John Newth responds to a member's query about tax credits and offer guidance on COP26.

In a recent Any Answers post [1], Clint Westwood disclosed that his firm had just taken on as clients a married couple, of whom the wife was the principal earner and the husband suffered from severe clinical depression and had been in receipt of incapacity benefit. The couple had made a joint application for WTC and CTC (they had two children with qualifying childcare costs). The TCO was threatening legal action to recover an immediate repayment of a sum in excess of £6k in alleged overpaid tax credits, mainly for the tax year 2005-06.

The overpayment resulted from the award for the year 2005-06 being reduced to £nil due to the claimant's default in failing to provide details of income for 2004-05. The provisional award for 2005-06 was substantial, and much of it had been paid before the award was reduced to £nil, hence the substantial apparent overpayment.

The clients' default in this matter was not disputed. That said, the information that should have been provided on an annual declaration had since been provided, demonstrating that the original provisional award was close to correct and, had the annual declaration been provided on time, no (substantial) overpayment would ever have arisen.

Clint asked whether his firm would have a chance in resisting the action on the grounds of equitable liability. He was also seeking views on the new COP26. It appeared to him that, apart from obvious cases, the answer provided by COP26 was simply ‘contact us’.

Non-renewal case
Victoria Todd of the Low Incomes Tax Reform Group provided a very helpful reply to this query. She noted that it sounded very much like a non-renewal case, which is unfortunately fairly common. The renewal forms have a dual purpose: the first is to finalise the previous year and the second is to make a new claim for the new tax year (in this case 05-06).

If the renewal form was not sent in by the specified date then HMRC finalise the previous year (in this case 04-05) on information held and terminate the provisional payments in the New Year because no new claim has been made.

There are two options when this happens: the first is to restore the claim, and the second is to make a new claim (with three months backdating) and dispute the overpayment.

Restoration is the preferred option. HMRC guidance indicates that restoration is possible if either the claimant contacts them within 30 days of the award terminating (date on the statement of account) or after that period (but before 31 January) if there was good cause for failing to renew. In both cases, if restored, the claim is treated as being made from previous 6 April (thus wiping out any overpayment).

The 30 day rule was previously in HMRC guidance but is in regulations from April 2008. It is therefore worth checking whether the claimants made contact within those 30 days.

If not, then was there good cause for having the claim restored. If it is too late to restore the claim now, you could use this argument in your dispute saying that it should have been restored under the good cause provision (e.g. it would be worth exploring the family situation at the time).

Finally, it would be worth looking at whether the helpline gave the wrong advice. The LITRG have seen cases where the helpline have advised claimants to make a new claim rather than restoring the old one under the methods above. If this happened, then again it could form part of the dispute.

COP26
I tend to agree with Clint regarding COP26. However, if one accesses the tax credits part of the HMRC website, there are two places that could provide a modicum of help. One is headed ‘Tax credits – how to complain’. Basically this advises individuals to initially contact the complaints manager, and failing satisfaction to approach the adjudicator and/or parliamentary ombudsman.

The other item is headed ‘Appealing against a tax credit decision’ and includes a paragraph about obtaining independent advice which mentions TaxAid but not the LITRG. However, it also states that one cannot appeal against a decision by the TCO to ask the taxpayer to pay back an overpayment.

The process of ‘equitable liability’ has now been withdrawn unilaterally by HMRC, in my view on spurious grounds. It never applied to 99% of taxpayers, only to those most vulnerable and under-represented, making the decision even more unfair.

The case as outlined appears to be quite unfair, and one trusts that Clint has been able to obtain satisfaction on behalf of the clients one way or another.