More Fall Into Debt Following HMRC Overpayments

The number of issues reported to Citizens Advice of people falling into debt as a result of repaying overpaid tax credits increased by 14 per cent in the 2013/14 tax year.

Tax Credit debts arise when HMRC over-estimates a person’s entitlement to financial support and ends up having to recoup overpayments.

In the 2013/14 tax year, Citizens Advice dealt with 29,366 problems relating to debts from overpaid Child and Working Tax Credits, 14,157 of which were about helping those affected to budget effectively so they can repay money owed to HMRC, a 19 per cent increase on the previous tax year.

The Tax Credit system has previously come under fire for its complexity and administrative delays, leaving many families unsure of how much they are entitled to and facing confusion as they try to resolve disputed payments.

The Treasury Select Committee has raised concerns that HMRC’s new powers to recoup money owed directly from people's bank accounts could lead to money being taken from people mistakenly. The Government has said that safeguards around the new powers will ensure money is only taken from an individual’s account correctly and when they can afford it.

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."


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