Tax credit changes welcome but overpayments still need addressing

David Harker, Chief Executive of Citizens Advice:

"We are pleased with the increases in Child benefit and the commitment to continue to raise the child element of Child Tax Credit above earnings, and measures to help reduce overpayments, but urgent change is still needed to help the thousands of families experiencing huge problems with the system.”
"We welcome the introduction of a 4 week run-on entitlement to Working Tax Credit for people whose hours drop below 16 as a way of reducing the number of overpayments for people who move in and out of work. However, families still find themselves struggling to repay large overpayments without receiving proper explanations of how they have arisen, and without being given notice before recovery starts.

"Thousands of families are also being threatened with court action for the recovery of overpayments about which they are still challenging or awaiting explanation, sometimes not even knowing yet the amount due.

"Additional money will only make a difference if there are improvements to tax credit administration, specifically the handling of overpayments. Our evidence shows that some eligible families who have had problems are now reluctant to claim what they are entitled to.”

In the last financial year (2005/2006) Citizens Advice Bureaux dealt with more than 150,000 problems relating to working and child tax credits. In addition bureaux dealt with an additional 10,000 problems relating to debt as a result of overpayments of working and child tax credits.

Case studies

In February 2007 a woman received notices warning that legal action would be taken to recover an overpayment that she had been trying to resolve for a couple of years. She had also been told that the 2004/05 overpayment would be recovered by stopping all further payments until it was all recovered. At the beginning of the 2006/07 tax year she was told that she still had an overpayment and had trying to get more details ever since. She had all the relevant paperwork but could not get any explanation of the overpayment. She found the legal warnings very distressing and was very frustrated by the fact that different sections of the Tax credit office did not hold all the same information.

A woman received a letter from HMRC advising that her £500 overpayment would not be recovered as it had arisen from an official error. She has now received a letter threatening recovery of the overpayment through court action. The tax credit helpline advised that the computer now had the overpayment down as recoverable and she would need to send them a copy of her original letter. She was very worried by the threat of court action, particularly over a matter she thought had been resolved a couple of years ago. This was made worse by the fact that the letter referred to Sheriff’s courts – and these only exist in Scotland.