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Last Updated: Tuesday, 25 April 2006, 14:56 GMT 15:56 UK
Tax credits still being overpaid
Tax credit overpayments could again be 2.2bn
The government has admitted it has massively overpaid tax credits to families for the second year in a row.

The Commons Public Accounts Committee estimates that in 2004-05 Revenue & Customs (HMRC) overpaid claimants by 2.2bn, the same amount as in 2003-04.

The MPs also say problems continue to plague the working of the HMRC tax credit computer system.

Hundreds of readers have contacted the BBC with stories of tax credit overpayment and administrative errors.

'Gigantic' overpayment

HMRC said changes to the tax credits systems would help cut future overpayments by one-third.

But a government spokesman admitted that "we expect the total level for the second year to be similar" to the first year in which tax credits started to be paid.

Their systems are obviously struggling and making mistakes
Suzy Grell

The Public Accounts Committee's report says it is deplorable for hundreds of thousands of families to have to find the money for repayments.

"An element of overpayment to claimants was an inherent part of the design of the tax credits system," said the committee's chairman Edward Leigh.

"What came out of the blue for the government was that overpayment would routinely occur on such a gigantic scale - an estimated 2.2bn for 2003-04 and probably again for 2004-05.

"Doubts about HMRC's controls over fraud were certainly not lessened when evidence emerged late last year of a serious assault on the system by organised criminals."

Suzy Grell, from Tadworth in Surrey, contacted the BBC with details of the problems she's encountered.

"I received a letter about an overpayment for 2004 for over 500.

"I've been trying to sort it out but recently received another letter for the same period stating that I have been overpaid by over 5,000.

"Their systems are obviously struggling and making mistakes and we have to suffer the stress of not knowing how much we owe them or even if we owe them at all," Ms Grell wrote.

The government has previously admitted that about 1bn of the overspend will not be recovered from the first two years of operation of the system.

Computer problems

In the last pre-Budget report, Chancellor Gordon Brown announced plans to make things easier for claimants by simplifying the system.

From now on claimants will only have their tax credits adjusted during the year if their total household income increases by more than 25,000, rather than the 2,500 limit that operated before.

But Mr Leigh said it was too early to tell if this and other measures would be successful in limiting the scope for overpayments and recovery claims.

The committee's report also returned to the first problem publicly identified with tax credits - failures with the specially designed computer system.

Although the contractor responsible for supplying it, EDS, has agreed to refund the HMRC with 70m in compensation, the Public Accounts Committee cast doubt on the probity of the settlement.

It pointed out that 26.5m would not in fact be paid unless EDS won further government contracts.

Mr Leigh described this as "an invidious position".

A spokesman for HMRC said the government continued to believe a "flexible and responsive" system, with the level of award designed to match a family's needs and change as their circumstances did, was preferable to fixed awards.

He said by increasing to 25,000 the amount a family's income can rise in the year before they lose any tax credits, future overpayments would be cut by around one-third.

"As a result there is greater certainty for families who experience changes in their income," he said.

However, this change will not have any effect on past overpayments, as it has only come into effect in the current financial year - the fourth in which the tax credit system has operated.

One family's struggle to repay tax credits

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