Draft Tax Credits (Late Appeals) Order 2014
Draft Tax Credits, Child Benefit and Guardian’s Allowance Reviews and Appeals Order 2014

The Committee consisted of the following Members:

Chair: John Robertson 

Baldwin, Harriett (West Worcestershire) (Con) 

Bellingham, Mr Henry (North West Norfolk) (Con) 

de Bois, Nick (Enfield North) (Con) 

Dinenage, Caroline (Gosport) (Con) 

Gauke, Mr David (Exchequer Secretary to the Treasury)  

Gillan, Mrs Cheryl (Chesham and Amersham) (Con) 

Godsiff, Mr Roger (Birmingham, Hall Green) (Lab) 

Hain, Mr Peter (Neath) (Lab) 

Hart, Simon (Carmarthen West and South Pembrokeshire) (Con) 

Harvey, Sir Nick (North Devon) (LD) 

Jones, Susan Elan (Clwyd South) (Lab) 

Lloyd, Stephen (Eastbourne) (LD) 

Love, Mr Andrew (Edmonton) (Lab/Co-op) 

McKinnell, Catherine (Newcastle upon Tyne North) (Lab) 

Morris, Grahame M. (Easington) (Lab) 

Roy, Mr Frank (Motherwell and Wishaw) (Lab) 

Spencer, Mr Mark (Sherwood) (Con) 

Wilson, Sammy (East Antrim) (DUP) 

Liz Bolton, Committee Clerk

† attended the Committee

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Eighth Delegated Legislation Committee 

Wednesday 26 March 2014  

[John R obertson in the Chair] 

Draft Tax Credits (Late Appeals) Order 2014

2.30 pm 

The Exchequer Secretary to the Treasury (Mr David Gauke):  I beg to move, 

That the Committee has considered the draft Tax Credits (Late Appeals) Order 2014. 

The Chair:  With this is will be convenient to consider the draft Tax Credits, Child Benefit and Guardian’s Allowance Reviews and Appeals Order 2014. 

Mr Gauke:  It is a great pleasure to serve under your chairmanship this afternoon, Mr Robertson. I am grateful to the Committee for allowing us to debate the two orders together. I confirm that both orders are compatible with the European convention on human rights. 

The Tax Credits, Child Benefit and Guardian’s Allowance Reviews and Appeals Order 2014 introduces a new stage into the tax credit appeals process, to be called “mandatory reconsideration”. The change will ensure that the appeals process works as fairly, efficiently and transparently as possible and will improve the decision-making process. There are three reasons for that: first, to enable Her Majesty’s Revenue and Customs to resolve internally a greater number of disputes from claimants, to deliver a timely, proportionate and efficient outcome; secondly, to reduce demand on Her Majesty’s Courts and Tribunals Service, where an increase in the volume of appeals has led to longer waiting times for cases to be heard; and, thirdly, to align HMRC’s appeals process to that of the Department for Work and Pensions, because tax credits will be replaced by universal credit over a period of time and doing so will provide consistency. 

If a claimant disagrees with a decision, they have 30 days from the date of the decision notice to lodge an appeal with HMRC. There are rules for dealing with late appeals in exceptional circumstances, which I will come on to. HMRC reviews and considers the appeal and will try to reach a settlement with the claimant without recourse to the tribunal. Where appeals cannot be settled with the claimant, HMRC passes the case to the tribunal to decide. Under the proposed change, a new stage is introduced: when a claimant disputes a decision, they must ask HMRC to reconsider it—that is the mandatory reconsideration—before being able to lodge an appeal direct to the tribunal. 

The new approach is expected to increase the likelihood that in future a claimant’s decision to appeal will be based on their view of whether the reconsideration process has provided them with an adequate second opinion from HMRC, whether that is a clear justification for the original decision or a revised decision. It is expected that many claimants will decide that that process has satisfactorily resolved their disagreement and will see no reason to appeal. There is also a change

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to the way that an appeal is lodged. By contrast to the current system, where claimants appeal to HMRC following a reconsideration, claimants must appeal directly to the tribunal themselves. That is called “direct lodgement”. We believe that the changes will improve the decision-making process and provide timely, proportionate and more efficient outcomes for claimants. 

The Tax Credits (Late Appeals) Order 2014 makes a small but important change to section 38 of the Tax Credits Act 2002. It remedies a defect in the legislation to restore HMRC’s ability to accept certain late tax credit appeals and treat them as made in time. Therefore, an appeal made outside the statutory 30-day time limit, but within a further 12 months, may be accepted in exceptional circumstances—for example, where a claimant has been hospitalised or a dependant has died. That corrects an error identified by the upper tribunal in May last year, when ruling on an appeal in a tax credits case. 

Under current legislation, HMRC has no statutory powers to accept a late tax credits appeal. That is not Parliament’s original intention and is inconsistent with legislation relating to other appeals against HMRC decisions. Claimants who have a good reason for submitting an appeal late should not be stopped from doing so. The defect arose from changes that were made to appeals legislation in 2009, in the light of the establishment of new courts and enforcement tribunals. 

