£500m tax write-off claim denied

HM Revenue and Customs (HMRC) has denied another mistake with the tax credit system will cost it £500m.

Shadow chancellor George Osborne had claimed a decision to re-examine 160,000 overpayment cases had broken rules and led to the write-off.

But HMRC said the review would result in it repaying around £20m.

The mistake, first revealed in July, was made when HMRC officials failed to write to claimants to inform them their claims were being re-opened.

"HMRC should have notified recipients in writing at the time, that it was examining the award after finalisation, but did not do so in certain cases," Treasury Secretary Jane Kennedy said in a written ministerial statement at the end of July.

"No household who has their case reviewed as a result of this issue will have their tax credit award reduced," she added.

Claims re-opened

The error in trying to clawback some overpaid tax credits, for the years 2003/04 and 2004/05, arose because some Revenue officials broke their own rules.

All recipients will continue to get their current payments as normal HMRC

They should have written to the claimants, telling them that their tax credit awards for those years were being re-opened, even though they had already been finalised.

All the claimants affected by this mistake will now find that either their clawbacks are returned, or that potential clawbacks are written off.

But the HMRC said that reports suggesting that it would write off £500m were completely misleading.

"HMRC has written to all households concerned explaining they need take no action themselves," said a spokesman.

"All recipients will continue to get their current payments as normal, and new tax credit applications are unaffected," he added.