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TAX CREDITS OVERPAYMENTS

This article explores the causes of tax credit overpayments and provides information on recovery methods and possible remedies. Contact the Low Incomes Tax Reform Group for assistance.

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TAX CREDITS OVERPAYMENTS

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  1. TAX CREDITS OVERPAYMENTS Robin Williamson Technical Director Low Incomes Tax Reform Group www.litrg.org.uk e-mail robin@radcliffe15.freeserve.co.uk Tel. 01732 779124

  2. The Low Incomes Tax Reform Group (LITRG) aims to help people on low incomes to cope with their tax and campaigns for a simpler and more accessible tax and benefits system. 12 Upper Belgrave Street London SW1X 8BB www.litrg.org.uk

  3. Causes of overpayments – 1 • Cycle of award/entitlement • Annual nature of tax credit system: • Payments in-year provisional in nature • Entitlement not known until final award

  4. Causes of overpayments – 2 • Calculation of entitlement at year-end • If current year income (CYI) less than previous year income (PYI), entitlement = CYI • Likely result, underpayment • If CYI greater than PYI by no more than £2,500, entitlement = PYI • If CYI greater than PYI by more than £2,500, entitlement = CYI less £2,500 • Likely result, overpayment

  5. Causes of overpayments – 3 • In-year increase of income by more than £2,500 • Eg Fergus & Deirdre (see handout) • NB spreading of increased total income figure over whole year • Deemed to accrue evenly day by day • Can result in overpayment for early part of year

  6. Causes of overpayments – 4 • Other causes • Claimant or Revenue error or delay • Adjustment of award following in-year examination or end-of-year enquiry • Provisional payments set too high • 42 days period of grace for employer to process through payroll

  7. RECOVERY OF OVERPAYMENTS • Possible methods: • In-year adjustment to reduce or eliminate end-of-year overpayment • (TCA 2002, s 28(5); COP26) • Direct recovery following year end • (TCA 2002, s 29(3); COP26) • Recovery by deduction from subsequent awards of tax credit • (TCA 2002, s 29(4); COP26)

  8. In-year adjustment in 2005-06 • Additional payments in hardship cases – o/p debt continues into future years • Year-end overpayment from 2004-05 • Collected from 2005-06 payments including additional payments (see handout)

  9. Direct recovery • Receivables Management Service (RMS) • Payment within 30 days • Revenue will agree to collect over 12 months (2003-4 and 2004-5) (COP26)

  10. When will Revenue not seek recovery? • Hardship • Official error • Two limbs • 1. Revenue or other departmental error, and claimant could reasonably think their award was right; • 2. Revenue delay (30 days or more) in acting on information, and claimant could reasonably think award was right

  11. Possible remedies • Formal complaint (COP1) • Reference to Adjudicator • Reference to Ombudsman via MP • Judicial review

  12. Couples • Jointly and severally liable (TCA 2002, s 28(4) • But Revenue may decide that each partner is to repay a specified proportion of the amount (COP26) • NB same sex couples wef 5 December 2005 (Civil Partnership Act 2004, Sch 24, para 144; SI 2005/828 )

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