Tax Credits Hell

You've all seen or heard the recent television or radio adverts encouraging you to renew your tax credits application before the end of July.  What you won't have heard about is the growing number of taxpayers who are being pursued by HMRC for overpayment of tax credits, in most cases running into thousands of pounds and usually as a result of an error by HMRC.

One particular mistake that can occur, and can greatly accelerate overpayment, relates to jobseekers allowance.  This is extremely relevant at present given the current econimic climate, and the high unemployment rate.  As you may, or may not, be aware there are two type of jobseekers allowance, the first is "contributions" based and is usually a low fixed amount, the other is "income" based or "means tested".  Unfortunately, HMRC's tax credits system doesn't differentiate between the two, and it is almost never explained by them.  So, very often if you have told HMRC that you are in receipt of jobseekers allowance you are treated as being in receipt of the "income" based benefit.  This basically overides the system and applies the maximum amount of tax credits to your claim.

I would like to say that this is the only area where errors can be made, but unfortunately that is not the case.  Tax credits as a system has always been flawed, and shows no signs of improving in the near future.  This gives rise to an issue that will not then surface for two to three years until HMRC figure out an overpayment has been made, following which they will usually pursue the claimant for repayment.  Therefore, should you find yourself in this position, the first thing you must do is dispute the overpayment and contact HMRC to find out the exact facts of your case.  These are not supplied upfront, and you will not be able to dispute the overpayment without them, so make sure you get all the relevant dates and figures before lodging your dispute.

Finally, its worth noting that HMRC are only keeping file notes on tax credits claims for three years, which is somewhat ironic given that the rest of us have to keep our tax records for at least six!