By Richard Johnstone | 2 June 2014
There has been a 14% rise in the number of people who are facing debt problems as a result of paying back tax credits that were overpaid, Citizens Advice has said. However, the government insisted the total level of errors was falling
According to figures published by the charity on Friday, it dealt with 29,366 problems relating to debts from overpaid Child and Working Tax Credits in 2013/14. In almost half (14,157) of these cases, people experienced problems budgeting effectively to repay the money owed to Revenue & Customs, an increase of 14% compared to the previous year.
These debts arise when HMRC over-estimates a person’s entitlement to financial support, which mean it has to recoup overpayments.
Citizens Advice chief executive Gillian Guy said that 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.’
Guy added that, given the figures, HMRC must tread carefully if it is given the power to recover taxes directly from taxpayers’ bank accounts. The proposal has already been criticised by the Treasury select committee of MPs, who said a lack of independent oversight made the proposal, contained in March’s Budget, ‘wholly unacceptable’.
HMRC has a poor track record in managing people’s data and dealing with overpayments, Guy said. ‘The safeguards put in place [for the reclaim system] 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.’
However, publishing the latest figures on tax credits overpayments on Friday, HMRC said the total fell from £1.6bn, or 5.4% of the total, in 2011/12 to £1.5bn, or 5%, in 2012/13.
The number of cases of overpayment fell by 70,000 over the year, it added, to 1.55 million.
As tax credits are responsive to changes in claimant circumstances, they can go up or down in a year, meaning there can be overpayment or underpayment. Many overpayments result from people failing to tell HMRC about a change of circumstances or giving incorrect information, its statement said.
‘HMRC understands the needs of vulnerable customers and we offer help and advice online, on the phone, and in person for those who need it. We also work closely with debtor representative groups to understand the problems and needs of vulnerable customers.
‘Where customers 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.’
