits and £100 earnings for several weeks. They
had defaulted on their mortgage repayments, had their phone cut
off and been unable to pay a court fine. The bureau adviser complained
that her dealings with the helpline had been "contradictory
from start to finish".
14. In order to resolve complex cases bureaux
can find themselves spending 30-45 minutes on the phone to the
helpline, sometimes longer. Together with the client and the helpline
adviser they get detailed case history of what has happened in
order to work out what has gone wrong.
A woman from Northern Ireland came into the bureau
distraught after being advised that she'd been overpaid £4,000.
She worked 16 hours a week and was trying to live on her earnings
of £80. She was a widow and her daughter had just left school
for university. This change meant she lost entitlement to working
and child tax credit at the same time but had kept the Revenue
up to date all the time. Despite letters and phonecalls she had
been unable to establish whether the overpayment was correct and
what the cause of it was. Eventually with advice from the bureau
she went to her local HMRC office who went through her case in
fine details. They discovered that due to mistakes and IT problems
there was in fact no overpayment and she was in fact owed three
month's payments.
Recommendations:
— Recording of information on
the system used by the helpline should be extended to ensure advisers
are able to provide updates on claimants' cases.
— Improvement in the quality of
advice by helpline advisers.
— The difficult cases team should
be extended to ensure all "problem" cases can be dealt
with by a caseworker until the difficulties are resolved.
— The provision of face-to-face
advice by HMRC or giving bureaux electronic access to the tax
credit computer system should be explored as a means of improving
efficiency.
INNOVATIVE WAYS
OF WORKING
WITH THE
CAB SERVICE
15. The PMG's statement recognised the crucial
role of the voluntary sector in providing advice to families.
This part of the statement focused on the need to better explain
a relatively new system to claimants, to improve claimants' understanding
of the system, and in particular their own responsibilities for
reporting changes of circumstance, checking complex award notices
for errors—active engagement. The Minister asked the Revenue
to "develop innovative ways of working with the sector to
target more active support on vulnerable families". Since
May, there have been three meetings between Citizens Advice and
the Revenue. The suggested approach is to pilot and discuss several
activities:
Tax credit surgeries in Citizens Advice Bureaux
run by HMRC staff
16. The aim is for HMRC to provide a face-to-face
service in citizens advice bureaux, possibly including providing
services in appropriate CAB outreach services. Initial very small-scale
pilots would be evaluated with a view to more widespread use of
surgeries, identifying resource implications, logistical and organisational
issues. Citizens Advice is currently identifying bureaux in the
North and North West England who will enter into discussion with
the Revenue. We are also discussing pilot working in Scotland
and Northern Ireland. Bureaux will be keen to maintain an independent
and confidential service to clients. At present it is not clear
whether HMRC staff running surgeries will have access to the tax
credit database when answering queries.
Additional telephone specialist support to CAB
17. Citizens Advice provides "second
tier" support to bureaux by telephone, where specialist knowledge
is required to resolve client queries. Citizens Advice has suggested
that HMRC could fund additional specialist services provided by
Citizens Advice. HMRC has proposed seconding staff to the Citizens
Advice Specialist Support Unit.
CAB adviser access to tax credit data online
18. Discussions have taken place since 2003
about providing secure and confidential access to client tax credit
data in order to allow CAB advisers to try to answer their clients'
queries by accessing their file on the Revenue system. This remains
a proposal which we believe could prove beneficial, but there
is currently no project tasked with delivering a workable system.
RECOVERY OF
OVERPAYMENTS
In-year recovery and additional payments
19. Adjustments to awards during the tax
credit year can result in payments stopping altogether. The 2005
Pre-budget report announcement that from November 2006 automatic
limits will be placed on adjustments to payments is very welcome.
It is disappointing however that the changes will not be implemented
until November 2006.
20. Additional tax credit payments are available
to help families who lose all their tax credit payments but they
have to be requested and take up is very low[12].
CAB evidence suggests that claimants are not aware of them, or
decide not to take them for fear of future overpayments. Families
are more likely to seek help from friends or family or take out
loans, than seek help from the Revenue.
A single mother on income support had her child
tax credit payments suddenly cut by 75%, so she was living on
just £56 income support, child benefit and £11 Child
tax credit. She had not had the overpayment nor the recovery rate
explained to her and although having her payments cut so severely
would leave her in hardship was not offered additional tax credit
payments. She also had £8,000 of other debts and the automatic
recovery of her tax credits would put her at risk of further debt.
21. The use of language is very important
and HMRC must change the way it refers to additional payments
in order to promote take-up. Where they are in payment award notices
include the following warning message which families have found
alarming:
"To prevent hardship, we are continuing
to pay you tax credits, even though you have already received
too much for this award period. This means that the amount you
owe us will increase."
Recommendations:
— The helpline should proactively encourage
the take-up of additional tax credit payments. They should be
explained as spreading out the recovery over a longer period of
time. It should avoid use of hardship payments which give the
impression that the claimant is being offered a crisis loan rather
than a more reasonable repayment rate.
— The wording on award notices should
be rephrased to reflect that if their circumstances remain constant
the extra payments will mean recovery will continue into the next
financial year. Claimants do not see April as a natural deadline
for clearing overpayments. The ability to repay monies at an affordable
rate is of greater importance than clearing debts within a specific
timeframe.
