Processing errors

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3.1. As explained earlier (paragraph 2.16) the processing of tax credit applications is wholly IT based. Although the intention was thereby to create a more efficient processing service, the wholly automated system has been plagued with significant and extensive technical problems which have impeded performance.

3.2. The Revenue assured Parliament as long ago as December 2003 that the system was now stable and working well.[15] The Revenue’s Annual Report in October 2004 repeated these assurances.[16] The Minister told Parliament in February 2005, that ‘the system has been stable and performing very well in terms of availability and speed for well over a year.’[17] But the cases I have investigated lead me to the conclusion that such reassurances did not give a complete picture of what has been happening, and the devastating effects the IT problems have had on some individuals’ lives, in terms of stress, financial hardship and living with continuous uncertainty regarding their awards. It may only have been a minority of tax credit recipients who were affected in this way; but they amount to many tens of thousands of families.

3.3. Not all processing errors can be blamed on technical problems. For the Revenue, the introduction of tax credits meant new and complex rules, a new IT system and new, inexperienced staff. Early IT delays and computer problems led to greater volumes of contact between customers and the Revenue and the drafting in of some 7,000 staff from other parts of the Department to cope with the extra workloads. With all these factors, it is unsurprising that mistakes and oversights occurred, leading to inaccurate awards. Accuracy levels during the first year of new tax credits were poor, measuring 78.6%, against a target for processing accuracy of 90%.[18]

3.4. When the Revenue gets tax credits wrong, it can have significant consequences for people’s lives. It can lead to uncertainty and loss of confidence in tax credits, with people unsure whether they can trust the accuracy of award they are getting and therefore rely on the money as part of their household budget. It can plunge the family finances into crisis. There is also the sheer stress of having repeatedly to contact the Revenue to sort out the consequences - both getting mistakes rectified, and then, if overpaid, challenging the recovery of any overpayment which has resulted. One customer, whose Working Tax Credit was wrongly terminated and not re-started for three months wrote:

‘It has caused me financial difficulty for three months: rent, gas etc. Also the stress has caused me to have violent headaches and [become] very depressed. I have had to borrow money to pay my rent as the landlord was wanting rent and threatening me with eviction - at which point I broke down in the local tax office… It has caused me so much stress and depression.’

3.5. Another customer, who had given up her job to care for her severely disabled daughter wrote:

‘I am at my wit’s end. I have tried for over a year to ensure that the Revenue have the correct information. Each time I telephone, I speak to a different person. All confirm they will correct whatever error has been made and each time an award notice arrives it contains another error… I have provided [correct details] at least ten times… My life has been turned upside down over this past year… I am now told that I have been overpaid by over £5,000 and that I have to repay it from this year’s award… I have become ill through this worry.’

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Initial IT delays

3.6. The earliest problems in implementing new tax credits were documented by the House of Commons Public Accounts Committee in its report Inland Revenue: Tax Credits published in April 2004.[19] That report said that in the weeks leading up to the start of the new scheme, the planned testing periods for the new tax credits IT systems were cut significantly and that when they went live, the systems proved unstable - delaying initial tax credits payments. For several months, hundreds of thousands of families were left without the financial support they relied upon. The Revenue made arrangements for interim payments to be made by girocheque (‘manual payments’) at local offices. At the height of the difficulties there were 1.7 million attempts in a single day to contact the Revenue through its telephone contact centres.[20] The system was finally stabilised approximately four months after tax credits began.

Case study: Mrs C’s April 2003 tax credits award of around £43 per week was not paid due to ‘technical difficulties’. She made frequent calls to the Tax Credits Helpline to try and sort out the problem without success. Eventually she was offered emergency giro payments from her nearest Revenue office, some distance away. The loss of tax credits meant that she could not afford school dinners for her six year-old. She suffered from sleeplessness, anxiety and depression as the family’s financial difficulties grew, causing arguments and conflict in her marriage. On her second visit to the local Revenue office, she was wrongly advised that tax credits had not been paid because she had failed to sign and return her award notice - which she had done. She writes: ‘I was so distressed, helpless and didn’t know what to do next’. The computer problem was finally fixed, and tax credits began to be paid in June 2003. 

