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Tax Credit Overpayments

I am not suggesting that there should be no penalty for a failure to complete a return on time. The Tax Credit Act 2002 provides for the ability to fine or impose penalties for late returns. Indeed, under income tax legislation, late returns result in a penalty—£100 or £200, I think—which is absolutely right. However, late income tax returns, for example, do not result in the draconian measures such as those arising from late tax credits forms. Late income tax returns do not deny the opportunity for a tax rebate, which stills follows when the application is submitted, however late—up to six years, I believe, which is very generous. Those applications are dealt with according to the facts and on merit. I can think of no other part of the tax system that imposes penalties as draconian as the loss of one's entire benefit, as does the tax credit system. Given its purpose, the ombudsman is quite right when she said that to deny reinstatement causes"““far too harsh a penalty for the delay, works entirely against the policy objectives of the scheme and unnecessarily causes customers avoidable distress and hardship””." I would like the whole system to be simplified and, indeed—this perhaps is not quite possible—credits to be paid retrospectively. The number of families who do not make a claim through fear of overpayments is becoming more and more significant and certainly does not aid our common cause of reducing child poverty. My proposal is simple: where a tax credit claim is terminated following a failure to finalise an award, there should be an independent appeals system whereby, if the claimant can prove their entitlement for that year at a later date, that which constitutes a genuine overpayment should be recovered, although perhaps with some penalty akin to the income tax arrangements. I am not suggesting that there should not be a penalty, but that the current one is disproportionate. We expect more of sometimes vulnerable families than of any other group in the tax system. We do not exercise that sort of draconian power against income or company tax payers or against those who fail to make their VAT returns on time. It is wholly disproportionate, and I want the Government to deal with it now. They have had long enough. There is no excuse or moral or legal reason it should not happen immediately.