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Last Updated: Wednesday, 23 August 2006, 08:36 GMT 09:36 UK
Revenue 'no' to tax credit write-offs
By Rachel Spring
Social affairs analyst, BBC News

A cashbox
The tax credit system has been dogged by overpayments

About two-thirds of families who have asked for tax credit overpayments to be written off because of administrative error have had their cases dismissed, the BBC has learned.

The main reason given for cases being dismissed is that claimants should have spotted HM Revenue & Customs (HMRC) errors.

Hundreds of thousands of families are now facing having to repay large sums, often thousands of pounds, in tax credits despite their pleas of innocence.

Experts believe that even fewer families will succeed in their appeals following rule changes earlier this year.

Child and working tax credits were introduced in 2003 and were designed to assist low-paid workers and families.

If the Revenue cannot spot its own mistakes, it is hardly reasonable for them to expect claimants to do so
Robin Williamson, Low Incomes Tax Reform Group

The government maintains that tax credits alleviate poverty and offer incentives to work.

Write-offs

Serious problems with IT and with the complexity of the system have produced large numbers of errors.

These problems led to overpayments and 609,000 people have disputed HMRC's attempts to claw back the money.

But since 2003, just 168,000 families have managed to get overpayments written-off by HMRC on the grounds of administrative error.

Figures released by the government last month showed that errors were responsible for more than a million overpayments in 2003-04.

"If the Revenue cannot spot its own mistakes, it is hardly reasonable for them to expect claimants to do so," Robin Williamson, technical director of the Low Incomes Tax Reform Group said.

"On the contrary, claimants are entitled to expect the Revenue to get these things right," Mr Williamson added.

Backlog

Under HMRC rules, in place between 2003 and 2005, overpayments were normally only written off if the individual could show that HMRC had made a mistake and that it was reasonable for them to have thought their payments were correct.

Improved performance of the tax credit system has meant fewer overpayments are caused by processing or software error
HMRC spokesperson

A backlog of hundreds of thousands of disputed overpayments built up and led to the introduction of "streamlined procedures" in May 2005.

Instead of investigating individual cases according to the usual rules, disputed overpayments were written off depending on the amount of paperwork received by the claimant.

This system allowed HMRC to clear the backlog.

However, this streamlined procedure has now come to an end and HMRC has reverted to its reasonableness test.

"Improved performance of the tax credit system has meant fewer overpayments are caused by processing or software error," an HMRC spokesperson said.

"Accuracy in processing and calculating awards has risen from 78.6% in 2003-04 to 98% in 2005-06."

But experts warn the rule changes could lead to a fresh backlog of tax credit overpayment cases and further frustration for claimants.

"It is undoubtedly harder to get a decision in your favour under the current application of the 'reasonableness test' than it was under the streamlined procedure," Mr Williamson said.

Since April, on average 30,000 people a month have complained about official errors, but in April, the last month for which figures are available, just 100 families had their tax credit overpayments written off.


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