|
|
Tax Credit Briefing 2 Recovery of overpayments
The
recovery of overpayments is a major issue for advisers and claimants alike. This
briefing covers the law on overpayments and arrangements for recovery, Her
Majesty’s Revenue and Customs (HMRC) policy on when and how such
overpayments can be recovered, details of how an overpayment can be challenged
or written off and useful tips for advisers in getting redress elsewhere. Throughout the document, the term claimant refers to an individual claimant if the application is made by a single person or lone parent or to both partners in a couple as couples need to make joint claims for tax credits. Year refers to a tax year, ie 6 April to 5 April. 1.
Background
Decisions
and awards made on claims for tax credits are provisional and will be subject to
final decisions made through an annual review process after the end of the tax
year (for further details see Briefing 1 Annual Review and Renewal). 1.1
Decision making process The
decision making process for tax credits in summary is as follows.
Where
a claimant’s entitlement is less than the amount of tax credit actually paid,
there will be an overpayment. 1.2
Causes of overpayments An
overpayment may arise where a claimant has not given HMRC correct information at
the time of claim or has failed to let HMRC know before the annual review that
there have been changes to her/ his circumstances.
Overpayments also arise because HMRC has made a mistake in recording
correct information. It is important
for claimants to carefully check award notices.
This is because if a mistake is recorded on an award notice, the claimant
has the responsibility to notice this and to let HMRC know that there has been a
mistake. The
following changes of circumstances must be notified to HMRC within one month of
the change or the claimant’s knowledge of the change, whichever is later:
Failure
to notify the above changes may lead to HMRC imposing a penalty on the claimant
where tax credits are overpaid. The
following changes may be notified during the tax year or at annual renewal:
If the changes lead to an underpayment of tax credits, this can usually only be backdated for three months. It is therefore in a claimant’s interests to keep HMRC up to date. If the changes lead to an overpayment, it may be recovered.
Overpayments
are dealt with in Sections 28 and 29 of the Act.
In particular, Section 28 provides powers for dealing with likely
overpayments (ie, where it appears that if the existing in-year award continues
it will lead to an overpayment). In
such cases, HMRC can amend the award to reduce or eliminate the possible
overpayment. Where
an overpayment is identified after the end of the financial year, then it can be
recovered from future awards of tax credits or in other ways.
Section
29 sets out that HMRC must provide written notice to the claimant setting out
the amount of the overpayment. Section
38(1) of the Act lists the decisions which can be appealed and this does not
include decisions made under Section 28 or Section 29.
As a result, there is no right of appeal to an appeal tribunal against a
decision by HMRC to recover an overpayment.
Furthermore, unlike with social security benefits, there is no statutory
test for when an overpayment is to be recovered. Of
course, if the actual overpayment is disputed, for example where a claimant
believes HMRC has made a mistake about entitlement, then an appeal tribunal can
deal with this issue. For example,
where HMRC has raised an overpayment because it has made a decision that a
single claimant should have claimed as a member of a couple, an appeal can be
lodged against the decision that the claimant was a member of a couple and if
this succeeds there will be no overpayment.
In many cases, it will be necessary to get a full statement of reasons
for the overpayment from HMRC in order to decide if there are grounds for
appealing the decision. An appeal must be lodged within 30 days of the date on the written notice of a decision.
3.
HMRC policy: the Code of Practice HMRC’s
Code of Practice COP26 ‘What happens if we have paid you too much tax
credit?’ on overpayments and recovery was updated in January 2008.
It is available at www.hmrc.gov.uk. The
Code of Practice (the code) provides that overpayments will normally be
recovered. The ways of recovering an
overpayment are identified, namely:
Of
the two options, HMRC will normally prefer recovery through adjusting the level
of payment on a future award of tax credits. Where a claimant disputes the
overpayment by sending in form TC846 (see section 4 below: Writing off an
overpayment) recovery will be suspended until HMRC has investigated the matter
and reached a decision. A
notice to make direct payments will normally give a person 30 days to pay back
the overpayment. However, if a
person is facing hardship then HMRC will seek further details and may offer a
longer period up to twelve months. Regulation
12A of the Tax Credits (Payment by the Board) Regulations 2002 sets out that any
reduction on a future award will be subject to the following maximum amounts:
As
a couple normally make a tax credit claim jointly, HMRC can seek to recover any
overpayment against either member of the couple jointly liable for the
overpayment. Where a relationship has broken down, HMRC will look at all the circumstances of the case including the income and expenses of each partner and then decide how to recover the money owed. This can entail recovering all the money from one ex-partner or a proportion from each person.
The
code sets out two circumstances in which all or part of the overpayment will be
written off. These are where the
overpayment:
In order for an overpayment to be written off, a claimant needs to dispute the overpayment and ask for it to be reconsidered. This can be done through form TC846 which is available on-line or upon request from HMRC. Any recovery of the overpayment will be suspended while HMRC reconsiders its decision.
The
code of practice sets out when HMRC will and will not recover overpayments.
It sets out clearly what it sees as its responsibilities and the
responsibilities of claimants. It
gives guidance, set out below, on what will happen when either party has not met
its responsibilities. The
responsibilities of HMRC are that:
The
responsibilities of people claiming tax credits are that:
The
code of practice sets out what will happen if HMRC, the claimant or both do not
meet these responsibilities:
The
code of practice then sets out how to challenge the recovery of an overpayment. A
claimant can ask for an explanation of an overpayment over the phone or in
writing. If
the claimant does not agree that the overpayment should be recovered s/he can:
All
the facts and circumstances of a case will be taken into account before a
decision to write off all or part of an overpayment.
The code of practice says that an overpayment will only be written off
due to financial hardship in exceptional circumstances. The
current code does not set out what circumstances will be taken into account.