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Two major software problems

3.7. During the first year or so of tax credits, there were two major software problems which affected customers’ payments.

‘Contra’ cases

3.8. Some 455,000 households received incorrect payments when the National Tax Credits (NTC ) system failed to recognise that payments had already been made by the separate payment (PMF) system, resulting in duplicate payments being issued. As the Comptroller and Auditor General explained in his 2003-04 report, the Revenue decided to write-off overpayments of less than £300, thus relieving some 373,000 households of the burden of having to repay the money. In the remaining 82,000 or so households, who had been overpaid larger amounts, it did seek recovery.[21] In a further 23,000 cases, problems with the interface between the NCT and PMF systems caused households to be underpaid by a total of £8 million (later reimbursed).[22]

‘Incorrect Income’ cases

3.9. In early 2004-05 the Revenue identified an isolated system problem, which during 2003-04 and early 2004-05 caused 60,000 customers to be overpaid a total of around £45 million.[23] The problem affected couples. When a change of circumstances in one partner’s income was reported to the Revenue, the computer altered the second partner’s (unchanged) income to zero. In a few cases, people spotted the error for themselves very early on by careful reading of their award notices - where either the notice wrongly showed the second partner’s unchanged income as zero, or the notice wrongly omitted any mention of the second partner when listing the income taken into account. In other cases the error was picked up several months later by Helpline operators, when another change of circumstances was reported. However, in a considerable number of cases, the error only came to light in summer 2004, during the finalisation process for 2003-04 tax credits awards and renewal of 2004-05 awards - with the result that the couples concerned found themselves owing substantial sums in overpaid tax credits.

Case study: Mrs F, a married woman with two young children, rang the Tax Credits Helpline to report a reduction in her earnings and in her childcare costs. To her surprise, her tax credits award rose very substantially. When she received the award notice a week later, she realised that her husband’s earnings (which remained unchanged) had been input as £0.00. Throughout April, she tried 77 times to contact the Helpline by phone but was unable to get through. She therefore sent a recorded delivery letter, pointing out the error. This letter was not acted upon. Eventually, in September 2003, Mrs F succeeded in talking to a Helpline operator, who adjusted the award. Although the correct amount due was £64 per week, she was informed that she would only be paid £11.53 because she had been overpaid. This caused severe financial stress to the family because, with two children at nursery, it was impossible to make ends meet. The Revenue later apologised for their mistake.

3.10. Although from the Revenue’s point of view, these problems were successfully fixed over a year ago, for the customers affected the consequences have been long-lasting. The reduction in tax credit payments to recover the overpayment has caused major financial difficulties for families, affecting their ability to pay for childcare and household bills. It has caused immense stress. One woman, facing an overpayment of over £5,000, wrote:

‘… I amended my details to show my drop in [working] hours in May or June 2003. It seems the error, by a member of staff recording my details, was made at this point. No award nor amended award notice was ever received. I continually phoned to check they had all my details and I was always advised that everything was in order and I should await payment into my bank. Not understanding the tax credit calculation, even tax experts struggle to understand the calculation, I do not believe it reasonable to expect me to consider the possibility of overpayment.  Why would I accept an overpayment of such an amount to know that the next year of my and my family’s life would be subjected to the hardship and stress this has caused? I cannot buy sufficient food for my three young children, never mind my husband and myself. Not to mention the increasing credit card bills which are coming through the door. We are in the process of remortgaging our house to cover payments for credit card and loan repayments. My husband and I are at breaking point due to the pressure and stress…’

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Other identified IT problems and technical ‘glitches’

3.11. In addition to initial IT delays and the two major computer processing problems described above, the Revenue advised the Office of a range of other identified IT problems which had occurred.[24] The Revenue also acknowledge that ‘isolated difficulties’ sometimes occur when processing individual cases through the system or when handling changes of circumstances.[25] The complaints coming to us reveal a wide variety of technical problems or ‘glitches’ which, over the last two years, have affected a considerable number of customers. Indeed, it is difficult to do justice to the sheer range of problems which have affected customers’ awards. In many cases, technical problems were then compounded by human error.

