Select Committee on Treasury Written Evidence

Supplementary memorandum submitted by HM Revenue and Customs


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 official error.

  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 the system

  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 ongoing investigations.

  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 the case.

    —  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 payments.

  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 year's income.

    —  Improving summary screens on the system to allow TCO staff to analyse disputes and other queries more efficiently.

    —  Dealing more effectively with manual payments; and

    —  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 payments.

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 determined—but 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 authorities.

  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 2007.

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.

March 2007

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