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Letter from HM Treasury dated 29 July 2005
HM Treasury, 1 Horse Guards Road, London, SWIA 2HQ
Ann Abraham
Parliamentary & Health Services Ombudsman
Millbank Tower
Millbank
London
SW1P 4QP
29 July 2005
Dear Ann
When we met on 5 July I said that I would let you have my formal response to the recommendations you made in your report on tax credits. I can now let you have my initial comments on your recommendations, as follows:
1. Steps should be taken to ensure that tax credits staff who are in direct contact with customers recognise the situations where interim payments of tax credits may be appropriate, so that payments can be put in place promptly to prevent financial hardship.
5. Steps should be taken to ensure that all Revenue staff who have contact with tax credit customers are alert to the circumstances when Additional Tax Credit$ (ATCs) might be appropriate, so that they can invite an immediate claim.
HMRC's current guidance for staff tells them that, where a claimant is not receiving computer-generated payments, they may need to set up manual payments. A reminder was published on 14 June to advisers to follow this guidance. In addition, there has been work ongoing to enhance the guidance that Helpline advisers follow. This new guidance was available from the week commencing 25 July end I have asked HMRC to share that with you. A further reminder will then be issued to staff drawing their attention to the publication of the new guidance.
HMRC sent a reminder to staff regarding the availability of additional payments on 18 March, and plan a further reminder in w/c 25 July, so that it will prompt them to tell claimants about the availability of additional tax credits in cases where they could prevent financial hardship. HMRC are working on enhancing the guidance Helpline advisers follow, so that it will prompt them to tell claimants about the availability of additional tax credits payments where they could prevent financial hardship.
2. The Revenue, having taken steps to ensure that future payments of tax credits properly take account of current circumstances, should not seek to recover either an excess payment made in the current year, or an overpayment from the previous year, until it has come to a decision, based on all the relevant facts, as to whether or not the excess amount paid should be recovered in accordance with Code of Practice 26.
HMRC are working on how to suspend the recovery of overpayments in disputed cases while they consider whether there is a good reason not to pursue recovery. They are looking to put these arrangements in place at the earliest opportunity for both new cases and those where an overpayment has already been disputed.
3. As a minimum, on the 'payments page' of an award notice, customers should be alerted to the fact that recovery of an overpayment (in-year or at the year end) of tax credits can be challenged if the overpayment was due to official error and in circumstances where a customer reasonably thought they were being paid the correct amount. That note should also draw customers' attention to COP 26 and the fact that, if they want to dispute an overpayment, they need to complete form TC846.
In cases where a claimant has an overpayment, the award notice shows the amount and how it will be recovered and the accompanying guidance notes tell claimants that HMRC's approach to overpayments is outlined in Code of Practice 26. HMRC send a copy of COP 26 to claimants who write to them about an overpayment, or contact the Helpline or call in at an Inquiry centre. It is also available on line. Claimants who wish to dispute an overpayment do not have to complete from TC846, but HMRC will send them one if they have not already provided the information they need to consider the position.
HMRC are already looking at options for improving the information they give to claimants about overpayments and will include the items you recommend.
4. Where it is decided that an excess payment in-year is recoverable in accordance with COP 26, recovery should be at the same rate as those for previous year overpayments.
COP 26 already gives families protection through the gUidance on hardship and the availability of additional payments to avoid hardship. However, a balance has to be struck between trying to avoid overpayments at the end of the year whilst ensuring that an inyear adjustment does not push families into hardship.
6. Where in-year recovery of excess tax credits is justified, the Revenue should take steps to pay ATCs automatically to families in receipt of Income Support and Income-based Jobseeker's Allowance.
HMRC can and do make additional payments wherever claimants advise them that a reduction in their tax credits payments is causing them hardship. HMRC will consider how they might raise claimants' awareness of the availability of additional payments. HMRC cannot automatically make additional payments to all IS/JSA recipients without a change to the computer system which would take time to introduce. Meanwhile, they will ensure that guidance to Helpline staff tells them to offer additional payments to this group of claimants.
7. Details of the availability of ATCs should be printed prominently on the 'payments' page of an award notice (where details of in-year recovery also appear); and the issue of financial hardship (and how the Revenue can help) be given greater prominence in the guidance notes which accompany an award notice.
In my written statement on 26 May, I announced that there would be a review of the effectiveness of the information claimants receive and this will build on ongoing work with the Tax Credits Consultation Group. This recommendation will be considered in that review,
8. Customers who have been paid too much in tax credits, whether identified during the year or at year-end, should be sent a letter outlining:
- The total amount they owe;
- The reasons why the overpayment or excess payment in-year occurred and the date or dates when it happened; and
- The repayment arrangements which will apply in their case.
The letter should enclose a copy of COP 26 and draw particular attention to the circumstances when recovery can be waived and the availability of ATCs in cases of hardship.
HMRC are looking at options for improving the information they give to claimants about overpayment and will consider the feasibility of your recommendation in this context.
9. Whenever a Revenue mistake or error is identified which has led to too much in tax credits being paid, the customer should be immediately notified of exactly what has happened and informed of the circumstances when recovery can be waived.
After claimants notify HMRC of a change in their circumstances, HMRC send them a revised award notice. Where there is an overpayment, the amount and how it will be recovered are on the notice. The accompanying guidance notes tell claimants that HMRC's approach to overpayments is outlined in COP 26. As I have already said, HMRC send a copy of COP 26 to claimants who contact them about an overpayment. HMRC will whether there is more than can be done in the context of the options they are looking at to improve the information they give claimants about overpayments. [sic]
10. Consideration should be given to writing off all excess and overpayments caused by official error which occurred during 2003-04 and 2004.
HMRC has to balance their duty of care to all their customers with regard to the public purse. Current policy is for overpayments to be written off where there was a mistake by HMRC and it was not reasonable for the claimant to have spotted the error. The Government believes that this 'reasonableness' test, which mirrors long established HMRC tax practice, strikes the right between being fair to those claimants who have been paid the incorrect amount and being fair to the taxpayer in general.[sic]
11. Consideration should be given to the adoption of a statutory test for recovery of excess payments and overpayments of tax credits, consistent with the test that is currently applied to social security benefits, with a right of appeal to an independent tribunal.
The scope for adopting a statutory test will be considered as part of HMRC's review of COP 26.
12. The Revenue should consider the way it organises delivery of tax credits in order to deliver a better, more complete service to the customers it now serves. A different model is needed in complex cases and where something has gone wrong. More sustained and informed communication with customers about their case is essential, as is a 'whole case' approach to investigation to ensure a tax credits award is correct.
In my written statement on 26 May I announced measures that I have agreed with David Varney, the Chairman of HMRC, to improve the administration of tax credits.
HMRC have already put in p1ace arrangements for calls that cannot be resolved by the Helpline to be referred to a "back office" at the Tax Credit Office. The team at this office call the customer back within 36 hours. If it is not possible to resolve the customer's query within that time, the customer will receive a call back informing them of progress and will be provided with regular updates if the query cannot be resolved quickly.
Since we met, I have also spoken to Dame Barbara Mills about the recommendations on tax credits in her recent report, and we have agreed that HMRC will work with the Adjudicator's office on improvements in the service they offer to tax credits claimants. Some of these will overlap with your recommendations. You will also have seen that Des Browne announced during the debate on tax credits on 12 July that the transfer of the remaining Income Support and Jobseeker's Allowance cases to tax credits would be deferred to 2006.
I look forward to working closely with you in the coming months.
Yours ever
Dawn
DAWN PRIMAROLO MP
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