3.12. The early months of tax credits saw delays in issuing award notices. Customers received payments into their bank accounts, but were unable to check these against a schedule indicating their entitlements.

Case study: Ms A told the Revenue that her wages had significantly increased in June 2003. She sent a reminder letter in early July, and in late July telephoned the Revenue to check again that her award had been altered, to take account of her income change, and also a change concerning her daughter. Ms A was told that the information was ‘in the system’ but it could take up to two months for an updated award notice to be sent to her. Ms A made a complaint at this point, and again complained at the end of August, that the delay in issuing an award notice was causing her financial difficulties. In particular, the lack of an up to date award notice was preventing the local authority from determining her housing benefit, to help pay the rent. A revised award notice was finally issued on 9 September. The Revenue later admitted it could have processed Ms A’s change of circumstances and sent her an updated award notice sooner than it did.

3.13. There were also ‘scanning’ errors - where electronic scanning of information on application forms resulted in incorrect data being fed into the computer. In some cases, customers erroneously received extra tax credits on the basis of having a disability because they had ‘struck through’ the box relating to disability, and the computer thought they had completed it. In other cases, incomplete or wrong bank account details were recorded.

Case study: When Ms M’s claim for Child Tax Credit had been ‘captured’ (i.e. automatically scanned onto the computer system), some of the numbers required for her bank details had been omitted. In January 2003 the Revenue amended those bank details, but unfortunately the wrong sort code was used. It then amended the details again in February, this time correctly. However, due to a fault in the computer system any payments the Revenue tried to make via her account were rejected. Each time Ms M rang the Tax Credits Helpline, she was assured that her bank details were correct. This was because the technical problem preventing payment was not immediately apparent to Helpline advisers. For over a year, Ms M was dependent on irregular payments from the Revenue which on occasions she had to call and collect from her local Revenue office. She and her employer both complained about the stress, inconvenience and financial hardship she experienced as a result. Later, when the Revenue finally sorted out the technical problem, Ms M was sent duplicate payments which took no account of the payments she had already received. As a consequence, she was overpaid £1,017 and her tax credits subsequently reduced to recover the money.

3.14. We have also dealt with several cases where unrelated customers’ details have been mixed up in calculating an award. In such cases, the Revenue has found it hard to resolve the problem.

Case study: The tax credit claim of Ms Y and her partner Mr B was confused with another unrelated claim. The award notice showed Mr B and another man’s name. It took repeated calls to the Tax Credits Helpline to try to get the error corrected. Each time Ms Y was assured the problem would be dealt with; each time it wasn’t. She complained that every time she rang, she had to explain the problem all over again because the previous call had not been logged. Promises to call back were not kept.

The problem was eventually corrected, but when her provisional award was set for 2004-05, the computer picked up some of the details from the original incorrect claim. This led to an overpayment of £1,487.46 in June 2004. With some considerable difficulty, Ms Y arranged to pay the money back, but by mid-July was still waiting for her tax credits award to be reinstated. The Tax Credits Helpline adviser said she had no idea how long it would take for the payments computer to update the main tax credits computer system. Therefore it was impossible to say when Ms Y’s tax credits would be paid.

In August 2004 Ms Y’s partner’s employer was instructed to pay him Working Tax Credit to which he was not entitled. The Revenue admitted that it was unable to fix the technical problems on the claim, so they would ask a specialist team to monitor the claim for the future and provide regular updates until the problems were resolved.

3.15. There were also processing delays caused by IT problems, which meant that changes of circumstances, notified to the Revenue by customers were not processed for weeks if not months. This led to much confusion for customers in understanding their awards, and in some cases, errors going unspotted.

Case study: In June 2003 Ms W, a lone parent, rang the Tax Credits Helpline to say that she had changed jobs. She had increased her hours of work from 16 to 34, her income had increased, as had her childcare costs. She gave her new employer’s Revenue reference number, but upon checking the records, the Helpline adviser told her that was not the correct number. The adviser then made a mistake. Ms W’s increased childcare costs were recorded, but not her employment details. When the revised award notice was sent to Ms W in July, she rang to query why her new employment details were missing. She was told by the adviser that there was a change of circumstances waiting to be processed on the system, and that she should wait for her next award notice. The Helpline adviser could see, in the light of the information from Ms W that the award was wrong but, because of delays in processing, guessed (wrongly as it turned out) that details of Ms W’s employment were simply waiting in a queue to be processed.  

