Ombudsman Warns HMRC Over Tax Credits

by Jason Gorringe, Tax-News.com, London

09 October 2007

Parliamentary Ombudsman, Ann Abraham, has stated that despite the considerable improvements which HM Revenue and Customs (HMRC) has made in its administration of tax credits since her last report in 2005, it still has a very long way to go.

In her second special report on tax credits, entitled 'Tax Credits: Getting it wrong?', Ms. Abraham commented that complaints to the Parliamentary Ombudsman about tax credits continue to rise; they currently represent more than 26% of all complaints to the Ombudsman. The complaints fall into three key groups: the design of the system; failures in complaints handling; and unfair or unreasonable recovery of overpayments.

Commenting further, Ms Abraham suggested that: "The design of the system is a matter for Government and Parliament to consider. However, it was very clear that many people remained unable to grasp the basic principles of an annualised system, and complained about what was effectively the system working as it was intended to."

Overpayments and underpayments are unavoidable aspects of the system which will occur however well it is administered, and the report observes that they will therefore continue to generate dissatisfaction and complaints.

However, the report also showed the distress which can be caused to some of the most vulnerable families (those on the lowest incomes) when they find themselves with such a debt to repay - often unexpectedly, and sometimes a very long time after the money has been received and spent. Ms Abraham said that this again raised the question of whether the current tax credit system could truly meet the needs of this particular group.

Ms Abraham went on to announce that, whilst there had been some improvements in complaints handling, HMRC was also still failing to take opportunities to get its decisions on complaints right first time. The report suggested that HMRC still has a lot of work to do in providing 'fit for purpose' complaints handling arrangements.

The main criticisms contained in the report are of the application of the guidance, Code of Practice 26 (COP 26), which HMRC uses when deciding whether to waive overpayments. Some 91 per cent of the tax credits complaints referred to the Ombudsman relate to this issue.

In relation to this issue, Ms. Abraham commented: ""Tax credits are supposed to help families, not cause them money worries. It is essential, therefore, that these matters are addressed as quickly as possible."

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