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Tax Credit Over-Payments

Today over 6 million families and 10 million children are benefiting from tax credits. The tax credits introduced in April 2003 are more generous and more inclusive than any previous system of income-based financial support. The introduction of a system of tax credits has been a huge undertaking. For the vast majority of families the new system is working well, providing important advantages over previous systems of support. In particular, the new system is more responsive than previous ““snapshot”” systems: it allows awards to be adjusted in-year when a family's income or other circumstances change. I am determined that the tax credit system will do the job it was designed for—to deliver to all families the financial support they are entitled to, providing the right amount of support at the right time. However, at the point when the new tax credits were introduced, problems arose affecting a small proportion of families. Many Members have raised specific cases with me and there has been much discussion and debate in the House, most recently in the Westminster Hall debate that I was unfortunately unable to attend due to illness. I am, therefore, taking this opportunity to provide the House with an update on the steps that HM Revenue and Customs (HMRC) is taking to address these problems. It is now well known that in the early months of 2003–04 the Inland Revenue encountered serious problems with the new IT system, resulting in over-payments and other difficulties. Some families have also found the information provided to them on the status of their awards unclear, which has made the process more difficult. In response to these challenges I have agreed with David Varney, the chairman of HMRC, that HMRC will take a series of important steps to improve the administration of tax credits. The Department has been working hard with its new IT contractor to improve the performance of the tax credits IT system. The accuracy with which tax credits information is processed is improving. Officials have been working closely with representative bodies, for example, to improve the clarity of the information provided to families on their tax credit awards. Further, new streamlined procedures have been introduced to decide cases where the recovery of an over-payment is disputed. These are all important steps forward but there remain key challenges for the Department in delivering tax credits. I am therefore setting out six measures to improve significantly the tax credits system, with particular regard to how the Department communicates with families about their tax credit award; reducing the risk of errors adding to the number of over-payments; improving procedures for recovering over-payments."1. Building on the work already undertaken to improve the clarity of the tax credit award notice and in consultation with the voluntary sector, HMRC will review the effectiveness of information provided to claimants, to support them in understanding the responsive nature of the tax credit system and the risk of over-payments. In particular the Department will develop solutions to reduce the number of cases where people receive unnecessary duplication of award notices.""2. HMRC will test out new methods of reminding tax credit claimants of the importance of providing up to date information in year on changes in their income and circumstances. The Department will consider options to identify families most at risk of an over-payment and support them through better targeted contacts to ensure their stated circumstances and income are up to date.""3. HMRC will develop options to improve the quality of service on the helpline, in particular to ensure that helpline operators can track the progress of individual cases in the system, reducing the need for families to contact the helpline on multiple occasions.""4. HMRC will improve the speed with which it identifies IT system problems and processing errors so that they can be resolved more quickly.""5. Tax credits are working well for millions of families but the system is new and requires active engagement from claimants. The role of the voluntary sector in providing advice to families receiving tax credits is crucial. I have asked HMRC to develop innovative ways of working with the sector to target more active support on vulnerable families.""6. HMRC will review the operation of the code of practice on over-payments. Meeting the commitment made by HMRC's chairman to the Public Accounts Committee in January 2005, the Department will ensure that in cases of genuine hardship where the recovery of an over-payment is disputed, recovery can be suspended while the dispute is resolved."