The Citizens Advice Bureau (CAB) say that they have witnessed a 14 per cent increase in the number of people falling into debt as a result of Tax Credit overpayments.
Tax Credit debt arises as a result of the HMRC ‘over-estimating’ a person’s entitlement and not because of claimant fraud. This results in the HMRC having to reclaim money lost from unsuspecting claimants, who can then find themselves struggling to pay bills, buy food or keep their homes warm.
Measures to recoup Tax Credit overpayments can include the use of private debt companies who text, telephone or write to those the HMRC believes have been overpaid.
Some of those affected say they have felt ‘threatened’ by the sometimes aggressive tactics used by private debt collectors contracted by the HMRC.
According to the CAB, they dealt with 29,366 problems ‘related to’ Tax Credit overpayments during the 2013/14 tax year. This represents a 14 per cent increase on the previous tax year, the CAB say.
Of those 29,366 requests for help and information linked to Tax Credit errors, 14,157 people required advice on how to budget more ‘effectively’ in order to afford to repay the debt – a 19 per cent increase.
New powers have also been given to the HMRC to recoup money directly from a claimants bank account. This had led to fears that money could be taken incorrectly from those who the HMRC suspects of being overpaid when they were not.
Citizens Advice Chief Executive, Gillian Guy, said:
“For thousands of families, Whitehall calculations are leading to household debt. Tax Credits are there to make sure people get a decent standard of income, but the sharp rise in debts from overpaid tax credits suggests this policy is having the opposite effect.
“Seeking to improve the accuracy of Tax Credit payments is sensible but HMRC needs to tread carefully with its new powers to reclaim money directly from people’s bank accounts. HMRC has a poor track record in managing people’s data and dealing with overpayments.
“The safeguards put in place look sensible on paper 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. As the economy recovers and welfare reforms are phased in, ministers and Government agencies must ensure people trying to make ends meet are supported through the upheaval.”
Chair of the Work and Pensions Select Committee, Dame Anne Begg, told the Independent newspaper:
“I’m very worried about the use of debt collectors because very often that means the debt has been sold on and the tactics they use to collect the debt are not tactics a government should use.
“Obviously it’s taxpayers’ money and if there’s been an overpayment then there should be efforts to recover it. But in recovering that money we shouldn’t be plunging people into poverty and it’s that sensitivity the HMRC needs to exercise.
“That’s why the Labour government put in quite a big buffer that meant your circumstances had to change a great deal for your award to change at the end of the year.”
A spokesperson for the HMRC added:
“Over and underpayments have always been a consequence of the tax credits system as HMRC calculates awards based on the current information it holds.
“Many overpayments result from people failing to tell us about a change of circumstances as soon as possible, so customers should tell us of any changes straight away.”