Memorandum submitted by the Low Incomes
Tax Reform Group
LITRG welcomed the Sub-Committee's previous
report into the administration of tax credits which, whilst recognising
the reduction in poverty achieved by the tax credit system, also
highlighted its administrative weaknesses. We would make the following
key points now:
As we stated in our previous submission
to the Sub-Committee, we believe that the basic structure of the
tax credit system remains a good and responsive way to alleviate
poverty, providing that the difficulties in the system can be
Unfortunately, since the last report
LITRG have seen many cases that indicate the tax credit system
has a long way to go before this is achieved. Indeed many of the
recommendations we make in this report echo those that we made
to the sub-committee previously. It is disappointing to note that
many months later these deficiencies remain.
The main problem area is still overpayments,
their recovery and the process attached to disputing them. If
not carefully handled, overpayment recovery still has the potential
to exacerbate poverty rather than relieve it, particularly when
so much reliance is placed on computer programs while one-to-one
customer service takes second place.
Application of the "reasonableness
test" under COP 26 should be subject to a regular independent
audit which, as well as being made public, should be used to produce
better guidance for TCO staff.
A formal right of appeal to an independent
tribunal, against HMRC's decision on whether or not to recover
an overpayment, is long overdue and absolutely essential.
HMRC should place less reliance on
IT and concentrate more resources on human interfaces, particularly
customer support, in order to meet adequately the needs of claimants
who are most vulnerable.
1.1 The Low Incomes Tax Reform Group (LITRG)
is an initiative of the Chartered Institute of Taxation to give
a voice to the unrepresented in the tax system. It aims to help
people on low incomes to cope with their tax and tax credits,
and campaigns for a more friendly tax and tax-benefit system for
the unrepresented. Tax credits, where the tax system meets social
security, has formed a major part of our portfolio since the inception
of the working families' and disabled person's tax credits in
THE COP26 "REASONABLENESS
2.1 Under HMRC's COP 26 guidance, if an
overpayment arises through official error, HMRC will write it
off if they are satisfied that the claimant could reasonably have
thought their award was right ("the reasonableness test").
2.2 Our previous evidence to the Sub-Committee,
both written and oral, expressed our concerns that the reasonableness
test was been operated rigidly, according to criteria which failed
to take account of claimants' individual capacity to understand
their award notices and the complex system behind them. From the
cases we see there seems to have been no relaxation in those criteria.
2.3 A case which came to LITRG in 2005 and
which has only recently been resolved clearly highlights the continuing
problem with the reasonableness test (See "Mrs G" in
2.4 We recommend that the decision-making
process should be subject to a regular independent audit. Although
we accept that this may not help the individual immediately, it
would over time lead to a better understanding of what was being
taken into account in these decisions and give a basis for better
guidance on what should be taken into account.
3.1 There is no statutory right of appeal
against a decision of HMRC to recover an overpayment. If HMRC
decide not to write off an overpayment because they believe a
claimant has failed to meet the reasonableness test the claimant
can only complain to HMRC about their own decision-making, or
refer it to the Adjudicator, the Ombudsman or ultimately the High
Court by way of judicial review.
3.2 Our previous evidence expressed our
concerns that HMRC were operating as judge and jury in their own
cause. This consideration, together with the bad decision-making
we had seen, led us to recommended that a formal right to an independent
tribunal was an urgent necessity, a recommendation that was supported
in the Committee's report.
Absurdity and inconsistency in decision-making
3.3 Since that date our cases continue to
show that the quality of HMRC's decisions has not improved, with
absurd conclusions sometimes being reached, while cases with identical
material facts sometimes give rise to different decisions.
3.4 LITRG have recently had a case brought
to our attention where the claimant disputed the overpayment many
times, meeting with a refusal to write off on each occasion. (See
"Mr D" in the Appendix. Mr D's case is one of many that
show absurdities in HMRC's decision-making.)
3.5 Another case that came to us recently
was identical in all material respects with an earlier case, but
HMRC reached a different decision on each, showing how inconsistent
their decision-making can be.
3.6 HMRC's reply to our letter of dispute
on case mentioned in 3.5 was riddled with elementary errors: the
addressee's name and address were wrong, the letter began by addressing
the adviser then continued by addressing the claimant, and it
ignored most of the points that our letter had raised. Clearly,
this case had been given scant attention by the Overpayments Dispute
Team before being rejected.
