HMRC defends tax credits recovery plan

HMRC has defended a proposal for direct recovery of tax credit overpayments from claimants’ bank accounts after campaigners said a freedom of information request revealed that the debt owed to government had reached “more than £5.6bn”.

The Independent reported that according to figures released by HMRC, the department “plans to seize money from around 3,000 people’s bank accounts” each year to recover overpayments.

The campaign group False Economy claimed the figures showed that tax credit overpayments “are just a state-created debt that many families can never pay off”.

Budget 2014 announced that the government would introduce legislation to strengthen HMRC powers to recover tax and tax credit debts directly from bank and building society accounts, including ISAs. The proposal has been criticised by tax professionals, and a petition launched by Taxation editor Mike Truman calling for it to be withdrawn has attracted 2,350 signatures.

“Direct recovery of debts” was the subject of a consultation that closed in July. David Gauke, then exchequer secretary to the Treasury, said the measure would be targeted “against a small core of taxpayers who owe significant debts of over £1,000 and have sufficient funds in their accounts to pay”.

But the Independent quoted Gillian Guy, chief executive at Citizens Advice, as saying: “HMRC has a poor track record in managing people's data and dealing with overpayments. The safeguards look sensible but with such huge pressure on household budgets, it does not take much to push families into financial trouble and mistakes by HMRC will be harmful.”

HMRC said in a statement: “Tax credits overpayment debt represents just over 2% of the £255bn that HMRC has paid out in tax credits to households in need since 2003.

“The majority of overpayments occur when customers fail to tell HMRC about a change in circumstances, as changes affect the amount of tax credits someone is entitled to. HMRC will only recover tax credits overpayments where it is possible to do so. Furthermore, legislation prevents current claimants being put into hardship. This means some repayment debts can take longer than a year to be collected.

“Of the 4.6m families who receive tax credits, only a small number of individuals will have accumulated more than £1,000 of debt so that they become eligible for direct recovery of debts, and even if they are eligible, HMRC will always leave £5,000 behind to cover essential expenses and prevent hardship. There is no question of those who genuinely cannot pay being affected by this measure.”

HMRC’s annual report for 2013/14 itemised at page 142 “personal tax credit receivables” of £2.4bn at 31 March 2014, after a provision of £4bn for “impairment”.

Tax credit awards are made for a tax year and are provisionally based on a claimant’s income for the previous year. They are adjusted for changes in income and other circumstances.

An income “disregard” to allow for small increases in income was originally set at £2,500 but was hiked to £25,000 in 2006 in an effort to reduce the volume of overpayments. It was reduced to £10,000 in April 2011 and £5,000 in April 2013.

Comments
Alex997's picture

Public opinion poll

Alex997 | | Permalink

We are running a public opinion poll over on our site currently for DRD, and the public results are surprising.  We expected much higher proportion for the 'no' vote...

Direct Recovery of Debts Scheme Poll