APPENDIX A
EXAMPLES OF TAX CREDIT ADMINISTRATION PROBLEMS
VIA CONTACT A FAMILY'S HELPLINE
Mrs F lives with husband and two children, youngest
receiving DLA. Mr F had started new job during 2004 and consequently
his earnings had increased by around £6,000. Mrs F says that
she had telephoned the Tax Credit Office to notify them of this
change in his circumstances. However their tax credits award had
continued at the same rate and Mrs F has now received notification
that the Inland Revenue wish to recover an overpayment of around
£1,300. Mrs F says that recovery will cause them financial
problems particularly since they have been assessed by as having
to pay some of the costs of adapting the family home to meet their
child's needs.
Explained that Mrs F could ask the Inland
Revenue to use their discretion not to recover this overpayment
on the grounds of both "official error" and "hardship".
Sent her our short guide to overpayments and a copy of the tax
Credit office Code of Practice (COP 26).
Mr B is a refugee who is married with two children,
one of whom has learning difficulties. He lost his job in July
because of problems with his English skills. He informed the Tax
credits of this change and reclaimed income based Job Seekers
Allowance for himself and his partner. However for some reason
payments of WTC continued to be paid alongside CTC for several
months. Once this likely overpayment was identified his CTC award
was reduced to only £20 per week. As a result his weekly
income is now £50 below the minimum applicable amount for
a family in his circumstances.
We advised Mr B to contact the Tax Credits
office to ask that additional payments be made on the grounds
of both official error and hardship. After three weeks he had
no response. He then contacted the Tax Credits Helpline but was
told to approach his local Inland Revenue office about these payments.
He visited the local office as suggested, only to be directed
back to the Tax Credits Helpline. After more than 6 weeks Mr B
is still awaiting a decision on additional payments and has now
lodged a complaint.
Ms A is a single parent. Both she and her two
children have a rare genetic condition. Ms A works 18 hours and
receives both WTC and CTC. Ms A received notification that she
had been overpaid tax credits of £500. The Tax Credit office
acknowledged that the overpayment was caused by their mistake
and that they had paid her £500 more than they had said they
were going to in the tax credit award letter. They accepted that
the information on the decision notice outlining Ms A's personal
circumstances and annual income was correct. Nevertheless they
believe that she should have known she was being overpaid. This
is because the section outlining how and when payments were to
be made contained some discrepancies. The Tax Credits office state
that she should have noticed these errors and thus realised he
was not receiving the correct payments.
Ms A has been assisted to challenge this
decision.
Mr G is married with two children, one of whom
has severe learning difficulties. Mr G received a decision that
he had been overpaid £1,100 in tax credits and that his new
award would be reduced to recover this. Overpayment arose because
Tax Credit office failed to act on Mr G's notification that he
had left remunerative work and claimed Incapacity Benefit. Consequently
his tax credit award erroneously continued to include WTC elements.
Tax Credit office acknowledged that overpayment arose from their
error, but state that Mr G should have known that his tax credits
would have dropped after he stopped working. Mr G argues that
he had actually expected to receive more tax credits as a result
of his income having reduced.
Advice given to Mr G on how to request that
recovery be waived.
As a result of decision to recover overpayment,
Ms H's new CTC award reduced by 10%. Since income support takes
into account CTC entitlement rather than amount received after
deductions for an overpayment, Ms H's weekly income was now lower
than her applicable amount.
Explained that she could ask overpayment
not be recovered on the basis that it would cause her family hardship
and outlined how she should go about this.
Mrs M lives with partner and two children, one
of who is autistic. Husband works, while she claims Carers Allowance.
Following end of year reconciliation she had originally received
lump sum arrears of £4,000. This however was an error (due
to the family's income wrongly having been recorded as nil). She
subsequently received 11 letters from the Inland Revenue stating
that she had been overpaid. Each letter noted a different level
of overpayment. Apart from arrears that had been paid in error,
Mrs M also told by Tax Credits Helpline that her Carers Allowance
award had not been taken into account as taxable income in the
2003-04 award and that this had caused an overpayment.