3.16. Although described by the Revenue as ‘isolated difficulties’, these technical glitches - mixed with staff mistakes - have had devastating consequences for the families affected. In some cases they have led to overpayments of tax credits; in others, to an award being halted altogether.

Case study: Miss P is a lone parent with a two year-old daughter. She applied for tax credits in August 2003 when she started part-time work. At that point, the Revenue incorrectly backdated Miss P’s award of Working Tax Credit by three months. A lump sum payment of tax credits of £2,213.86 was sent to Miss P. Shortly afterwards, the claim was amended. However, by mistake, the starting date of Miss P’s Child Tax Credit - which had correctly been backdated three months - was also brought forward to the same date as her Working Tax Credit. At this point, payment of tax credits ceased. For two months the TCO tried unsuccessfully to solve the problem on Miss P’s claim. During this period, Miss P rang the Tax Credit Helpline nine times to query the non-payment. No interim payments were offered to her. She was told that there was a problem and that steps were being taken to correct her award. It was only after the intervention of her MP in October 2003 that an interim payment of £741 was sent to Miss P.


3.17. The case of Ms Y (paragraph 3.14) is one of a number where errors crept in on renewal of an award for 2004-05, caused by the computer picking up wrong information. This caused significant inconvenience for those affected.

Case study: Owing to a technical problem, when calculating Ms B’s provisional tax credit payments at the start of 2004-05, the computer used details from an old version of her 2003-04 award. As a result, in April 2004 she was paid three amounts of Working Tax Credit, amounting to £360 - even though she had not been working since August 2003. Ms B rang the Helpline after the first payment to say she was not entitled to it. The Helpline adviser told her that she could put the money to one side if she wished - the provisional payments would be set against her Child Tax Credits later in the year. Although Ms B wanted to keep the money on one side, because she was in debt she ended up having to spend the money. Later, after the intervention of the Ombudsman, this overpayment was written off. 

3.18. In a number of cases we have investigated the Revenue has accepted that, due to a variety of errors on its part, it has wrongly reduced customers’ tax credits awards for many months to repay overpayments which turned out never to have existed. Errors include computer records wrongly showing tax credits having been paid through an employer which had not been paid; the identification of erroneously high overpayments; and technical problems on finalisation resulting in incorrect income details being entered.

Case study: Ms K, a lone parent with a teenage daughter, was advised in June 2004 that she owed £2,745.64 in overpaid tax credits. This was followed by ten award notices in two weeks, all saying she had been overpaid. Ms K telephoned the Tax Credits Helpline fifteen times, to be reassured by staff that she had not been overpaid. Meanwhile, her tax credits were substantially reduced by around £45 per week. By September, despite making a formal complaint as advised by Helpline staff, the deductions continued. Ms K wrote to her MP: ‘Although [tax credits] staff are helpful, agreeing with me that, in fact, there is no overpayment, I have still not received an answer. The Tax Credits Helpline have put my details into the computer and told me the payments I should have received but say that for some unknown reason the computer will not accept the data.’ She was told that, due to ‘ongoing technical problems they were unable to solve the problem for the foreseeable future.’ Finally, in November 2004, £956.26 was paid into her bank account for the balance of tax credits wrongly deducted. However, technical problems prevented the TCO from amending the system to show the correct payment information. Therefore Ms K was warned that further systems notifications might show an inaccurate overpayment figure, until the computer records could be updated with the correct information. The original error had been due to technical problems which had resulted in incorrect income details being recorded for the year 2003-04.

3.19. The NTC computer system has been designed so that, when the computer recalculates an award and assesses that there is likely to be an overpayment by the end of the tax year, it automatically triggers a reduction in future tax credits payments for the remainder of the year to claw back the likely overpayment by year-end. If an overpayment does exist at the finalisation stage at year-end, further reductions are triggered for the following year to collect the money, levied in these circumstances at rates which are related to a customer’s income. As the case above illustrates, major problems emerged in overriding this ‘trigger mechanism’ in order to halt the reduction in tax credits awards.

