How did the whole Tax Credit mess happen? Below is a list of the many foibles of the Tax Credit system. A combination of several is usually responsible for any overpayment bill.
Where appropriate, TCC encourages claimants affected by these and any other issues to dispute overpayment bills. Our view is that it is not reasonable to expect the claimant to have been aware of the relevant errors and failures of the system that had impacted on their case.
For whatever reason, when the then Inland Revenue was put in charge of delivering this anti-poverty measure to vulnerable families, it was 'overlooked' that this Credit would have to operate on a tax system calendar. This meant that entitlement could not be worked out until up to 12 months after TCO had started paying the award. Because they didn't have the current year's earnings until the end of the year, they based the entitlement on the previous year's income and circumstances. So before an award had even started they were using the wrong income figures for the claimant's entitlement for that year.
Basically you were gambling that your income wouldn't go up, and if it did, your forfeit was owing back up to ALL the award they had paid you over the current year. The Tax Credit Office now accept that no other benefit operates like this, and subsequently landing you in debt, and have introduced a higher allowable income increase called an Income Disregard.
HMRC's entire organisation is purpose-made to collect revenue from those on a higher level of income. This makes them an entirely inappropriate organisation to be delivering this system. Inadequate research was done into what type of system and delivery was needed, especially in the light of several high profile failures of similar systems internationally. They had no understanding of the Tax Credit client base.
This is why it was expected that any overpayment could just be 'settled at the end of the year' (i.e. repaid). HMRC are used to dealing with high income earnings who 'balance' their accounts on a yearly basis and have the savings and income to be able to do this.
It is also the reason HMRC did not anticipate the fact that claimant's income would vary so much 'in year'. Lower income families do not have the luxury of stable and predictable financial circumstances, and the system was not designed to cope with such changes. It operates retroactively, and is too slow to keep up to date with entitlement compared to the Award that has already been or is being received.
Because such changes were not anticipated, to amend information on a claim caused numerous and confusing paperwork, and claimants were being told to "ignore while the system catches up" most of the time. Claimants are now being told they should have responded to these Award notices, even ones they never actually received.
The assumption, again, is that income is predictable and stable. Provisional payments are made between the end of one claim and the processing of another. By now the income details used to 'calculate' these payments could be 2 years out of date, and were not even being supplied by the claimant on which to base any current payments. So awards have not even started for that year and may already have been overpaid.
Calculations and deductions that HMRC told claimants to apply before declaring their income, if they had had a child in the previous year, reduced the gross figure of the claimant's income and therefore increased their entitlement to a higher level of award.
But in reality, this actually caused an overpayment because it transpired that this calculation only worked when it was assumed that the claimant would not be going back to work in the following year! Not usually an option for parents on low enough income to qualify for benefits. So when the claimant went back to work and was actually earning an income for that year, their entitlement was actually less than calculated, even though they had supplied the right information and followed the Tax Credit Offices instructions.
HMRC as a whole, and the staff in general, were used to dealing with higher income earners, they had no understanding of the importance of reliable and secure awards, nor the empathy or experience to deal reasonably with frustrated, confused claimants who had variable circumstances and little previous experience of taxation.
Bizarrely, the Tax Credit Office initially took the decision to not to require or act on claimant’s notification of circumstance changes ‘in year’, and instead saved up this information until the end of the year to factor into entitlement calculations. This meant that claimants had no idea this was causing overpayments because they had reported all changes as requested (N.B. claimants are now obliged to report all changes ASAP) and any overpayment that could have been stopped before it started was now unavoidable.
Because research was not done, uptake of Tax Credit was far higher than expected and staff were working under pressure with fixed deadlines, little training, backlogs, confused claimants and inadequate facilities. Errors were bound to happen but were not planned for.
Untrained and private sector staff were answering claimant’s calls, and callers were not advised of this. Employees of private call centres were masquerading as Tax Credit Office employees, answering questions and advising on tax law they hadn’t been trained in, and deciding which information needed logging.
Still unexplained is why records were not kept of all communications to the Tax Credit Office from claimants advising of circumstance changes. Although the official line was that ALL calls were being recorded it transpired that this was not actually the case. It is also not explained whether this was the reason information did not get updated or logged on the system, which led to many of the currently disputed overpayments.
Information and data to and from claimants has routinely gone missing and is not logged. Award notices that claimants are supposed to check are not posted or received, information supplied is not recorded, or only on ‘one system, but not the other’.
Seemingly, the infrastructure of HMRC is not capable of this work. Post in and out is not handled effectively, different and unsynchronised systems cause duplication and ‘false readings’, and staff don’t seem to know what or where to record information, nor have a complete understanding of the system or process.
These types of overpayment bills are called 'annulled awards' because the Tax Credit Office have said the claimant didn't return the end of year declaration within the time limit. This automatically 'wipes out' their entitlement to all the payments they received for that tax year! So the Tax Credit Office says the claimant owes it all back! They get to decide that the claimant basically forfeited on the agreement to report information in time, therefore they lose the eligibility, even though;
Because of this, Tax Credit Casualties encourage people to dispute these bills, on the grounds that it is unreasonable to prove that claimants did not send the forms in just because HMRC never actually logged them correctly on their system.
The I.T. company HMRC hired (E.D.S.) had previously spectacularly failed to deliver adequate I.T. infrastructure to other government contracts, causing additional expense and error. Despite this, E.D.S was given the contract to supply the technology for the delivery of the Tax Credit system.
As such, many and numerous I.T. problems have surfaced that in some cases have caused overpayment bills all on their own. Overly complex, highly fallible I.T., coupled with untrained and harassed staff has resulted in data going missing, claimants income being reset to zero, incorrectly adjusted claims, manual lump sum awards and ‘invisible’ payments.