TCC Campaign Legal Points

Tax Credit Casualties believe the delivery of the Tax Credit system is unfair and unstable, and that the methods HMRC have used to recover alleged overpayments are at best appalling practice, and at worst illegal. As such, TCC are demanding an investigation into the following issues:

  1. On 14 November 2006, the European Court of Human Rights (ECHR) passed a judgement which referred to the fact that those arbitrating on a housing benefit case were in effect judging themselves. For reference, see this article from TimesOnline Law, Limit To Judicial Review Makes Tribunal Decision Unfair, and ECHR Judgment in Tsfayo v United Kingdom. Where Tax Credits are concerned, civil servants are effectively judging themselves, so if the ECHR can hold that this shouldn't be done in the case of housing benefit, then that judgement has implications for Tax Credits.

    Since April 2006, a new tribunal has been in place that sits between the HMRC internal appeals and the external ones (Ombudsman, Adjudicator, Court). This is part of the Social Security Commissioners jurisdiction, and is called The Tribunals Service. The following is their statement on what Tax Credit Cases they will handle:

    Decisions of Appeal Tribunals on Appeal From Decisions of HMRC.

    The Tax Credits Act 2002 created two new Tax Credits: the Child Tax Credit and the Working Tax Credit. Both are administered by HMRC. Decisions about either Tax Credit can be appealed to the appeals tribunals and, on errors of law only, to the Commissioners.

    There are rights of appeal about any decision awarding or refusing to award a Tax Credit, and about entitlement to a Tax Credit. But there is no separate right of appeal against a decision about the overpayment of a Tax Credit once award or entitlement has been decided.

    However, there is a right of appeal if HMRC decides to add interest to the amount of an overpayment or to impose a penalty in addition to a decision about an overpayment. The right of appeal on all decisions goes to the local appeal tribunal.

    There are rights of appeal on points of law only from the tribunal to the Commissioners. However, the right of appeal in relation to a penalty decision is not limited to errors of law only but is a full right of appeal to a Commissioner.

    The 2002 Act replaces the Tax Credits Act 1999 and the previous Working Families’ Tax Credit and Disabled Persons Tax Credit. Appeals relating to decisions about those credits also go to the appeals tribunals and Commissioners.

    Basically, what the above says is that they are the only right of appeal designed into the Tax Credit system and they only act in overpayment cases where penalties or costs have been added. Remember, also, that you can't appeal to either HMRC, The Adjudicator or The Parliamentary Ombudsman about an overpayment, you can only dispute an overpayment.

    This means that Dawn Primarolo, the Paymaster General at the time, was not telling the truth to Parliament when she gave this Ministerial Written Statement on 24 January 2007:

    " ... the Tax Credits Act 2002 provides for a right of appeal against a decision on entitlement, and therefore an opportunity to challenge the amount of any overpayment that has arisen, or the determination of a penalty or a decision that interest should be charged on an overpayment of tax credit. These appeals are to the Unified Appeals tribunals, which are independent and impartial to HMRC and therefore the provisions of article 6(1) ECHR (Right to a Fair Trial) are satisfied ".

    Firstly, " ... to challenge the amount of any overpayment that has arisen, or the determination of a penalty or a decision that interest should be charged on an overpayment of Tax Credit" are not the only disputes to be had about an overpayment bill. Therefore they have no provision for any but these disputes.

    Secondly, for example, the common overpayment argument that: "I should not be expected to know my award was wrong, when you did not" is neatly eliminated by the get-out clause in the Social Security Commissioners tribunal statement that " ... there is no separate right of appeal against a decision about the overpayment of a Tax Credit ... ".

    Therefore, Article 6 of the Human Rights Act is not satisfied.

  2. The Tax Credit Office apply penalties for alleged late payments, alleged overpayment, alleged non-disclosure of income (etc.) with no process of trial or appeal or investigation.

    Therefore, Article 7 of the Human Rights Act is not satisfied.

  3. Annullment of awards. The Tax Credit Office have the practice of annulling awards because they did not receive a claimant's end of year Annual Declaration. This means that the claimant is no longer eligible for the Tax Credit received and must pay back the whole year's award, often many thousands of pounds, as if it was an overpayment.

    Considering the fact that the TCO doesn't send mail by any form of recorded delivery, there is no proof that the claimant received the Annual Declaration in the first place. In fact, there's no proof that it was even sent from HMRC (think 'large print & mail runs' and 'paper jams'). There's also no allowance made for the fact that some 15 million letters are lost in the postal system each year, and the form could have been 'lost' in either direction.

    There's only the Tax Credit Office's word for it that they did not receive the Declaration, and they have not proved themselves very efficient at keeping, or even getting, a grip on things. The claimants are actually entitled to the award, but with no warning, or ‘chasing letters’ it is turned into a penalty applied with no process of trial or appeal or investigation.

    Therefore, both Articles 6 and 7 of the Human Rights Act are not satisfied.