3.20. One customer found, on renewal of her tax credits award in 2004-05, that the computer again started to recover an overpayment which, it had been established in the previous year, was incorrect and had already been refunded to her. She wrote:

‘All over last year I was juggling my bills as they cut my money down from £8.27 to £3.24 a day, so I was getting behind with everything. Now, just as I have got things straight and managed to pay back what I had to borrow from family and friends, they are taking it off me again. This is getting to me, making me feel low all the time, making me stressed and causing me migraine all the time.’

3.21. A similar problem has arisen in cases where, following our intervention, the Revenue agreed to remit an overpayment on discretionary grounds in accordance with its Code of Practice. Despite the decision having been taken to remit the overpayment, some of the customers affected then found that the computer started again to recover the money.

Case study: A number of mistakes by the Revenue led to a large overpayment of Working Tax Credit to Mr T in 2003-04. Following the intervention of the Ombudsman, the overpayment was written off in February 2004. However, in April 2004, deductions from Mr T’s tax credit award recommenced to recover the same overpayment. Following further interventions from the Ombudsman’s office, Mr T was finally sent a girocheque in August 2004 by the Revenue to make up the money which was being deducted from his award between April and December 2004.

3.22. As in Mr T’s case, once alerted to the problem of erroneous recovery of overpayments, the Revenue will put in place manual payments (by girocheque) to compensate customers for the deductions being made. According to the Revenue, up until March 2005, around 2,400 cases were dealt with in this way.[26] The Revenue has since advised us that from March 2005, IT functionality has been increased so that an adjustment can now be made to customer accounts to take account of overpayments which have been written off.[27]

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Other processing errors

3.23. Not all errors are due to technical problems. In the cases I have seen, there also appears to have been human error involved. A worrying feature of a considerable number of the cases I have investigated, is that errors and oversights in amending awards did not occur just once but repeatedly, causing immense stress to those affected.

Case study: Mr and Mrs Q applied for tax credits in 2002. Before their award of Child Tax Credit became payable, they reported that Mrs Q had started a part-time job. In April 2003 the Revenue made three attempts to amend their records, however, each time they made a mistake. Although they made these changes on the same date, they sent out decision notices showing each change on different dates.

First they recorded Mrs Q’s hours, but not her earnings. Then they recorded Mrs Q’s earnings, but did not include Mr Q’s income. This resulted in the couple wrongly being awarded Working Tax Credit and an instruction being sent to Mr Q’s employer to arrange payment of Working Tax Credit with his wages. On the third attempt, the Revenue captured both earnings figures, but incorrectly applied an income increase disregard of £2,500 to the household income. This resulted in a third (wrong) calculation of tax credits, and the removal of Working Tax Credits wrongly awarded. However, the Revenue failed to inform Mr Q’s employer not to pay Working Tax Credits. To add to the confusion, the Revenue issued decisions notices relating to the original entitlement (i.e. before these three amendments) ten days later.

In July 2003 the Revenue again amended Mr and Mrs Q’s claim, to include both their income figures in full. However, they made a further mistake in not using the same year when noting both partners’ earnings. This led to an overpayment of Child Tax Credit.

After numerous telephone calls to try to sort out his claim, Mr and Mr Q made a complaint in August 2003 about the great worry and distress they were being caused by the uncertainty regarding their award. They strongly suspected they had been overpaid, and were unhappy that they could not properly manage their finances until they knew what their correct award should be. In fact, it was only in November 2003, that the Revenue finally instructed the employer to stop making payments of Working Tax Credit. In February 2004, following the intervention of the Ombudsman, the Revenue agreed to remit the overpayment of Working Tax Credit and Child Tax Credit, and to pay compensation of £230.

3.24. In some cases, there appears to be a confusion within the Revenue as to whether a particular problem has been caused by human error or a technical problem. We have seen a number of cases where a reported change in circumstance concerning the children in a household has led to the children being deleted completely from a tax credit award. Revenue officials say that this situation has been caused by unfamiliarity on the part of staff with the new tax credit system, leading to mistakes when updating customer accounts. For example, where a customer notifies an additional child in the household, by not following correct processes, they have inadvertently deleted all the existing children from the account. In the individual cases, customers have been told by Helpline advisers that a computer error has occurred. Whatever the correct explanation is, the families affected have suffered grave financial consequences as a result.

