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Welcome to the Tax Credit Casualties newsletter for August 2010.

Although we are sending the newsletter out to our subscribers, we’ve decided to publish it here too as a bit of an experiment. But please subscribe if you haven’t already, because we may want to get in touch with you quickly if anything important crops up! You can subscribe to Latest News using the RSS feed, too,  if you know how.

As always, please get in touch if you know something that we don’t …

‘Your Freedom’

You may of heard about the new coalition Government’s web-based ‘have your say’ initiative – AKA ‘Your Freedom’. Well, our Ali has been busy and created a vote for an amnesty on Tax Credit overpayments.

We have to get this ConDem lot to listen, so let’s use the means they’re offering and VOTE HERE. You just need to complete a simple 10 second registration process (top of the screen; click on ‘Register’)  then add a rating by clicking on the grey/yellow stars just above the comments section, further down the page. Five stars would be nice, thanks! Feel free to add a comment too, explaining how much this dangerous farce has affected you and your family.

Adjudicator’s Office Response Deadlines

Here at TCC we often feel we are fighting the agencies that are supposed to be helping us, as well as fighting HMRC. We’ve already had to accept that the Information Commissioners Office is actually pretty toothless when it comes to HMRC infringing our Data Protection rights, and The Adjudicator’s Office (AO) probably have my number blocked now after I tried (several times) to get a policy statement regarding HMRC attempting recovery action while a case was being disputed, but the AO have now developed a new habit that has left me foaming at the mouth.

Once a case gets to the Adjudicator’s Office (AO) stage of the dispute process, the procedure is that the AO asks HMRC to produce a report on the circumstances of the claim, overpayment and dispute. This report is then sent to the victim (only after TCC demanded this become standard practice, by the way) and the victim is asked to comment on HMRC’s report. HMRC are then asked to comment on the victim’s comments. This report and the responding comments then form the basis of the AO’s investigation. Sounds fairly reasonable so far?

But over the last 3 months we have been involved in no end of cases where the AO have supplied the report and, at the same time, given a very short deadline in which the victim is asked to respond. Usually 2 weeks or so. Given that this report often runs to at least 10 pages, involves complex ‘facts’ and figures that definitely require double checking AND that this is their ‘day’ job, not ours or their victims, this is totally unacceptable. The majority of the time we have had to wait 3 months, or more, for the AO to do anything other than acknowledge receipt of the dispute, and then a further 6 months or more for HMRC to actually produce the report. To then give the lay-person claimant less than 4 weeks to respond is arrogant in the extreme.

When my workload recently became near impossible I decided we needed to take a bit of power back, so I started resisting the AO’s deadlines and complaining about the attitude it belies. More and more people are telling me they are getting these types of deadlines, and most are putting family and other commitments aside in a rush to comply. As such, I have developed a template complaint letter people might like to use should they be faced with the same situation.

Download Complaint Letter About The Adjudicator’s Office Deadlines

All the responses we’ve had to this letter, from the AO, have accepted the new deadline proposed in the template and I feel it is important that we continue this policy. Not only for the sanity of the overpayment victim, but also because I fear rushing to respond to the report means that the quality of the response does the victim’s case no favours. And, of course, because such an attitude and approach needs challenging strongly. 

Income Disregard

You may have seen mention of the Income Disregard feature of Tax Credits in the press recently. I feel it important to highlight that this feature is not the safety net the Treasury and HMRC have  lauded it to be. While the proposed reductions, from £25,000 to £10,000 by 2011 and down further to £5,000 in 2013 are indeed a concern, many of you are wondering why this feature has not been applied in your own overpayment case already.

The problem is that, once again, the media have over-simplified to the point of actually completely misrepresenting the issue. Nothing new there, (remember the great proclamations of “all overpayments to be written off” in 2006, 07, 08 and 09?), but this portrayal is creating false hope and unfair criticism of overpayment victims;  i.e. why are we moaning when we are being let off with £25k worth of income?

In short, the disregard only applies in very limited circumstances. And shockingly, those circumstances only exist when you have disregarded official advice to keep HMRC notified of circumstance changes throughout the tax year. £25,000 of income is NOT ignored.

Instead up to £25,000 of income ADDITIONAL to the income HMRC have recorded for you can be disregarded, but only if you did NOT update HMRC of income levels at any time since that years claim started.

Note that you can be accused of non-compliance and even neglect if you do this now, but this feature always has been a patch measure that didn’t offer what it claimed. When Tax Credits were first rolled out, the Income Disregard was £2,500, meaning your income could improve by this amount and you shouldn’t end up with an overpayment. BUT, crucially, the system was operated differently then, and as such no one’s income was updated on their claim until the end of the tax year, even if they did notify HMRC ‘in year’.  Therefore the disregard applied to nearly everyone.

When the level of overpayments were first revealed, some 18 months after the public roll-out in 2003, and when the subsequent outcry had generated enough embarrassment, the government bodged the disregard to the admittedly preposterous £25k and claimed they had solved the problem of normal people not being able to predict their income 12 months in advance. TCC cried foul on that at the time and have done ever since.

