Business

Tax credit change 'may cause hardship'

Cash Image copyright PA

Families who have been overpaid tax credits will have to repay the money at a much faster rate from now on, under government changes.

Tax credit claimants with a household income of more than £20,000 will see any historic overpayments clawed back at a much faster rate.

The UK tax authority said this would cut the time that people spent in debt.

But campaigners have argued that some claimants will face "serious financial hardship".

Paying back

Entitlement to tax credits - a top-up for those on low incomes - is generally calculated by referring to a claimant's previous year's income.

Sometimes, pay rises or more hours of work mean that claimants may receive too much from the tax credits top-up. This money then needs to be repaid to HM Revenue and Customs (HMRC).

The amounts of overpayment can sometimes be quite high, but families may have spent the money, so find it difficult to repay.

Repayments are often made by reducing subsequent tax credit awards, and it is this cut in payments that has been changed.

Previously, payments were reduced by a maximum of 25% in order to pay back outstanding overpayments.

Under changes newly in force, but announced in the March 2014 Budget, those who still owe money to HMRC will see their latest tax credit award cut by up to 50%, if they have a household income of more than £20,000.

It is understood that HMRC want to retrieve previous overpayments quicker, so the books are settled before benefit claimants move over to the new system of Universal Credit.

'Serious hardship'

Campaigners are concerned that clawing back the money too quickly could leave some families in financial difficulty.

"We fully support the need for HMRC to recover overpayment debt, but this should not be at such a rate that it has the potential to plunge people into serious financial hardship," said Anthony Thomas, chairman of the Low Incomes Tax Reform Group.

"This change is likely to catch people out, as they may not be aware that their payments are about to reduce by an additional 25%. This is likely to hit those with high childcare costs or who receive extra payments due to disability even harder, as their awards will be higher."

The group is calling on HMRC to protect those with high childcare costs or who receive payouts owing to disabilities to be protected from the new, faster, repayment system.

A spokesman for HMRC said: "This change is simply about recovering overpayments faster and more efficiently. It will allow customers to return to full payments sooner and reduce the burden on families who previously would have repaid their debt at a slower rate.

"We wrote to all affected tax credits customers to tell them about the measure in March, so that they can manage any potential change to their finances. If anyone is worried about being unable to pay their debt, they should get in touch with HMRC as early as possible, so that we can help."

The government says some of those affected will benefit from higher pay, thanks to the National Living Wage, and more generous tax allowances.

Related Internet links

The BBC is not responsible for the content of external Internet sites