Supplementary memorandum submitted by
HM Revenue and Customs
14 MACH 2007
Q 26-29 The most recent statistics about the
take-up rates for child tax credits and working tax credits
This can be found on HMRC's internet site. The
link is as follows:
Q 30-32 A note on the problems with the day-to-day
operation of the IT system
Since the introduction of tax credits, HMRC
have made significant improvements to the IT system and it is
now helping to deliver flexible, responsive tax credits to around
6 million families and 10 million children. The improved performance
of the tax credit system has meant that fewer overpayments are
caused by processing or software error, and is one of the reasons
why overpayments fell by a fifth between 2003-04 and 2004-05.
The Report of the Comptroller and Auditor General for 2004-05
published in July 2006 explained that at the end of October 2005
there were still 199 known software errors which potentially caused
error in payments. HMRC have an on-going programme of correcting
the underlying errors.
Q 36 The total number of manual adjustments
made in January and February 2007
The PBR 05 package announced the intention to
automatically restrict recovery on any in-year overpayments to
the same rates as HMRC already apply where they are recovering
an overpayment from an earlier year. Since the first week in January,
when a claimant reports a change of circumstance which is likely
to lead to a reduction in the amount of their tax credits, the
details are passed to a special team. They process the case in
the normal way and ensure that the claimant's payments are adjusted
via the IT system so that the rates of recovery match the cross-year
rates (without claimants having to ask for this service). There
were around 22,000 such adjustments made in January and February.
Q 41 A note on whether HMRC has plans to publish
estimates for tax credits of fraud and error broken down into
fraud, customer error and official error
Figures for error and fraud in the tax credits
system in 2003-04 were published in July 2006. As set out in Child
and Working Tax Credits: Error and Fraud statistics 2003-04,
because the random enquiry measures how claimant's finalised entitlements
differ from what their true entitlements should have been, rather
than how well the information on which payments made correspond
with what claimants have reported earlier in the process, claimant
error is likely to be a bigger feature of the random enquiry than
As the Paymaster General explained in her oral
evidence to the Committee, HMRC have therefore recently examined
a sample of disputed overpayment cases to identify the proportion
of cases affected by official error. This analysis found that
official error was present in 5% of these cases.
The Department believes that this is a useful
measure of the rate of official error and will start to collect
the information systematically from April 2007. HMRC are also
considering other ways of improving information made available
on official error.
Q 56 Details about what measures the senior
management of HMRC are taking to ensure that they are aware of
how tax credits claimants "on the ground" experience
Senior management keep in close contact with
what is happening to claimants directly. They have regular meetings
with their teams to discuss what work is on hand and any issues
arising. Senior staff visit contact centres, listen into calls
from claimants, and are involved in resolving individual cases.
They also meet frequently with the voluntary sector and representative
bodies and have held workshops with them to gain their insight
into the claimant's experience. A series of front-line-staff panels
enable senior managers to engage with operational staff from across
the Tax Credit Office, Customer Contact and Debt Management to
hear feedback and discuss a variety of issues all of which centre
around improvement of service to the claimant. And the Tax Credits
Consultation Group, which is a key consultative group, providing
information about the experience of claimants for HMRC, is chaired
by a senior manager with responsibility for process improvements
and links into all operational parts of the Department.
Q 80-83 More information about what controls
and monitoring are in place to prevent fraud by HMRC staff, and
up-to-date figures of any cases in investigation as well as cases
pending prosecution and cases that have been prosecuted for fraud
allegedly committed by (1) staff and (2) other parties
Since 2003, there have been 14 investigations
on tax credits on members of staff. There have been four successful
prosecutions, two currently before the courts and a further eight
HMRC pro-actively monitor their systems and
have an intelligence function which provides early identification
of actions that breach Departmental conduct and/or criminal standards.
The Department is continually auditing and examining system processes
to reduce the likelihood of these attacks. External scrutiny is
also provided by Her Majesty's Inspectorate of Constabulary and
the Independent Police Complaints Commission.
The total number of tax credit prosecutions
in 2006-07 (to end of February) is 160 prosecutions with 144 convictions
to date. Information is not readily available on pending prosecutions.
Q 94 Details about the IT release strategy
and how changes to the IT system are prioritised
In prioritising IT changes the Department seeks
to balance the improvement in customer service and compliance
with the IT resources it takes to implement the system and the
risks involved. The Department is planning two further major releases
this year. The release in April 2007 will include:
As announced in PBR 2005, withholding
arrears of tax credits.
As announced in PBR 2006, the shortened
renewals window to four months.
Automatic population of worklists
to save staff resource.
Enabling TCO staff to amend the effective
date of a claim or a change of circumstances.
Allowing more entries on the household
notes record to enable staff to see more of what has gone on with
Amendments to risk rules to allow
compliance to identify more cases to check; and
A fix to the problem referred to
in the Paymaster General's Written statement of 6 December 2006,
which will ensure that a small proportion of claimants reporting
changes in their circumstances no longer have to be on manual
The release in October 2007 will include:
As announced in PBR 2005, inflating
income by average earnings to reduce the risk of overpaid provisional
payments if the claimant had not reported an estimate of the current
Improving summary screens on the
system to allow TCO staff to analyse disputes and other queries
Dealing more effectively with manual
Providing a list for compliance of
cases that fail the risk rules when they report a change of circumstances.