3.25. The problems are variously described. A couple writing in November 2004 said: ‘they (the Revenue) say they are having a problem with their computer and it keeps removing [a new baby] from the award… the Revenue have admitted it may take them several months to sort out the problem.’ A lone parent with a six year-old child living on Income Support found her Child Tax Credit claim terminated in November 2004 on the basis that she did not have a qualifying child. In mid-December a Helpline supervisor told her that there was a ‘technical error’, and her case would be sent to ‘Head Office’ to be fast-tracked and reinstated.

3.26. The families affected all felt very frustrated at their dealings with the Revenue as they struggled to get an explanation of what had gone wrong and the steps being taken to sort it out. One woman complained;

‘[It is causing me] severe stress level trying to sort this out and not being able to get through on the phone’. Another complained ‘Every time I phone the Helpline I am told they don’t know and there is no way of finding out. Eventually… I was given a number which is constantly engaged.’

3.27. All were experiencing financial hardship. The couple with a new baby were overdrawn at the bank and had been forced to pay basic bills by credit card. They had been turned down for a £500 Sure Start Maternity Grant because, although entitled, they could not show they were in receipt of Child Tax Credit. The lone parent with a six year old wrote in December 2004, ‘I’m expected to feed and clothe my six year-old and manage Christmas on £27 per week.’ By mid-February, when her complaint reached the Ombudsman, her situation remained unchanged. No tax credits had been paid apart from a one-off payment of £25. She was in arrears with her telephone and gas, was unable to pay her standing orders, and had reached her bank overdraft limit. Another couple were surviving on the wife’s sick pay of £65 per week. She had an imminent hospital appointment, which they were thinking of cancelling because they could not afford the bus fares to get there.

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Interim payments

3.28. Interim payments were introduced by the Revenue to deal with situations where the computer had failed to deliver, to ensure that customers did not suffer financially. Manual payments are made by girocheque, pending resolution of various technical problems preventing computer-generated payments. However, it is striking that none of the families described above, who were having difficulties in getting their Child Tax Credit paid, had been offered interim payments. These are not the only cases where interim payments have not been offered in situations which appeared to merit them. We are concerned that tax credits staff, particularly those on the Tax Credits Helpline, are not always quick to consider the implications for a family if tax credits have been disrupted for some reason. In the cases above, the hardship the families experienced seems fairly obvious. The fact that Revenue staff similarly do not appear to be identifying families in hardship who should be receiving ATCs is discussed later in this report.

3.29. Where families have been long term recipients of interim payments, there have been complaints that payments are not always reliable.

A lone parent - a student with a six year-old child - had been receiving girocheques for several months whilst technical problems with her Child Tax Credit were resolved. However, she complained that the payments were not reliable. She had to ring the office to remind them to send the payments. Girocheques had gone missing, and she had to report the problem before getting a replacement. This caused delay. By January 2005, she was owed nearly £200 in overdue payments. Her son had been hospitalised for three days, during which she had no money for phone calls or food. She was unable to pay her car insurance, and was ‘worried sick’ because she was unable to make her direct debit payment arrangements for utilities, and would therefore lose her discount. She wrote ‘There are times when all I can do is sit and cry because I do not know how we are going to eat and how we are going to get to school… I am totally bewildered and exhausted by the situation.’

3.30. Another lone parent complained that, not only were payments erratic, but her weekly tax credit payments had been changed to monthly payments without notice. As she budgeted weekly, this had caused her financial problems.

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Manual payments

3.31. Some 500,000 manual payments were made during 2003-04, and around 334,000 had been made in 2004-05 up until the end of February 2005.[28 Unfortunately, delayed reconciliation between the manual payments and computer-generated payments systems has meant that, as the various computer problems are resolved allowing tax credits awards to be determined and paid through the computer system, the belated awards, paid electronically into individuals’ bank accounts, do not take account of the manual payments made in the interim.