HMRC and the Ministry of Justice introduced changes to their appeals legislation as a consequence of the transfer of the functions of the former general and special tax appeal commissioners to the first-tier tribunal and the upper tribunal tax chambers. An unintended consequence of the interaction of these legislative changes was that the legislation allowing HMRC to accept late appeals lapsed. The defect that we are remedying today carries across to the tribunal rules: tribunals cannot hear appeals made after the 30-day limit either. 

The Tax Credits (Late Appeals) Order 2014 inserts provisions into the Tax Credits Act 2002 to restore HMRC’s power to accept late tax credit appeals in exceptional circumstances. Once this change has been enacted, the tribunal procedure committee will remedy its rules to ensure that its legislation works as intended. 

I should like to reassure hon. Members on two points that I suspect they might otherwise raise. First, we did not want claimants to be adversely affected by this lack of legal power, so HMRC has continued to accept late appeals through its care and management powers and judges have continued to decide on a case-by-case basis, but neither can do so indefinitely without this legislative remedy. 

Secondly, as mandatory reconsideration will effectively supersede the current appeals process, some Members may wonder why we are still choosing to fix late appeals legislation. Appeals to HMRC against decisions made before 6 April 2014 will be dealt with under the current system. Late appeals might be made against such decisions until May 2015. The law should enable deserving cases to be accepted. I am sure that hon. Members will agree that these two orders are needed. Once debated today, I hope that they will be passed, so that claimants who appeal against tax credit decisions in the UK will get an improved, efficient and proportionate decision-making process. I commend both orders to the Committee. 

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2.37 pm 

Catherine McKinnell (Newcastle upon Tyne North) (Lab):  It is a pleasure to serve under your chairmanship today, Mr Robertson. I thank the Minister for his very thorough explanation of the meaning and purpose of the orders. Like him, I will start with the Tax Credits, Child Benefit and Guardian’s Allowance Reviews and Appeals Order 2014. 

I know from my constituency postbag how stressful and drawn out many people currently find the appeal process for any form of benefit. Only recently, I dealt with quite a shocking case of a young ex-serviceman forced to rely on the local food bank for four weeks while he waited for his employment and support allowance and disability living allowance appeals to be upheld. How will HMRC ensure that its new mandatory consideration stage will not add any further complexity to the system? Will the onus be on the claimant to provide any additional information and at whose cost? 

When mandatory reconsideration for DWP benefits was considered by the House last year, concerns were raised that decision makers already had the power to revise a decision before the determination of an appeal—a power that was regularly and automatically used. It was not entirely clear why a new statutory and mandatory extra step was put in place in that process. Will the Minister therefore address those concerns in so far as they relate to HMRC’s current decision-making process? 

There is clearly a need to improve HMRC’s decision-making process. We can see from page 5 of the 2011 impact assessment that in 2009-10, 14.9% of tax credits appeals found in favour of the appellant and that 0.9% of child benefit appeals were granted. What are the most recent figures for tax credits and child benefit appeals? We have only the 2009-10 figures. What are the current figures for guardian’s allowance? We have not been provided with those figures at all. 

The order was due to come into force in April 2013, rather than next month, but I understand that it had to be postponed because of HMRC’s backlog of appeals. Will the Minister outline the current position on the backlog? Will he explain the steps that he is putting in place to ensure that HMRC makes the right decision the first time round, not only to save its own time and diminishing resources but to reduce the strain on people caught up in what can seem a labyrinthine and highly confusing decision-making process? That is clearly a challenging task, given that at the last count HMRC is due to lose 18,700 full-time equivalents—26% of its staff—between 2010 and 2016. Will the Minister explain how he will ensure that HMRC retains the right people who can make those decisions correctly the first time round? I seek more detail on the line in the explanatory memorandum that states: 

“HMRC is absorbing any costs involved.” 

What does the Minister anticipate that those costs will be, and what will be the impact of absorbing them on HMRC’s capacity to do its important job? 

I appreciate the Minister’s explanation of the Tax Credits (Late Appeals) Order 2014, but I understand that the defect in the 2009 legislation was discovered in May 2013. I appreciate the Government’s explanation that no claimants should have been disadvantaged as a result of how HMRC has handled of the situation to date, but will the Minister outline how many appeals have been dealt with since then and what the administrative

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burden of the process has been? Will he explain why it has taken until now for an order to rectify the situation to come before the House? 

2.41 pm 

Mrs Cheryl Gillan (Chesham and Amersham) (Con):  I congratulate the Minister on preparing both statutory instruments for the Committee. I have a couple of questions that stem from what he said and that are similar to those asked by the hon. Member for Newcastle upon Tyne North. 

