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Updated March10
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Tax Credit Briefing 2 Recovery of overpayments
The recovery of overpayments is a major issue for advisers and claimants alike. This briefing covers:
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. BackgroundDecisions 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 processThe 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 overpaymentsAn 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. 2. The lawOverpayments 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. 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. 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 PracticeHMRC’s Code of Practice COP26 ‘What happens if we have paid you too much tax credit?’ on overpayments and recovery was updated in March 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. 4. Writing off an overpaymentThe 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. 5. Non-recovery: mistakesThe 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:
6. Non-recovery: hardshipAll 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 paymentsWhere 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 will expect to recover it from the award for the following year. 8. Impact 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 agenciesHMRC 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. 10. Other redressThere 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:
11. Useful addresses11.1 Her Majesty’s Revenue and CustomsPostal correspondenceTax Credit Office, Preston, PR1 0SB Local enquiry centresAntrim 12-14 Castle Street, Antrim, BT41 4JE Ballymena Kilpatrick House, 38-54 High Street, Ballymena, BT43 6DR Banbridge Bridgewater House, 25 Castlewellan Rd, Banbridge, BT32 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 helpline0845 300 3900 0845 300 3909 (text phone) Welfare rights workers priority helpline0845 300 3946 Website
11.2 AdjudicatorAdjudicator’s office8th Floor, Euston Tower, 286 Euston Road, London, NW1 3US Telephone020 7930 2292 Website
11.3 OmbudsmanOffice of the Parliamentary Commissioner for AdministrationMillbank Tower, Millbank, London, SW1 4QP Telephone0345 015 4033 phso.enquiries@ombudsman.org.uk Website
11.4 Law Centre (NI)Belfast office124 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 office9 Clarendon Street, Derry, BT48 7EP Advice line: 028 7126 2433; 9.30 am-1.00 pm (Monday to Friday) Website
© Law Centre (NI) June 2009 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). |
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