3.6 While we welcome the facility for a
dissatisfied claimant to refer cases to the Adjudicator, that
Office is bound by the policies and practices of the Department
and cannot, with the best will, take the place of a formal appeal
to an independent body. Yet the poor quality of decision-making
that we see convinces us that the need for such an independent
appeal is now more pressing than ever. We again urge that a formal
right of appeal to an independent tribunal be implemented with
4.1 In our previous written submission to
the Committee we expressed our concerns about the volume of decisions
that are delegated to the computer and the resulting errors. We
advocated that more human intervention and face-to-face contact,
whilst expensive, was a necessity if the system was to work as
4.2 LITRG are still seeing many tax credit
cases where the underlying problems are IT related. Examples include:
The termination of awards for
no reason other than a "system error". This has
left families on the lowest incomes surviving on only payments
from Income Support or Job Seekers Allowance for many months.
In the cases we have handled the TCO have not dealt with these
matters with any urgency, leaving people destitute.
Delays in processing of awards
which have run into many months, in one case 14 months. The
only explanation given is system error that no-one seems to be
able to rectify. The consequences for these families are dire.
This includes mounting debts and children without even basic provisions
such as food and clothes. Again there has been no urgency in dealing
with these cases.
4.3 Even in a case where we have spoken
with HMRC staff who accept that the award was terminated incorrectly,
thus giving rise to a large overpayment for a disabled pensioner,
they cannot resurrect the claim because of a system error.
4.4 In these situations claimants are left
constantly trying to contact the helpline, speaking to different
people each time, losing out on passported benefits such as milk
tokens (which can only be given on sight of a system-generated
award notice) and left waiting for many months without money to
support their family.
5.1 It was acknowledged in the Sub-Committee's
report that the transfer from DWP to the Revenue of administrative
responsibility for delivering state assistance required a culture
shift on the part of the Revenue. Customers who receive benefits
and tax credits have different needs from the taxpaying population.
Vulnerable groups of claimants
5.2 Many tax credit claimants have low literacy
and numeracy levels, and some have learning disabilities. Many
families have lifestyles that involve frequent changes when they
may move in and out of work and relationships. More importantly,
there is a large group of claimants who rely on tax credits as
their main source of income. All of these claimants suffer great
distress when tax credit problems occur, or when there is inadequate
customer service to support them in resolving the problem.
5.3 We recognise that HMRC has taken some
steps to make this cultural transition. However we feel that they
have fallen far short of the level of customer service and interaction
that low income claimants need.
Over-reliance on IT
5.4 We have already mentioned the over-reliance
on IT to the detriment of low income claimants and their families.
We have showed the horrendous delays that claimants in dire situations
suffer at the hands of the Tax Credit Office who seemingly fail
to appreciate the urgency of a claimant's situation when tax credits
make up the bulk of their income. More human intervention and
face-to-face contact, while expensive, is necessary if situations
such as this are to be avoided.
Poor quality and delayed correspondence
5.5 In addition we still often hear reports
from claimants and other advice organisations about the long delays
in receiving replies to correspondence. We have ourselves seen
a letter dated 21 December 2006 in response to one sent to the
Tax Credit Office on 14 February 2006. This adviser was lucky
in that he received a response at all, many people still tell
us that their letters of dispute and complaint go unanswered.
5.6 Even when replies are received we have
seen several cases where the reply was wholly inadequate and poorly
written. Claimants and advisers alike have written submissions
disputing overpayments several pages long only to be sent a reply
of a few lines with reasoning that seems to belong to a wholly
different case. There is no way of contacting the person who made
the decision and therefore the only option is to write another
lengthy letter and hope that it is answered. This causes cases
to run on into months and years.
5.7 Until HMRC fully adapt themselves to
this new culture, and place less reliance on IT systems, the tax
credits system will not succeed in fulfilling its aims. We repeat
our earlier recommendation that HMRC concentrate more resources
on human interfaces, particularly customer support, in order to
meet adequately the needs of the most vulnerable claimants.
