TAX CREDITS OVERPAYMENTS

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TAX CREDITS OVERPAYMENTS
Robin Williamson Technical Director Low
Incomes Tax Reform Group www.litrg.org.uk
e-mail robin_at_radcliffe15.freeserve.co.uk Tel.
01732 779124
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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
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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

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• 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

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• 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

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• 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

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• 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)

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• 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)

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

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When will Revenue not seek recovery? Hardship Of
ficial 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
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• Possible remedies
• Formal complaint (COP1)
• Reference to Adjudicator
• Reference to Ombudsman via MP
• Judicial review

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• 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 )