More families fall into debt with HMRC after tax credit overpayment soars.
According to recently released details, more families are in debt to HMRC due to a large increase in tax credit overpayments in 2013. The Independent newspaper discovered that debt collectors working on behalf of HMRC have targeted over 200,000 of Britain’s lowest earners after the mistake by the government department. Tax Credit overpayments should not affect a claim for a tax rebate through PAYE.
Though the number of families claiming tax credits fell between 2012 and 2013 from 5.6m to 4.6m thanks to altering the criteria for eligibility, the total amount owed back to the government due to overpayments dropped only marginally from £1.6bn to £1.5bn. In the financial year 2012-2013, it appears that around 27% of all tax credits paid out by HMRC were overpayments, increasing from 24% for tax year 2011-2012.
Chaminda Jayanetti of the False Economy organisation said: “The growing zeal with which HMRC is pursuing overpayments, often on spurious grounds, reflects a Government bent on hounding people whose crime is raising children or working in the low-paid jobs that our economy is based on.”
“The proportion of claims that have been hit with an overpayment has risen by a third in two years, taking this broken system back towards the chaos that greeted its birth. The Government’s plan to let HMRC raid people’s bank accounts should be viewed in this light.”
Citizens Advice Bureau has reported that people seeking help for debt acquired as purely because of overpaid tax credit has increased over the last year:
- 29,366 cases regarding debt from overpaid tax credits -an increase of 14% from the previous year
- 14,157 of these cases sought help in budgeting to repay money that they owed to HMRC. This was an increase of 19% from the previous tax year
Gillian Guy, the Chief Executive of CAB said: “For thousands of families, Whitehall calculations are leading to household debt. Tax credits are there to make sure people get a decent standard of income, but the sharp rise in debts from overpaid tax credits suggests this policy is having the opposite effect.
“Seeking to improve the accuracy of tax credit payments is sensible, but HMRC needs to tread carefully with its new powers to reclaim money directly from people’s bank accounts. HMRC has a poor track record in managing people’s data and dealing with overpayments.
“The safeguards put in place look sensible on paper but with such huge pressure on household budgets, it does not take much to push families into financial trouble and mistakes by HMRC will be harmful. As the economy recovers and welfare reforms are phased in, ministers and Government agencies must ensure people trying to make ends meet are supported through the upheaval.”
A spokeswoman for HMRC clarified: “As a result of policy changes which came into effect in April 2012, tax credits overpayments have reduced as a proportion of money paid out. Overpayments fell from £1.6bn (5.4 per cent) in 2011/12 to £1.5 billion (five per cent) in 2012/13, out of around £30bn a year paid to 4.5m families. The figures published today also reveal that the number of awards that are overpaid fell by 70,000, from 1.62 million in 2011/12 to 1.55m in 2012-13.
“If an overpayment occurs as a result of HMRC’s error, claimants do not need to repay the overpaid money. An overpayment only needs to be repaid if a claimant has failed to meet their responsibilities in telling HMRC of any changes of circumstance.”
“Where claimants have genuine difficulty in repaying an overpayment, we agree for them to pay in instalments through Time to Pay arrangements, and around two thirds of tax credits overpayments debt is currently being repaid in this way.”