REVENUE ERRORS
AND WRITE-OFFS
22. If claimants believe their overpayment
may have arisen due to a Revenue error it is up to them to dispute
recovery and in addition to prove that it was "reasonable"
them to believe that their award was correct. Claimants whose
household status has not changed will have their overpayments
recovered automatically from their payments, unless they dispute
recovery. This means unknown numbers are repaying because of Revenue
errors.
23. Challenging recovery can take time,
and can be difficult given the complexity of awards. We are concerned
about the quality of decisions. Claimants can complain to the
Adjudicator or the Ombudsman, but recovery will continue during
this time. In June, the Adjudicator reported that over 80% of
complaints were upheld in favour of the complainant either fully
or in part.
A couple with one child had been overpaid in
2003-04 and for part of 2004-05. This initially originated from
an error that they could not have noticed but it was compounded
by the deletion of one partner's income when a change in the other's
was reported. This error the claimants' could have reasonably
noticed. The request for remission of the overpayment was refused
in December 2004. Despite writing immediately to ask this be looked
at again in December, February, May and September, their first
substantive reply was the end of September—nine months later.
A woman was overpaid for 2003-04 and 2004-05
after the Tax Credit Office did not record that her daughter had
left full time education. After challenging the recovery, the
2003-04 overpayment was written off but not 2004-05, although
both were caused by the same error. The Revenue said the client
had to challenge each overpayment separately. The client's £43
payments were reduced to £15 a week.
In mid-October a London bureau finally heard
from the Revenue that their client's overpayment of over £2500
resulting from a Revenue mistake almost two years earlier had
been written off and she would be paid £80 in compensation.
Whilst the result was positive it had taken the bureau almost
two years and numerous letters to help a vulnerable family—a
lone parent with a disabled child who had used tax credits to
return to work.
COMMUNICATIONS
24. Astonishingly, the Tax Credit Office
has no standard means of informing people how an overpayment arose.
It is frequently unclear how an overpayment has arisen or even
how much it is. Tax credit entitlement is complex, particularly
for families in vulnerable changing circumstances and particularly
for those who are self-employed and whose income is less predictable.
On the same day in mid-October one family received
seven award notices in separate envelopes regarding years 2003-04,
2004-05 and 2005-06. They appeared to indicate overpayments but
the figures and wording were difficult for the client to interpret.
The adviser added that indeed no-one in the bureau could make
sense of the figures given and the helpline adviser couldn't either.
One CAB reported that their client first came
to see them in June 2004. They finally closed her case thirteen
months later—in July 2005. "She had so many award notices
we could have decorated the bureau." There had been numerous
mistakes including missing children, wages and an extra disability.
The claimants were told that an overpayment was caused by Revenue
error but that they should spotted it. All replies to their challenges,
including one from the Paymaster General, simply repeated this,
but a year later the client got a letter remitting it in full.
A Client came to bureau with a query about overpayments
for 2003-04 and 2004-05 and the notices to pay she'd received.
She was unsure whether it was due to a slight increase in her
income. The helpline had advised that it was because she'd lost
entitlement because her son had reached sixteen. He was in fact
still in full-time education and she was therefore still entitled.
The overpayment would have only been £700 rather than £1,800
when the correction had been made. Without her visit to the bureau
she would have ended up repaying £1,100 more than necessary.
25. It is also possible for payments to
change before or at the same time as the claimant is notified.
This is completely unacceptable. Delaying recovery is essential
to enable families to budget for the change.
A couple with a two-year-old daughter had been
receiving £41 a week and had been budgeting on that basis.
One week the payments stopped and they then received notification
that they had been overpaid £1,600. The bureau noted that
the withdrawal of tax credit payments without notice had thrown
her financial situation into confusion.
26. We are in discussions with the HMRC
on changes to the Code of Practice on the recovery of overpayments
and welcome the number of proposals for change that are being
considered.
In addition to future changes we recommend that:
— Recovery should only start 30 days
after the claimant has been notified of: the reason for the overpayment;
their right to dispute the recovery on the grounds of official
error or hardship; and/or their right to appeal. This would also
enable families to budget for the drop in income.
— A statutory right of appeal to an
independent appeals tribunal must be introduced. This would build
confidence in the independence and equity of the decisions being
made.
27. The importance of high quality administration
is crucial in enabling claimants to have a positive tax credit
experience. Tax credit awards can be substantial. However this
means that errors and administrative inefficiencies affecting
payments have the potential to push families into debt. The debt
families are pushed into is for many worse than that resulting
from credit cards or loans, as it is unplanned with no purchase
and pre-agreed repayment plan. In a system that has the potential
for significant overpayments, administrative efficiency and high
quality advice are crucial to ensure that the claimant experience
is a positive one and theoretical incentives created by policies
work out in practice.
December 2005
10 Hansard, 29 Nov 2005: Column 349W Back
11
Hansard, 29 Nov 2005: Column 348W Back
12
In 2004-05 only 10,000 additional tax credit payments were made.
Hansard 21 Jul 2005: Column 2035W. Back
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