Tax Credits overpayments and PAYE

[Katy May]

This may get rather complex - forgive me. The Tax Credit system involves HMRC asking for P60s and checking your entitlement to tax credits retospectively - often resulting in people getting large overpayments claimed back. However, where this applies to changes in earnings and a claimant is employed, tax is deducted on a PAYE basis - administered by HMRC, therefore a person cannot be accused of failing to declare changes in earnings? There was a case a few years back within DWP, (Hinchy vs DWP I think) where it was ruled that as the claimant had reported a change to one agency of DWP the Secretary of State knew about the change and therefore claimants could not be penalised for failing to declare the change to another DWP agency. My question is - could this ruling be applied when arguing against Tax Credit overpayments? Thank you.

[New Judge]

Claimants are assessed at the start of the tax year (or the start of their claim, whichever is later) and, unless they notify HMRC of changes to their income (or their circumstances) are paid the appropriate rate (based on the information they gave) for the rest of the year. Only at the end of the year, as you say, are their actual earnings examined and this is where claims for over payment originate. As a result, over or under payments are inevitable where a claimant�s earnings changes during the year (as many people�s do).

I do not believe claimants are under any obligation to notify changes of earnings mid-term and so would not face prosecution for failure to do so. However, I think you would be hard pressed to resist repaying amounts overpaid on the basis that the taxman knew of your earnings via the PAYE system and so should have adjusted your Tax Credits.

The Tax Credit system is a shambolic method of paying back money to people who should not have had it taken from them in the first place. It does nothing for the claimants (except makes them jump through hoops to get what is theirs and to suffer the worry of repayment when they are � almost inevitably � wrongly paid). We already have a perfectly adequate system to ensure people pay the correct amount of tax. The PAYE system used to be used to do this by adjusting individual�s tax codes to suit their circumstances. But that, of course, would not enable the Exchequer to be seen as quite so benevolent as taking money from people in the first place and then kindly giving it back.

It does, of course, keep an army of people employed at HMRC to sort out the mess (sorry - administer it) and it was the �flagship� of anti-poverty measures introduced by Gordon Brown as Chancellor.

So it must be alright.

[Katy May]

As you say, what an excellent system! I was just interested, as the DWP ruling suggests that you are quite within your rights to expect a Government Department to act on information one element of it has received. The original case I think, suggested that the claimant couldn't be prosecuted for misrepresentation as she couldn't misrepresent what the SoS already knew. And it's not unreasonable to suggest that HMRC know how much I'm earning as they collect tax on that (and are quick enough to do so!) I'm so fed up with notifying changes to the Tax Credit people which they fail to implement and then ask me to repay an overpayment - when it's their fault. And accusing me of failing to notify them of any changes. Anyway, ho hum, keeps my blood presure at a healthy level.

[sandbach99]

I don't know how the tax credit system is administered or their law, but I did work on the overpayment section of Income Support for many years and I would expect the same rules to apply.

If a claimant notifies the relevant body of a change in circumstances and that body fails to action the change the resulting overpayment can not be compulsarily recovered, however the claimant can be asked to repay the overpayment.

The problem is proving you have notified them and it has been received. Any future changes send by recorded delivery and keep your Post Office bit.

I doubt whether the 2 parts of the Tax office are working off the same computer system, I suspect that there is one system that covers how much is paid in every week or month, tax codes etc, and another system that deals with tax credits and it is only once a year the information on one system is checked against the other. Therefore the fact that one system knows of the change can not be sent to the other.

In the case you are referring to I suspect that in that case the claimant was receiving say Incapacity Benefit and Income Support, the amount of Income Support being paid was dependent on the amount Incapacity paid, if a change was reported to the Incapacity section they should have informed the Income Support section, the failure to do so would be departmental error and non-recoverable.

There is also a point that having notified of a change which you would have expected to alter the credit paid why did you not send in the same information again, because unless you used recorded delivery or actually took the letter to the relevant office how do you know it arrived?,

[themas]

Katy - I think you have been looking at the Court of Appeal decision in Hinchy. This was overturned by the House of Lords, which decided that changes have to be reported to the DWP office dealing with the particular matter.

In any case, the Appeal decison only related to changes arising from decisions made in other DWP offices (Hinchy's DLA stopped; she failed to tell the office that dealt with her IS; the Appeal decision was that DWP DLA office should have told DWP IS office). So it wouldn't have helped your problem as it did not cover changes other than those coming from decisons in DWP offices.

I fully agree with the awfulness of the admin. of Tax Credits. All you can do is to make sure that you keep a detailed record of every call you make (name of person spoken to, date & time & summary of what was said). Then make sure you get an amended award notice & ring again if you don't. They have recently altered their policy on recovery of overpayments (get COP26 from HMRC site) so if you tell them enough times & keep evidence of it & they still don't act on it you may not have to pay the overpayment back.

New Judge - yes, the system is far too complex but of course Gordon never ever found the need to apologise for the chaos it caused (or even to comment on it at all, I believe) so it can't really be bad can it??

However, it's too simplistic to say it just pays back money taken first in tax - there are a lot of low income people who don't pay tax who get Child Tax Credit & - for all its many faults - it is a valuable help with their finances.

[themas]

Forgot to add - Tax Credit Office records (or is supposed to record) all calls, & you can get them on CD under the Data Protection Act.

[Katy May]

Themas - that's great, thank you. That was the case I was referring to but I didn't know it had been overturned. Thanks also for the advice on the recording of phone calls, I called them at least 4 times to report changes and have written twice but (stupidly) didn't send the letters recorded delivery.

Thanks again.

[moomintroll1]

Just so you understand how PAYE works: it is not the tax office which calculates and deducts your tax under PAYE, but your employer, who then sends one single payment to HMRC every month for all of their employees, so the tax office can never know your income from one month to the next. It is all sorted out at the end of every tax year when your employer reports your total income and tax deducted.

They therefore would never know your income had changed until the end of the tax year, which is when you send in your P60 anyway.

Not that that excuses their general incompetence and mishandling of the Tax Credits system; it's yet another reason why it shouldn't have been introduced in the first place!