In addition, as described in HMRC's memorandum
to the Committee, in June 2007 the Department plans to replace
the enhanced clerical process it introduced in January to restrict
in-year recovery of overpayments with a fully automated process.
There is also a continuing programme of work which fix problems
which prevent the proper processing of cases. There will also
be other IT improvements which will reduce further those on manual
Q 116 A note on the new processes which have
been developed to ensure consistency on the part of HMRC in assessing
disputed overpayments in terms of the "reasonableness test"
HMRC continue to seek to improve their decision
making. The existing guidance on operating the reasonable belief
test is being reviewed and major stakeholders are being consulted.
It is planned that re-structured guidance will be published on
HMRC's website alongside the revised COP 26 in April 2007.
In addition, HMRC have taken a number of measures
in the last 12 months to ensure consistency. These include a revision
of the disputed overpayment standard letters so that a claimant
is provided with clearer information as to how the overpayment
occurred and why the decision, to recover the overpayment, has
been made. Improvements have been made to the Front Line Manager
checking package to ensure consistency and accuracy of decision
making and two Quality Assurance reviews have been conducted to
drive forward improvements. In addition, the Disputed Overpayments
team has been successfully moved to an alpha split ensuring continuity
of process for a claimant.
The Adjudicator, in her 2006 report, has acknowledged
the improvement in decision making:
"Improvements in the TCO's administration
of COP 26 have played a part in reducing the cases that we investigate
where there has been a failure to consider appropriately the grounds
for writing of an overpayment".
Q 120 Details about the proposed express appeals
pilot, whereby claimants will be able to access a "fast-track"
appeal to the Adjudicator on HMRC's decision on a disputed overpayment
HMRC and the Adjudicator's office are still
discussing the detailed plans for the pilot. Final numbers have
not been determinedbut they are anticipating a sample of
around 100 cases a month for a period of at least three months.
HMRC currently expect this to start in the summer. These cases
would be drawn from a wide range of claimants who are seeking
a review of their decision. The important point is that it has
to be a statistically robust sample so that the pilot can be evaluated
and issues identified.
HMRC and the Adjudicator's Office have told
the Consultation Group that they will consult them over the detailed
arrangements before the pilot commences.
Q 150-151 Further details about the interaction
between benefit payments and tax credits, and specific responses
to the cases brought to the Sub-Committee's attention by Citizens
Advice and One Parent Families.
When recovering overpayments, whether directly
or through reduction to an ongoing award, HMRC always take account
of a family's circumstances and ability to pay. It has procedures
to protect people from being caused undue hardship, on top of
recovery limits for ongoing awards and the ability to go beyond
the normal 12 month "time to pay" agreements for people
having overpayments recovered directly. HMRC will take into account
a family's living expenses including utility bills and housing
costs and net income when a claimant asks for further time to
repay an overpayment.
Citizen's Advice were concerned that claimants
who have been overpaid tax credits, and who also receive housing
benefit, can find that their entitlement to housing benefit is
affected by the method of tax credit recovery. However, setting
eligibility for Housing Benefit according to people's outgoings
as well as their income would be a major change, adding significant
extra complexity, cost and administrative difficulty for local
The One Parent Families organisation was concerned
about the situation when a claimant no longer became eligible
for working tax credit but instead became eligible for Income
Support or Job Seeker's Allowance. As the Committee may be aware,
in Budget 2007 the Government announced a four week run on for
Working Tax Credit from 2007-08 following a claimant's hours dropping
below 16 hours a week. This measure is to reduce overpayments
and to ease the transition from tax credits to benefits. It also
reflects the requirement on claimants to inform HMRC within one
month when they cease work which also comes into force on 6 April
Q 162 What page in the tax credits advice
booklet contains advice about disregarding pension contributions?
This is set out on page 7 of the claim form
where claimants are asked to work out their income. It says:
"If you want more help working out year
income see Notes, pages 32 to 46.
If you (or your partner if you have one) made a trading
loss, or paid gross pension contributions or Gift Aid payments,
phone the Helpline for working sheet TC825, to help you work out
your income before you make any entries in boxes 5.2 to 5.6."
More detailed guidance can be found on page
36 of the Notes.
Q 168 A complete and up-to-date list of the
evaluations and research that the external bodies are conducting
on the administration of the tax credit system
This is set out on HMRC's website. It contains
a complete list of all tax research funded by HMRC together with
published evaluations. The link is below:
In addition HMRC publish a considerable range
of statistics on tax credits on its website. The link is below
to its tax credits statistics home page:
Q 168-171 A note on whether HMRC is planning
to produce an annual report on the administration of tax credits,
and if so, when that is likely to be.
There is already an extensive amount of information
available on the tax credit system . For example, HMRC report
to Parliament annually on the operation of the tax credits system
through the Section 40 report and more generally through its spring
and autumn reports. HMRC also publish a wide range of statistics
on tax credits, as well having a commitment to publish independent
research (see response to question 168).
In addition to HMRC, a wide range of other organisations
also publish information on the tax credits system. This includes
the Report of the Comptroller and Auditor General which is published
annually and includes a wide-ranging review of the operation of
the tax credits system.
The Government continues to review the case
for putting more information in the public domain on tax credits
and will keep this question under review.