Campaigners have warned that many families claiming tax credits could be thrown into serious financial hardship as HMRC recovers overpayments at a much higher rate.
Families who have been overpaid tax credits will have to repay the money at a much faster rate under government changes which came into effect this April.
The changes were announced in the March Budget 2014. They will affect tax credit claimants with a household income of more than £20,000 who are paying back a historic tax credit overpayment from their present tax credit payments. The maximum rate at which their ongoing payments are reduced in order to repay the debt will increase from 25 per cent to 50 per cent. This means they will pay back the overpayment at a faster rate but will see their tax credit payments significantly reduced.
‘This change is likely to catch people out’
The Low Incomes Tax Reform Group (LITRG) is calling on the HMRC to protect those with high childcare costs or who receive pay-outs owing to disabilities to be protected from the new, faster, repayment system.
Anthony Thomas, Chairman of LITRG, said: “This change is likely to catch people out as they may not be aware that their payments are about to reduce by an additional 25 per cent. The cliff-edge income threshold means it is going to affect families with household income of more than £20,000 whatever their circumstances. This is likely to hit those with high childcare costs or who receive extra payments due to disability even harder as their awards will be higher.
“We fully support the need for HMRC to recover overpayment debt but this should not be at such a rate that it has the potential to plunge people into serious financial hardship.”
The change will allow customers to return to full payments sooner
A spokesman for the HMRC told the BBC: “This change is simply about recovering over payments faster and more efficiently. It will allow customers to return to full payments sooner and reduce the burden on families who previously would have repaid their debt at a slower rate.
“We wrote to all those affected tax credit customers to tell them about the measure in March, so that they can manage any potential change to their finances. If anyone is worried about being unable to pay their debt, they should get in touch with HMRC as early as possible, so that we can help."
What help is available if you are struggling on a low income?
Our website has information on the recent changes to tax credits and tax credit overpayments you may find helpful.
You can also use the free Turn2us Benefits Calculator to check your benefits entitlements. Even if you have checked before, it is worth checking again, especially if there has been a change in your circumstances.
You can also check if you are eligible for a charitable grant or other support by using the Turn2us Grants Search.
You can get further details on all the upcoming benefit changes on the Turn2us Benefits Changes Timetable 2016.
If you are worried about any benefit changes and would like further advice, you can use the Turn2us Find an Adviser tool to locate face-to-face advice in your local area.
Low Incomes Tax Reform Group (LITRG) press release: Tax credits overpayment change likely to cause serious hardship, say campaigners
BBC news article: Tax credit change may cause hardship