Tax credits: Time for a clean slate

19-05-2009

In this briefing we make the case for writing off outstanding tax credit overpayments from 2003/04 & 2004/05.

Tax credits: Time for a clean slate ( 68kb)

In this time of recession, banks have been asked to show forbearance in debt collection; in this proposal we show how the government can minimise the impact of debt on low-income families.

We estimate that up to 1.5 million families will benefit from this action which will help achieve child poverty targets, reduce debt, and restore confidence in the system, and improve work incentives.

£4.4 billion in recoverable overpayments arose from 2003/04 and 2004/05 of which £1.7 billion is still to be collected.  The 2007/08 HM Revenue and Customs accounts allocated £1.8 billion as debt that they expected to have to write off in the future.  An early write off of debts that are not expected to be recovered anyway would serve both to relieve hardship on families and save administrative costs of continuing to collect.

• These debts originate from a period when Government acknowledge administration was poor.
• Many overpayments would simply not arise under current rules, as entitlement rules have been changed.
• Recovery of these debts continues to push people into financial hardship.
• In cases where families’ circumstances look unlikely to improve, HMRC spend time and money negotiating and renegotiating affordable repayment plans, and repeatedly deferring recovery.
• Many debts do not represent a loss to the exchequer – they arose when claimants received the right amount, but did not return their end of year forms, thus technically making that money recoverable.

Tax credits: Time for a clean slate ( 68kb)