3.32. As a result, the families affected have received duplicate payments. This has been confusing for many people, who have already gone through a period of financial disruption. Once the manual payments are reconciled with the computer-generated payments, customers are notified that they have been overpaid, and find that their tax credits can be substantially reduced as the computer automatically instigates recovery action.

3.33. Since around December 2003, the Revenue has warned customers receiving manual payments that they will be paid twice once the computer-generated payments begin, and that the money will have to be repaid. However, this is a far from satisfactory arrangement. The effect can be that the customer has first suffered a disruption in payment; then they have received (in some cases irregular) manual payments; then an overpayment occurs; only to be followed by further deductions to their award to recover the overpayment. It can be difficult for customers to budget when their income fluctuates in such an unpredictable manner.

Case study: During 2004, Ms R, a lone parent, had been receiving manual payments worth £52 per week to compensate for the fact that the computer was wrongly deducting this amount from her tax credits award to recover a non-existent overpayment. The situation was far from satisfactory, with payments being made on a monthly basis although she budgeted weekly. In January 2005, a payment of £1,300 was made into Ms R’s bank account. This was as a result of the computer correcting its previous error. However, this payment did not take into account the manual payments Ms R had been receiving in the meantime. Ms R sought clarification from the Revenue as to the extent of the duplicate payment. She was advised that probably around £600 was money which belonged to her. When Ms R offered to repay the remainder, she was refused on the grounds that ‘it will cause further problems.’ Ms R contacted the Ombudsman’s office in desperation. On the one hand, she was reluctant to spend the money just received, because the Revenue was unable to confirm what amount was hers. On the other hand, she was finding it very hard to budget because of all the uncertainty. She had just received a mortgage offer, but it had now been withdrawn because her future guaranteed income was not clear. Ms R worked in the police service, and said the stress of the situation was beginning to affect her work.

3.34. The problem of lack of reconciliation between manual payments and later computer generated payments is obviously a technical one, which the Revenue is working to resolve. Nevertheless, whilst this technical problem continues, there are human consequences which should not be ignored.

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The way forward

3.35. It is not the task of the Ombudsman to investigate where the blame lies for any failures in the IT systems underpinning tax credits, although this is an important matter. Nor can it be doubted that the Revenue has tried hard to resolve the various technical problems as they have arisen. The initial large scale IT delays and major computer processing errors have not been repeated. The Revenue has also taken steps to mitigate the consequences for customers. It has introduced interim payments by girocheque to deal with situations where the computer has failed to deliver, and has set up a special team to handle cases on an ongoing basis where technical problems remain unresolved. System releases in April and June 2005 have been designed to improve the IT systems underpinning tax credits.

3.36. We are also pleased to note that the Revenue believes its accuracy rate is improving. Although processing accuracy figures for the year 2004-05 have yet to be published, we understand that the Revenue expects the figures to be considerably improved from last year, in line with its target of 90% accuracy for the processing and calculation of awards. In 2004 the Revenue set up a dedicated team to identify and resolve errors that were affecting processing accuracy. Internal guidance and procedures have been revised. Controlled testing of any new processing procedures has been introduced and a number of system problems identified by the checks have been rectified.[29]

3.37. In addition, it is reasonable to expect that, as staff become more familiar with both the new rules relating to tax credits and the new IT system generally, that fewer errors and omissions will occur. This is an area we intend to continue to monitor closely in the complaints being referred to me and we look forward to publication of the Revenue’s latest accuracy figures in its 2004-05 Annual Report.

3.38. However, from the cases we have seen, a number of observations can be made.

3.39. First, the highly automated system of processing claims combined with the lack of human oversight before payments are put in place appears to have contributed to the gross overpayments that have occurred. To an impartial observer, it is very surprising that systems were not in place to ‘throw up’ for human scrutiny such blatant errors and inconsistencies as:

  • Annual childcare costs of £2,704 recorded as the weekly amount;
  • A man recorded as working 42 hours but having zero income;
  • A man recorded as working 45 hours a week but with an annual income of only £1,491 (rather than the correct figure of £14,1910;
  • An award which takes the income and circumstances of two men (from two separate tax credit claims) and treats them as a couple for tax credit purposes;
  • A wife recorded as in receipt of income-based Jobseeker’s Allowance, when her husband is recorded as working full-time and in receipt of earnings.

