2 Overpayments of Tax Credits
12. Tax credits operate on an annual basis and claimants'
ultimate entitlement will depend on their overall income during
the year and any changes in circumstances they encounter. The
difference between the payments the Department makes, based on
information it holds, and ultimate entitlement, results in significant
uncertainty for claimants. It also gives rise to a substantial
level of overpayments that have to be recovered from claimants.
13. Over the first three years of tax credits the
Department has overpaid £6 billion to claimants that has
to be recovered, as shown in Figure 2. A significant proportion
of these overpayments will never be recovered. The Department
has so far written off £700 million and considers it unlikely
it will recover a further £1.6 billion.
14. The number of families affected by overpayments
of tax credits is significantly greater than originally envisaged.
At the time the scheme was introduced the Government expected
around one million awards to be reassessed as a result of income
rises in the first year of the scheme, compared to around 750,000
in subsequent years.[16]
As Figure 2 shows, some two million families have been affected
by overpayments in each of the first three years of the scheme.
Figure 2: Recovery and write-offs of overpayments from 2003-04 to 2005-06
| 2003-04
| 2004-05
| 2005-06
| TOTAL
|
| Families affected by overpayments
| 1.9m
| 2.0m
| 1.9m
| |
| Total overpayments
| £2.3bn
| £2.0bn
| £1.7bn
| £6.0bn
|
| Amounts written off by 5 April 2007
| (£0.4bn)
| (£0.3bn)
| (£0.1bn)
| (£0.7bn)
|
| Amounts recovered by 5 April 2007
| (£1.1bn)
| (£0.6bn)
| (£0.3bn)
| (£2.0bn)
|
| Debt to be recovered at 5 April 2007
| £0.9bn
| £1.1bn
| £1.3bn
| £3.3bn
|
| Figures may not sum due to rounding
|
|
Source: C&AG's 2006-07 Standard Report, Figures
3 & 4
15. The 2005 Pre-Budget Report announced changes
which were designed to provide greater certainty to claimants,
particularly when claimants see a rise in income. The measures
included an increase in the level of income rises disregarded
when finalising awards from £2,500 to £25,000 for awards
for 2006-07 and subsequent years. There were also a range of other
measures designed to encourage claimants to tell HMRC promptly
about changes in their circumstances.
- The Department will publish details on finalised
2006-07 awards in May 2008 which will provide more information
on the effect of these measures. It expects that the package will
reduce the value of overpayments by a third. The Department considers
this will reduce the level of overpayments to those that were
anticipated at the time the policy was introduced.[17]
16 Q 103 Back
17
Q 3 Back
| 