I, too, should like to know how many non-opposed late appeals there have been in the Department of late. Relying on its management function in section 2 of the Tax Credits Act 2002 is an interesting way to deal with the issue. Given that it has been dealt with in that fashion for so long, I am not sure why it is being changed now or why it could not have been changed earlier. The explanatory memorandum states: 

“HMRC have not opposed late appeals of late”. 

But were there late appeals that it did oppose? Is there a class A and a class B of appeals? 

I am looking at the details of the Tax Credits, Child Benefit and Guardian’s Allowance Reviews and Appeals Order 2014, and I understand from the impact assessment that the many claimants are awaiting the outcome of the reconsideration, and, if necessary, the appeal. However, they will receive no, or reduced, payments while they wait for the outcome of their case to be determined. A disability living allowance claimant who is found to be ineligible for the benefit will not receive DLA payments while waiting for their reconsideration or appeal. Can the Minister put a scale on the number of people and the amount of money that we are taking about? Payment will be backdated if the decision is overturned in their favour, but can the Minister quantify that? It is anticipated that the reduction in the volume of appeals will contribute to efforts to reduce waiting times at appeal stage. Will the Minister let the Committee know what sort of proportion of reductions he is expecting? 

2.44 pm 

Mr Gauke:  I thank my right hon. Friend the Member for Chesham and Amersham and the hon. Member for Newcastle upon Tyne North for their contributions and questions. It is clear that the tax credit appeal process is important to many thousands of people across the country, so it is vital that we ensure that our system works as fairly, efficiently and transparently as possible. It is the Government’s view that mandatory consideration will aid that by improving the decision-making process. Our view is that disputes will be resolved as early as possible, and there will be more opportunities for HMRC to revise decisions where appropriate. There will be a reduced demand on the tribunal service and consistency with the DWP, as the appeals processes will be aligned. Under the current appeals system, we do not want claimants who have good cause to submit their appeals late to be prevented from doing so. 

I shall now turn to the questions and concerns that have been raised. The hon. Member for Newcastle upon Tyne North asked whether our proposal could result in additional complexity for tax credit complainants. We

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do not believe that it will result in extra complexity. Details of how to ask for a mandatory reconsideration will be covered in the mandatory reconsideration notice that will be sent to all claimants. That, I hope, will be clear to everyone for whom it might be relevant. 

On the current backlog and how long mandatory reconsideration will take, the current backlog of appeals will not make it harder for HMRC to meet the new time limits. Separate teams will carry out the appeals and mandatory reconsideration processes. One team will continue to work on appeals received against decisions made up to and including 5 April 2014, which will be dealt with under the current system. A second team will deal with appeals received against decisions made on or after 6 April 2014. Such appeals will be in respect of decisions that have already been subject to the mandatory reconsideration process. 

HMRC has already carried out a full review, including, where necessary, obtaining any new evidence. We therefore anticipate no difficulties in meeting the new time limits agreed with HMCTS. The time taken to complete a mandatory reconsideration will vary depending on the circumstances of the case, but the turnaround target is 42 days, the same as the current target for appeals. The claimant involved will be contacted once the process is complete. 

On the reduction in appeals to the tribunal in 2014-15, compared with 2013-14 under the current process—a point raised by my right hon. Friend the Member for Chesham and Amersham—HMRC will monitor the mandatory reconsideration process from 6 April 2014 for 12 months to find out the reduction in appeals to the tribunal. The estimate that HMRC’s operational teams have been working to—I stress that this is an estimate—is a reduction of 251 appeals for child benefit and 8,282 appeals for tax credits. 

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I reassure my right hon. Friend that overturned appeals will lead to backdated payments. Average tax credit awards vary, and the sums in dispute will do so, too, so it is difficult to provide further clarity on that. Nevertheless, I hope that she is reassured. 

I hope that it is helpful to the Committee if I state that HMRC received 30,000 tax credit appeals and about 3,500 child benefit appeals against its decisions in 2012-13, of which about 6,000 were referred on to the tribunal. I hope that that provides a little context. 

On why the late appeals defect has taken so long to put right, it is only fair to say, as I mentioned in my opening remarks, that it only came to light in May 2013, when an upper tribunal judge ruled on a tax credit appeal case. Of course, it is important that we ensure that we get the legislation right. As I also mentioned in my opening remarks, this has not been at the expense of tax credit claimants, because HMRC has been using its discretion since then. However, HMRC cannot continue to do that without some legislative backing, which is why we have introduced the order. I hope that those remarks will provide a little more clarity to the Committee and set out why we have introduced the orders. I hope that they will have the support of the entire Committee. 

Question put and agreed to.  

Resolved ,  

That the Committee has considered the draft Tax Credits (Late Appeals) Order 2014. 

Draft tax Credits, Child benefit and guardian’s allowance Reviews and Appeals order 2014

Resolved ,  

That the Committee has considered the draft Tax Credits, Child Benefit and Guardian’s Allowance Reviews and Appeals Order 2014.(Mr Gauke.)  

2.51 pm 

Committee rose.  

Prepared 27th March 2014