  4. Judicial Review of the Tax Credit System and it's operation. Grounds for this would be Ultra Vires and that HMRC acted unreasonably and unfairly under the Wednesbury Principles, well documented in law books. Representative applications are allowed. The main grounds for Judicial Review are: illegality, irrationality, procedural impropriety, Human Rights Act Sections 6 and 7, and breach of EC law.

  5. Section 29 of the Tax Credits Act 2002 provides, inter alia, that a recoverable amount is to be treated for the purposes of Part 6 of the Taxes Management Act 1970 (C.9) " ... as if it were tax charged in an assessment ... ".

    That being so, is it not arguable that its recovery must be subject to the right of appeal provided for, very clearly, under the Taxes Management Act, notwithstanding the apparent absence of relevant appeal provisions in the Tax Credit Act?

  6. The claim forms applicants initially signed are legal documents, which have then been frequently and routinely changed without claimants consent or knowledge. These altered documents are then used to blame the claimant for the errors contained.

  7. The duplicity of the Tax Credits Office claiming compensation from Electronic Data Systems (EDS), the computer contractors responsible for the Tax Credit system, and claiming money back from us at the same time. Because of those very same computer errors! HMRC have admitted that there was a "technical problem" in the 2003-2004 awards, but in reality they still have some problems to this day.

    In 2005, EDS agreed to pay HMRC £71 million in compensation "for poor design and implementation of the Tax Credit [computer] System ... ", in installments of 4.5% of income from future government work over three years. However, in January 2009, EDS settled the matter with a one-off lump sum payment of £26.5 million to HMRC.

    There are a few points worth noting in all of this:

    The first is that originally there was talk of HMRC demanding £500 million in compensation from EDS, after the computer faults caused £1.9 billion in overpayments. HMRC settled for an agreed £71 million, and were eventually paid a paltry £26.5 million. Why were HMRC willing to accept such a small amount, in an out of court settlement? Because, if HMRC had taken EDS to court, the full extent of the faults with the Tax Credit Computer System would have been made public. HMRC didn't want that, because they wouldn't have been able to recoup, from honest claimants, the overpaid £1.9 billion.

    The second point is that, if HMRC v EDS had gone to court and the computer problems were made public, HMRC would not have been able to hide the fact that they still have problems with the system, and those problems still cause overpayments. So, every overpayment would then become suspect, and the blame would fall on the Tax Credit system instead of the poor, innocent claimant. Big losses for HMRC!

    The third point really backs up the argument that EDS had HMRC with their back to the wall. In 2008, a year before the final settlement, EDS was bought by Hewlett-Packard for approximately $13.9 billion. Hewlett-Packard and EDS, now rebranded as HP Enterprise Services, have a combined turnover of around $38 billion a year.

    HMRC settled for £26.5 million! The rest they're clawing back from innocent claimants.

  8. Corporate Negligence applies; because there is evidence of actual harm done to people and, also, that many of these problems could have been anticipated before the event - particularly as the government were not unaware of how the system was working [sic] in Australia.

  9. Harassment, threatening phone calls, visits, and letters have all been methods for trying to get people to pay their bills without disputing. Staff do not give out the information that disputes are possible, and frequently tell people that there is no appeal.

  10. Fast tracking and other temporary policies have been applied to limited numbers of cases over limited periods, to suit HMRCs purposes of clearing backlogs and to appear to be getting results. In some cases thresholds were applied, such as all cases under £300 being written off. This is neither consistently fair to different cases, nor application of consistent policy.

  11. Stephen Williams, the MP for Bristol West, has stated that they are performing systematic maladministration which contravenes the advice given by the Parliamentary Ombudsman.  He thinks that is likely that she would uphold a complaint of maladministration in each and every case as they resulted from official error and that the tax credit was recovered automatically without reviewing each case.

  12. The Tax Credit Office are routinely summoning and threatening people with court without even offering them the chance to dispute, or sometimes in the middle of a dispute. The Adjudicators Office states that this should not be their practice – and why are some being taken to County Court and others to Magistrates?

  13. The Tax Credit Office use the absence of recorded calls as ‘proof’ that claimants didn’t keep them informed of circumstance, although we now have a written admission that not all calls were taped! How can they still continue to use the absence of evidence as evidence?

  14. Where some claimants have had the good luck after much hard work to succeed in fighting their disputes, many of them have shown the flaws of the system. For example, Tax Credit Office claims of no calls from a claimant regarding changes of income, when they actually had taped copies of the calls (e.g. Alan Willis). These are documented cases that are swept under the carpet and the causes are never investigated, or corrected.

  15. The get-out clause for refusing to write off an overpayment caused by Tax Credit Office official error is when they "find it reasonable to have expected you to have known the award was wrong’".  Given the ludicrous complexities of the system before we were even aware it has gone wrong, how is it reasonable for us to know they were wrong when we rang to check, were told it was right, couldn’t understand the Award Notices, couldn’t get through to the phone lines, volunteered corrections that were never acted on, etc., etc.?

  16. An investigation has been demanded in light of news that reopening and recovery of some cases was illegal. Cases where HMRC reopened claimants 'old' claims to check or alter them, and then billed for a newly discovered overpayment are illegal because HMRC should not have reopened the claim without at least informing the claimant.