Collecting tax credit overpayments
HMRC has issued a news briefing to advise a change to the way it collects some tax credit overpayments. There has been a lot of adverse press coverage criticising HMRC for the way it collects tax credit overpayments. Until very recently HMRC did not have the capabilities to collect old debts fromnew claims and claimants had to make arrangements to repay their debts directly to HMRC.
The new process, called ‘cross-claim recovery’ was introduced at the end of October and has been made possible following the introduction of new computer capabilities at HMRC. According to the Low Incomes Tax Reform Group (LITRG), this broadly means that any households with live tax credit awards and with outstanding overpayments from ended claims which included the same household member(s) will now have those old debts recovered from the new ongoing award.
There are statutory maximum amounts that can be recovered. The maximum recovery rate is 25% of current payments but households with a limited income, such as those receiving certain means-tested benefits and who are receiving a maximum tax credits award may only experience a 10% reduction in payments.
Claimants that have an arrangement in place to repay debts will not be affected by this change. HMRC also stress that claimants suffering from hardship should contact the tax credits helpline as repayments can be reduced or suspended until a claimants financial situation improves.