Blunder over tax credit leaflet

A new leaflet will be published soon, says HMRC

A new leaflet explaining how tax credits work has been withdrawn by HM Revenue & Customs because of a mistake.

The HMRC leaflet, entitled "Why do overpayments happen?" was published on the Revenue's website last week.

It said a tax credit claimant who failed to report that their income had risen from £9,000 to £20,000 a year would be paid too much in tax credits.

But the leaflet failed to mention that someone's income can in fact rise by £25,000 before repayments are due.

"We agree that the example used on page 2 of this leaflet concerning income is misleading and we have arranged for this leaflet to be removed from our website," said an HMRC spokeswoman.

"We aim to have a revised version of the leaflet available for our customers soon," she added.

Income disregard

Since 2006, tax credit claimants have been able to earn an extra £25,000 a year before it affects their annual tax credit assessment.

Not even the people who are supposed to administer the system can fully understand it Robin Williamson, LITRG

This is known as the income disregard and is much higher than the previous limit of just £2,500.

This had contributed to the administrative chaos in the early years of the tax credits system, which saw millions of claimants being overpaid.

Claimants who had been overpaid then faced demands for the repayment of thousands of pounds each, plunging them into financial crisis.

In some cases HMRC staff had failed to calculate the tax credits correctly, even though the original information from the claimants was correct.

In other cases, claimants were not aware that they had to notify the Revenue that their incomes had risen above the disregard level, or did so late, thus running up an overpayment.

Complicated

Overpayments, which amounted to £7.3bn between 2003 and 2007, are still running at a level of £1bn a year, according to a recent report by MPs on the Public Accounts Committee.

Robin Williamson, of the Low Incomes Tax Reform Group (LITRG), said the publication of a mistaken leaflet showed that the tax credit system was still far too complicated.

"So often we see cases of advice from the HMRC helpline that show that not even the people who are supposed to administer the system can fully understand it," he said.

A spokeswoman for HMRC said the leaflet had been online for only two days before being taken down.

About 250 copies hade been printed and sent out to HMRC offices, however these will not be withdrawn.

"Although the examples could have been better the underlying message still holds - keep HMRC up to date with changes in circumstances and changes of income to help avoid an overpayment," she said.

A new leaflet, to be published by mid-June, will mention the income disregard.

An existing HMRC leaflet published in March 2008 - "What happens if we have paid you too much tax credit?" - explains how to avoid overpayments and how to challenge a demand for the return of any overpaid money.