However, based on practical experience and the previous code, the
following factors are likely to be taken into account:
7.
In-year recovery and additional payments Where
a tax credit overpayment is discovered during the year, the award will be
adjusted to reduce entitlement and recover all or part of the overpayment by the
end of the financial year. Automatic limits are imposed on the extent to which
tax credit payments can be reduced to recover higher payments in the earlier
part of the year which could lead to an overpayment for the year as a whole.
These limits are the same as for recovery of end of year overpayments:
The
recovery of an overpayment by deducting from the current year’s award can lead
to hardship for some claimants. However, if the reduction in the award does
cause hardship, claimants can ask HMRC to make additional payments. These will
bring the award back nearer to the level they would have been at if the award
had not been adjusted. If
additional payments are made, when the award for the year is finalised, HMRC
will say there is an overpayment, and they will expect to recover it from the
award for the following year.
8.
Impact of overpayments on social security benefits For
Housing Benefit, if a claimant’s tax credits are reduced to recover an
overpayment then Housing Benefit entitlement is based on that reduced amount.
However, any additional payments made by HMRC count as income. Example David
and Siobhán are entitled to Child Tax Credit of £60 per week.
Following an overpayment, this has been adjusted to £40 a week with the
difference going to pay off an overpayment.
David has lost his job and is now claiming Incapacity Benefit and Housing
Benefit. In calculating his income
for Housing Benefit, only £40 will be taken into account (ie actual tax credit
awarded minus the deduction for the overpayment). For Income Support and Income-based Jobseeker’s Allowance, the rules are less clear. A decision, CIS 1064/2004 suggests that, as for Housing Benefit, the amount of tax credit to be taken into consideration for Income Support is the amount actually paid after the deduction for recovery of the overpayment or the payment of additional payments. 9.
Dealing with advice agencies HMRC
will deal with advice agencies and other organisations if written authority is
produced either on form TC64-8 or through a short signed letter.
Where a couple have jointly claimed then authorisation must be signed by
both partners. In the alternative,
information may be given to an adviser where it is clear the claimant (both
partners if a joint claiming couple) is with the adviser and consents to the
disclosure of information.
There
is no right of appeal to an appeal tribunal against a decision to recover an
overpayment (save where entitlement to tax credits is being disputed).
Where an adviser is unable to negotiate a satisfactory outcome through
the code of practice, there are four other options. First,
a complaint can be made to HMRC. A
complaint can be made to the Tax credits Complaints Manager by:
If
the complaint is in writing a person should put ‘Complaint’ at the top of
the letter, set out clearly the full name and address, national insurance number
and telephone number or e-mail and give the full details of the complaint. If
a person is not happy with the response s/he may ask HMRC to consider it again
at the Level 2 complaints stage. A
senior officer will look at the complaint again and give a final decision. Second,
if a person is still unhappy s/he may ask the Adjudicator to consider the
complaint. The adjudicator can deal
with complaints about:
For
more information about the Adjudicator, see code of practice ‘Putting things
right when we have made a mistake’ COP 1 and Adjudicator’s Office leaflet
(AO1) available from HMRC offices. Third,
a legal challenge to a recovery could be made through judicial review, for
example, on grounds that HMRC has exercised its discretion unlawfully or
unreasonably. Finally,
if the way a tax credit claim has been handled gives rise to maladministration,
a complaint can be made to the Office of the Parliamentary Commission for
Administration. The Northern Ireland Ombudsman does not have jurisdiction to
deal with complaints of HMRC maladministration. Normally, a claimant must have
exhausted HMRC complaints procedures including the adjudicator process before
the Ombudsman will deal with a complaint. A
complaint must be referred through an MP. Complaints
that may be considered include:
Postal correspondence
Tax Credit Office Preston PR1 0SB
Local enquiry centres
0845 302 1481 Antrim 12-14 Castle Street Antrim BT41 4JE Ballymena Kilpatrick House, 38-54
High Street Ballymena BT43 6DR Banbridge Bridgwater House, 25
Castlewellan Rd Banbridge T32 4AX Belfast Beaufort House, 31
Wellington Place Belfast BT1 6BH Coleraine Fern House, 1A Adelaide
Avenue Coleraine BT52 1AJ Craigavon Marlborough House, Central
Way Craigavon BT64 1AH Enniskillen Abbey House, Head Street Enniskillen BT74 7JL Lisburn Moira House, 121
Hillsborough Road Lisburn BT28 1LA Derry
Foyle House, Duncreggan
Road Londonderry BT48 0AA Newry Downshire House, 22
Merchants Quay Newry BT35 6HS Telephone helpline
0845 300 3900 0845 300 3909 (text phone) Welfare rights workers priority helpline
0845 300 3946 Website
Adjudicator’s office
Haymarket House 28 Haymarket London SW1Y 4SP Telephone
020 7930 2292 Website
Office of the Parliamentary Commissioner
for Administration
Millbank Tower, Millbank London SW1 4QP Telephone
0845 015 4033 E-mail
opca-enqu@ombudsman.org.uk Website
Belfast office
Law Centre (NI) 124 Donegall Street
Belfast BT1 2GY
Advice line: 028 9024
4401; 9.30 am-1.00 pm (Monday to Friday) Textphone: 028 9023 9938 Western Area office
Law Centre (NI) 9 Clarendon Street Derry BT48 7EP Advice line: 028 7126
2433; 9.30 am-1.00 pm (Monday to Friday) Website
©
Law Centre (NI) 2008 All rights reserved. No part of this publication may be reproduced, stored on any retrieval system or transmitted in any form by any means, including photocopying and recording, without the prior written permission of Law Centre (NI). |
|
|
