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Last Updated: Thursday, 17 April, 2003, 16:40 GMT 17:40 UK
More tax credit confusion ahead
Some people are still waiting for their payments
Confusion surrounding the new tax credits system could get worse, the Liberal Democrats have warned.

According to government figures, one million families will need their tax credits reassessed during the course of the year.

This is because this year's tax credits are based on income from the tax year which ended in April 2002.

In effect, this means some people who should theoretically qualify for the award may not be receiving the help they need, while others will be getting too much.

The Inland Revenue said the figures were nothing new, and it would "intervene and provide extra support" if someone's income had fallen.

Meanwhile, if a claimant's income had risen, "there is a buffer built in so that people do not start to lose tax credits straight away - the first 2,500 of an income rise is ignored for that year".


The calculation also means some people who were receiving Working Families Tax Credit - the old-style credit - may be getting much less.

One BBC News Online reader has written: "My working families tax credit was based on what I earn now, but the new tax credit is based on what I earned over a year ago.

"I have still not managed to get through to the helpline. I have received a payment in my bank account (but no indication where it came from) but it was 18 - my working families tax credit used to be 180."

Anne Redston, tax partner at Ernst & Young has concerns about how the reassessment system will work in practice.

"It may be appropriate for higher tax payers, but it is not for those who are on very low wages who have children to care for and who are trying to do their best.

"The system is too complicated, and too historic. What they need is a more simplistic system," she told BBC News Online.

Credit concerns

Since Tuesday, when BBC News Online highlighted problems with the credits, readers have been sending in their concerns.

Readers' gripes
Problems with the helpline
Non-processed claim forms
People who have received notifications, but have been sent new claim forms, as if they have not submitted a claim
Backlog in processing forms
Non-payment of awards
Computer system has difficulty processing double-barrelled names

Andy Phillips is one reader who is worried about a possible overpayment: "They sent me a form stating my and my wife's earnings were significantly less than they were and awarding me too much credit.

"If I had left this unchallenged I would be in debt to the government to quite some degree and so I sent it back immediately for re-evaluation to avoid overpayment," That was three months ago and he has not heard a thing.

In a statement, the Revenue said people should not worry unless their income rises by more than 2,500, as it will only adjust tax credits by the amount above that.

"That way we do not cut across the incentive for people to earn more or work more hours," the Revenue said in a statement.

The Revenue said it wanted to encourage people to tell it straightaway if they think their income for this tax year is expected to be different.

"We will then adjust their award so that they either get the extra money or don't get paid too much."

Code of practice due

If people have been overpaid tax credits, the Revenue said it would usually recover the overpayment by adjusting the tax credits for the following year.

It also sort to assure people that there would be safeguards on the amount collected so awards were not reduced too much.

A code of practice on overpayments will be published by the Revenue later this year.

John Whiting of Pricewaterhouse Coopers said basing the payments on the 2001 to 2002 tax year was understandable, but that it would mean many people would get the wrong figures.

The BBC's Evan Davis
"The new tax credits are quite complicated"

Six Forum: Tax Credits
17 Apr 03  |  Have Your Say
Tax credit delay infuriates parent
15 Apr 03  |  Business

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