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Last Updated: Tuesday, 2 August 2005, 15:03 GMT 16:03 UK
Tax credit write-offs 'limited'
Little children
Tax credits are designed to help working families
People overpaid tax credits may still have to pay back the money, even when the overpayment was not their fault, the government has said.

The revelation came in a letter from Paymaster General Dawn Primarolo to Parliamentary Ombudsman Ann Abrahams.

In June, Ms Abrahams criticised tax credit errors and called for some overpayments to be written off.

But Ms Primarolo said write-offs would only occur if it was unreasonable for the claimant to spot the overpayment.

"The government believes that this reasonableness test, which mirrors long established HM Revenue & Customs (HMRC) tax practice, strikes the right balance between being fair to those claimants who have paid the incorrect amount and being fair to the taxpayer in general," Ms Primarolo's letter said.

Widespread overpayment

In June, a report into the tax credit system by Ms Abrahams identified widespread overpayment.

Simultaneously, a report from Citizens Advice found that one-third of tax credit claimants were overpaid and pushed into poverty when asked to repay.

A political row followed with Prime Minister Tony Blair apologising in parliament for mismanagement of the tax credit system.

Subsequently, Chancellor Gordon Brown said in cases where HMRC was to blame for a tax credit overpayment debts were to be written off.

Where tax credit overpayment has occurred the chancellor said that he wanted to "sort out the difficulties far more quickly than we've been able to do".

But in Dawn Primarolo's official response letter to Ms Abrahams report it was made clear that tax credit payments would only be written if the HMRC had made an error and "it was not reasonable for the claimant to have spotted the error".

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