3.40. It would save considerable anguish to customers, as well as substantial sums in overpaid tax credit, if some form of check could be devised to ensure that such irrational cases were subject to scrutiny before awards are put in place.

3.41. Secondly, whatever the efficiencies of the system in processing claims, it has proved poor in dealing with the consequences of processing errors.

  • The cases cited in this chapter show how long it took, in many instances, for Tax Credits Helpline operators to recognise that a technical problem was interfering with, or impeding, data processing on a case.
  • Errors were not always identified by Helpline operators, even where customers reported a problem (either the customer suspected they were being paid too much, or an award notice appeared wrong).
  • Even where the Helpline operators were able to explain that a technical problem had occurred, the case had to be referred to a specialist team within the TCO for remedial action. In the meantime, the system did not provide the operators with the information necessary to keep customers informed of progress in resolving the problem. Customers were being told by Helpline staff that they simply did not know what was happening. This led to deep dissatisfaction and distress.
  • Service has been patchy where the failure of IT has meant reliance on human intervention. Despite the existence of interim payments for customers whose tax credits have stopped due to computer error, it has often taken numerous phone calls and letters - and even the intervention of outside agencies - before staff have recognised that interim payments are needed to tide people over.

I recommend that steps be taken to ensure that tax credits staff who are in direct contact with customers recognise the situations where interim payments may be appropriate, so that payments can be put in place promptly to prevent financial hardship.

  • Manual payments are a ‘stop-gap’ solution by the Revenue to payment problems that arise. This non-automated service should not mean an inferior service. Every effort must be made to ensure that payments by girocheque are made promptly and reliably. It is disturbing that customers who receive manual payments due to a computer problem can end up having their finances further disrupted, when duplicate computer-generated payments are later made. This is a problem which I would suggest that the Revenue ought to resolve as a matter of urgency.
  • The IT system has been designed so that each alteration to an award automatically generates an award notice. Attempts to rectify errors often seem to lead to the generation of multiple inaccurate award notices, causing considerable anxiety and frustration on the part of customers. The Revenue appears to have made little effort to liaise with customers when remedial action was planned on a case, to warn them in advance that they might receive incorrect award notices which they should ignore. For example, in one case, the Revenue explained that the reason a customer had received several letters which contained incorrect details about an unrelated person was because ‘they were clearing incorrect awards from their records.’ Such a casual attitude to the sending out of wrong official information is unacceptable. More needs to be done to liaise actively with customers whose cases are being worked on, not only to avoid confusion but also to check if the remedial action has actually worked. More fundamentally, it may be that the Revenue needs to consider whether it is possible to prevent the automatic generation of notices which are known to be wrong, whilst attempts are made to fix a problem.

Footnotes

15 Chairman of the Inland Revenue in evidence to the House of Commons Public Accounts Committee 3/12/03, see Inland Revenue: Tax Credits, Public Accounts Committee, fourteenth report of Session 2003-04, HC 89, Ev 7, Q 61.

16 Annual Report and Accounts for the year ending 31 March 2004, Inland Revenue, HC 1062, The Stationary Office

17 Dawn Primarolo, Paymaster General, Hansard, 4/2/05

18 Inland Revenue Annual Report 2004, op. cit., page 29

19 Inland Revenue: Tax Credits, Public Accounts Committee, fourteenth report of Session 2003-04, HC 89, April 2004

20 Ibid, Ev 12, Q 98

21 Comptroller and Auditor General’s Standard Report 2003-04, para 2.10 in Inland Revenue Annual Report 2004 op. cit, page 124

22 Inland Revenue Annual Report 2004 op. cit, page 104

23 Revenue letter to the Parliamentary Ombudsman, 21/4/05, see Appendix C

24 Ibid

25 Ibid

26 Ibid

27 Ibid

28 Hansard, 16/12/2004, col 1236W and 22/3/2005, col 712W

29 Comptroller and Auditor General’s Standard Report 2003-04, para 2.19, in Inland Revenue Annual Report 2004 op. cit, page 126

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