Mrs G visited her local tax office in April
2004 to explain that the income on her award notice was considerably
higher than it should be. She took evidence of her actual income
as well as a copy of her Disability Living Allowance entitlement
letter. She was told at this visit that her award contained various
errors and that it would be revised in her favour. She was also
told that she was entitled to extra money because of her disability.
Shortly after this Mrs G received a new award
which did increase her tax credits. It showed that she was now
entitled to a severe disability element (in addition to the disability
premium she was already receiving). Confused as to what these
elements were for, Mrs G returned to her local tax office to question
this. She was told that this severe disability element equated
to the higher rate mobility component of her Disability Living
Allowance. In fact this information was incorrect, the severe
disability element is only payable if you receive the higher rate
of the care component of Disability Living Allowance. However,
Mrs G did not know this, nor could she ascertain this from the
notes accompanying her form due to dyslexia. Mrs G presumed her
award was correct as she had sought advice from her local tax
Eventually her award was changed and the severe
disability element was removed. This left an overpayment. Mrs
G requested that this be written off, however the tax credit office
refused to write it off.
At the end of 2005 we wrote to HMRC on behalf
of Mrs G We argued that Mrs G had provided the correct information
at all times and that the severe disability element was added
in error by HMRC following erroneous advice from Mrs G's tax office.
In our opinion it was therefore entirely reasonable for Mrs G
to believe her award was correct. We requested that HMRC write
the overpayment off under COP 26.
Initially HMRC argued that it was not reasonable
for Mrs G to think that her award had been right. Even though
she was wrongly advised by her local tax office that she was entitled
to the severe disability element, it was not reasonable for her
to believe them because the conditions for receipt of the severe
disability element were "clearly stated" in the guidance
notes accompanying her claim form.
We reminded HMRC that Mrs G had difficulty in
following complex reading matter such as guidance notes to forms
because of her dyslexia, and it was for that reason that she had
sought advice from her local tax office. Finally HMRC accepted
our argument and wrote off Mrs G's overpayment in full.
Mr D applied for tax credits at their inception
in April 2003. In November 2003 Mr D and his family moved to Spain,
and he informed HMRC. Consequently his annual review papers for
2003-04 and his remaining award notices were sent to his new home
Shortly after his annual review in September
2004 he received a letter from HMRC asking about his move to Spain,
whether it was permanent, the date he moved, and so forth. Mr
D promptly sent back a response, which we know HMRC received because
we have since been sent it by the Data Protection Unit in response
to a Data Protection request.
Mr D's tax credits payments were continued.
Mr D presumed that as he had informed HMRC of his move, and they
were sending award notices to his new home in Spain, he was still
entitled to these tax credits.
In November 2005 Mr D wrote to HMRC informing
them that he was moving to Germany. Again this change was processed
and his award notices were then sent to his new address in Germany.
Finally in April 2006 Mr D's tax credits stopped.
The reason given was that he was not entitled to tax credits after
he left the UK in November 2003. The overpayment was in the region
of £10,000. Mr D disputed the overpayment on the grounds
that he had informed promptly of his move (evidenced by the award
notices) and thus thought that because HMRC accepted this and
continued to pay him there must be entitlement. This dispute was
refused on the grounds that HMRC did not know of his move until
Mr D disputed the overpayment again. He explained
in a very detailed letter that HMRC had been sending his award
notices to Spain since April 2004 and therefore must have known
of his move. He included copies of all of these notices. Again
HMRC refused to write off the overpayment, again on the grounds
that HMRC did not know of his move until April 2006.
Mr D, extremely frustrated at this point, made
a Data Protection request for copies of all of his documents held
by HMRC. He obtained a copy of further documentation showing that
he had answered questions in September 2004 about his move and
confirming that all correspondence had gone to Spain and then
Germany since at least August 2004.
Mr D disputed the overpayment again. This time
including copies of the documentation he had received from HMRC's
own records. HMRC again refused to write off the overpayment,
yet again on the grounds that Mr D did not inform HMRC of his
move until April 2006.
Mr D has written many more disputes and complaint
letters, many of which have gone unanswered. His frustration lies
in HMRC's complete disregard of the clear evidence he has provided,
all of which was sent to him by HMRC.
We are currently disputing this overpayment
again as we feel that the decision was reached on grounds that
were clearly absurd.