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The Maternity Leave Trap

Please read this if you have been overpaid tax credits and have been on maternity leave at any time since 2001.
In summary: for the purpose of tax credits HMRC give you a little "tax break" of 100 pounds per week that as a mum on Statutory Maternity Pay (see the "Income Details" notes in the TC600 Notes).  This is great, in theory, but they request information on this at the wrong time and in the wrong way, which virtually guarantees wrong payment and overpayment of tax credits (because tax credits are only provisional payments based on last year's circumstances but then corrected at the end of the year based on actual income).

If you've been on maternity leave and been overpaid tax credits then this could well be one of the causes, and HMRC are at fault.  They hadn't spotted it until we pointed it out to them on our visit 12th June 2007, but HMRC agree it's problematic and I reckon you should argue HMRC error for any overpayment you've experienced as a result of what I'm calling the "maternity leave trap".  It's so complicated, and even HMRC hadn't thought about it, so it's very reasonable for you to believe that your money was right.

Here's a very basic example:
            Your income for the last tax year  20,000
            Minus 26 x 100 for SMP that year 17,400

So your Tax credits for the next year is calculated on 7,400 pounds even though your income for the year ahead is likely to be 20,000 pounds or higher if you've returned to work.  So you'll be overpaid tax credits. This was much worse in the early years of tax credits as people were asked for income figures for 2001-2002, including the maternity leave deductions, even though it was physically impossible to be on the same maternity leave when tax credits started in April 2003.  And the unworkable salary disregard of just 2,500 pounds meant that the maternity deductions could take you over this limit before any changes to your salary.  Add in that HMRC took ages to update salary information (it took 9 months on our case, despite repeated requests) and you've got stacks of overpayments through no fault of your own.

If your maternity leave overlaps the tax years, or you return to work on fewer hours or less pay then the overpayment should be less, or balance itself out over the year, or might even lead to underpayment (I think, yet to test in practice).  And the new, more realistic, income disregard of 25,000 pounds should help folk avoid overpayments (again, yet to test in practice). However, the point remains that basing tax credits payments on old information, and not clearly explaining in any literature the implications (i.e. overpayments risks) of this is just one symptom of a poorly set up system. Don't put up with it.



Tax Credit Casualties (TCC) is a voluntary, unfunded, not for profit organisation run by members for members. We cannot take any responsibility for decisions made by HMRC, The Parliamentary Ombudsman, The Adjudicator, or any other organisation, regarding claimants cases. We offer free advice on how to dispute unfair overpayments based on our own experiences, the experiences of other claimants and HMRC guidelines.
Please note that we are not tax professionals and are working on a voluntary basis, unpaid, in our ‘free time’. Between us, we have a lot of experience and knowledge in this area, gained over the last few years of supporting victims and helping them fight for justice and their rights. Legislation, operating practices and individual cases change all the time, and while we aim to be professional and accurate at all times, please understand the circumstances we are working under and accept our support, guidance and information in the sprit it is offered; goodwill and camaraderie.

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TCC was established to provide advice and guidance on disputing recovery of non-fraud tax credit overpayments and to lobby for fundamental change on the inbuilt flaws and inequalities of the tax credit system. Whilst TCC provide guidance and information on how to handle disputes and even provide an advocacy service in some instances, neither TCC as an organisation not any participating members are responsible or liable for outcomes of disputes which remain wholly the remit of HMRC, the Adjudicator and/or the Parliamentary Ombudsman, as appropriate and dependent on the stage of dispute. TCC operate in a professional manner and endeavour to give accurate and appropriate advice based on information provided by members. TCC endeavour to respond to members as quickly and efficiently as possible, given the voluntary nature of the organisation and limited resources available. TCC is an inclusive organisation and will treat all members in a fair and equitable manner.

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