This is no safety net. There are still no means to protect people who follow compliance procedures AND earn more than they estimated. HMRC have not faced up to the fact that most claimants do not enjoy the benefits of stable incomes and therefore their income varies either through pay increments, new jobs or changeable working hours.

It’s only been in the last year or so that they have included a feature to allow you to advise them that your income for the new tax year will be different from the income for the previous year. Until then they worked on the assumption that everyone earned the same amount year in year out, and started all new claims on last year’s income. As such you had to advise them, when the new claim started, that your income level was different, and the claim had to be recalculated. Guess what that meant; the Income Disregard could now not be applied to that year’s claim, because you have updated your circumstances in year. Crafty!

We are concerned about the proposed drops, especially the aim of reducing it to £5k by 2013, as this means that a fairly modest improvement in circumstances could cause an overpayment bill of the same size or more. But the recent media coverage of the issue has done no one any favours and we felt you deserved a thorough explanation of this feature.

Comptroller & Auditor General’s Report

This week we learn from the Comptroller and Auditor General’s report on HMRC’s 2009-10 accounts  that the Treasury is still struggling to recover Tax Credit overpayments made in error. Thanks to the efforts of Tax Credit Casualties and other welfare groups and charities to advise people of their rights, HMRC’s “collection rate for Tax Credits debt … is substantially lower than that for tax debts”.

This is attributed to claimants being unable to repay and the Revenue prioritizing the task it has always done – collecting taxes – over the role it acquired but never really wanted – playing Tax Credit award hokey-cokey with poor families who are in no position to return money to the taxman just to make the bureaucrats’ books balance.

In the last tax year, HMRC – and this is only its own rough guess, almost certainly underestimated – made “incorrect payments to claimants of between £1.95 billion and £2.27 billion”. We are led to believe that a “new approach” has miraculously prevented “an estimated £569 million of error and fraud in the year”, sparing some families the terror and despair of receiving threatening Tax Credit recovery letters.

Suddenly someone – the Comptroller and Auditor General – has recognised that there is more “error” behind Tax Credit overpayments than “fraud”, and that these two words can occur in this order in a sentence about Tax Credits without the gratuitous prefix of “claimant” insinuating that everything is somehow the innocent claimant’s fault.

It’s about time!

Prime Minister’s Office Responds To TCC Letter

TCC wrote to the Prime Minister in May, and went to a lot of effort to describe the flaws of the system and the impact it has on claimants.

 Read Our Letter To David Cameron

Unfortunately so far we have only had the bog-standard acknowledgement and promises to pass our concerns to the Treasury. Very disappointing indeed, as this is all we used to get from Gordon Brown as well. To add insult to injury we haven’t had a response from the Treasury yet either, and probably won’t without chasing them up … which we will.

TCC had hoped to develop our links with the new coalition government as previous relationships with key members had been very positive. However we hit a stumbling block as our main contact was one Mr David Laws, who I’m sure your aware now holds the record for the shortest time spent in a ministerial post when he had to resign as Chief Secretary to the Treasury after just 17 days.

We will keep trying, but they are going to have to do better than they have so far to prove themselves much different to their predecessors on this issue.

Successful Cases

On a positive note, a quick tally tells me that we are nearing the £300,000 mark in confirmed, successful write-offs. £50,000 of that was achieved in the last 6 months. As I have mentioned previously, this isn’t actually a very true reflection of our success rate because:

1. I only started keeping track at the beginning of 2007;    and
2. I suspect a very high number of the people we help don’t get round to letting us know their case was successful, simply because they just want to forget about it all, which is pretty understandable. 

The cases included range from bills for £300 up to £16,000 , with the average being approximately £4,000.  The length of time the disputes have taken varies from six months to six years and the causes range from zeroed income, wrong number of adults or children on the claim and HMRC’s failure to record information, all the way to reasonable mistakes on the claimants part.

Overwhelmingly, this rough figure shows it is more than possible to win a dispute (If you’ve won your case through using this site, please contact us and let us know). While now may not be a good time to celebrate ‘costing’ the public purse, please remember not only are we innocent victims of this mass incompetence, but to continue to force millions annually into thousands of pounds of debt will cost the public purse much much more.

Struggling families with millstones around their necks become more of a drain on public resources the more vulnerable they become. Low income earners are typically in low paid, unsecure and changing employment. One unexpected or unachievable bill forces further, spiralling need for state aid. From income related benefits, to insolvency, to additional welfare support for families in poverty, to emergency mortgage support. Not to mention additional national expenditure to try and combat the social implications of increased poverty.

Writing off these debts and preventing them occurring again by an amnesty and a return to fixed payments is the only way to save the country money in the longer term.

We hope you are listening, Messr’s Cameron and Clegg.

That’s all for now, folks. As normal, we’ll let you know if anything important happens! Keep Fighting!!