Explained overpayment recovery process including
discretion not to recover. Given sheer bulk of contradictory correspondence
she has received from Inland Revenue regarding her claim, we also
referred her to local advice unit for representation.
Mrs W is married with four children, one of
whom has ADHD. Also helps care for her mother who has dementia
and who lives nearby. Husband works full time, Mrs W claims Carers
Allowance. Pays for a registered childminder to help her juggle
caring for mother, disabled child and non-disabled siblings. Following
the end of year review received notification of an overpayment
of £3,800. It appears family had been wrongly awarded the
childcare element of WTC despite the fact that Mrs W was neither
working nor incapacitated.
Explained overpayment recovery process to
Mrs W and the fact that she could ask that overpayment not be
recovered if, as appears, it was caused by an official error.
Discussed the option of asking for social services assessments
for both her mother and children, as a way of trying to secure
alternative sources of care.
Mr Z is from Iraq and has been granted refugee
status. He has five dependent children, the eldest of whom was
recently awarded DLA high rate care. His wife also receives DLA
care component at the low rate. Mr Z was in receipt of Child Benefit,
income based Job Seekers Allowance (JSA) of £87.30 and Child
Tax Credit (CTC) of £166 per week. He had just been awarded
Carers Allowance and wanted to know how this would affect his
tax credits.
Explained the impact of Carers Allowance
award on both tax credits and JSA. However also identified that
Mr Zwas being underpaid CTC by around £59 per week. This
was due to his failure to inform the Inland Revenue about child's
DLA award. Also advised him to notify Job Centre Plus office about
wife's DLA entitlement. This should also result in the award of
an extra £33.85 per week in JSA.
Ms Y is a single parent with one dependant child
on DLA middle rate care. She works 16 hours a week and is in receipt
of tax credits including the childcare element. Her tax credits
claim had initially been made jointly with her partner who also
worked. However he left the family home in July 2004. Initially
she had been hopeful that they would reconcile and consequently
did not tell the Tax Credits Office about their separation until
January 2005. Her original claim was then closed down and a new
claim as a single person started. Backdating of this new claim
was limited to three months. Ms Y has subsequently also been told
that she was overpaid tax credits for the period running from
the date of their separation until the start of her new claim.
This case highlights a problem that can arise
due to the lack of any provisions allowing "offsetting"
of a claimant's "actual" entitlement against a perceived
overpayment. In reality, Ms Y's delay in notifying the Inland
Revenue actually led to her receiving less tax credits than if
she had claimed as a lone parent straightaway. Despite this, she
is still treated as having received an overpayment which is likely
to be recovered. She may also face a financial penalty for failing
to disclose this change of circumstances within the three month
deadline.
Three families were overpaid because their tax
credits award included payments for young people who were already
getting Incapacity Benefit in their own right. In each case the
parents had claimed tax credits without realising that payment
of Incapacity Benefit to a young person meant they were no longer
treated as a dependant. The claim form itself makes no mention
of this rule, although the notes sent with the form do clarify
(at page 13) this point. However since the notes to the claim
form run to over 50 pages, this information may be missed by some
parents. It is also worth highlighting the fact that the notes
only refer to Incapacity Benefit as an issue, when receipt of
income support (or income based job seekers allowance) also prevents
a young person being counted as a dependant for tax credit purposes.
We have had several cases where overpayments
have been caused by a failure to disclose Carer's Allowance as
taxable income. Although the notes sent with the tax credit claim
form make clear that Carers Allowance is a taxable income, this
fact is not mentioned on the claim form itself. Given the length
of the guidance notes (53 pages) many claimants may not read the
document fully and some appear to be missing the reference to
Carers Allowance as taxable income. Unfortunately, at least two
parents have also reported calling the Helpline for guidance and
being told that Carer's Allowance was not counted. In all of the
above cases the parent has been unaware they were being overpaid
until they called the Contact a Family Helpline. The majority
not only face a likely overpayment this year, but were also overpaid
in 2003-04.
December 2005
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