Tax Credits: Why So Complex? discussion

Former_MSE_Wendy Former MSE Posts: 929
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edited 7 September 2009 at 9:43AM in Benefits & tax credits
It's misleading, it's a misnomer, but don't miss out.

Millions are eligible for tax credit, yet having just interrogated the system to work on our new tax credit guide (see below) in time for this Friday's 'renewal' deadline, I could almost cry at the sheer unfathomable, unnecessary complexity. These are just three of the problems...
  • Tax credits aren't tax credits. The name is ugly and misleading. These aren't a credit off tax owed, they're simply a benefit paid into bank accounts to help families with children, or those on lower salaries.
  • Renewal isn't renewal. The TV adverts shout "RENEWAL", implying it's only about assessing your eligibility for tax credits over the next year. This leaves those who don't plan to claim this year thinking they needn't do anything, yet the form is also to CHECK you were correctly paid over the last year. Fail to reply and you can face fines. So why call it renewal?
  • Overpayments are unavoidable. Nothing creates more tax credits angst than overpayments. Getting too much money may sound good, but if not when you spend it then the govt says "pay it back." Yet overpayments happen even if you do nothing wrong, as what you're paid is an estimate based on last years earnings, so even small changes can leave you overpaid.
Something should be done to change this flawed, iniquitous structure. While the help is welcome, the system causes much misery and confusion.

Yet for now as the payouts are so huge, we have to live with it, and that's the reason we've done a full guide Guides: Tax Credits, Childcare Tax Credits, Benefits Check Up


A note to forum regulars. We normally ask site users to discuss benefits policy on other boards and not here, yet the aim of official discussion threads from articles is to also get people new to the site who've read that article to see other relevant discussions and get help. To do that this thread needs to be on this board.
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  • Mr._H_2
    Mr._H_2 Forumite Posts: 481
    Part of the Furniture 100 Posts Name Dropper Combo Breaker
    I've got to agree that tax credits are an horrendous mess. I shudder to think of all the money spent administering it. Why on earth the principles can't be incorporated into the tax code is beyond me.

    You see, there's this thing called the "personal allowance". It's meant to represent an amount of money that is required to live on. If you have children, obviously they require financial support so the personal allowance could be increased to account for this.

    Here's a simple idea to replace the ridiculous mess that is the tax credit system:

    Determine a realistic minimum NET income required to live in the UK. Let's say this is £10,000. You then set the minimum wage such that if someone works for 40 hours a week, they'll earn £10,000, and set the personal allowance to £10,000. Then, determine the income required to support a child; if someone has children, their personal allowance is then adjusted to account for this.

    Job done.
  • Coupon-mad
    Coupon-mad Forumite Posts: 122,532
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    I totally agree.

    I have worked in financial admin jobs for many years, including as a lending manager in the past - but have never been able to understand how our tax credits award is worked out. So there's never any chance of knowing if they have made an error unless it's something obvious they have recorded wrongly in your income or number of children, etc.

    And why is it called 'Tax Credits' when it's just a Benefit? Why can't it be paid through your personal allowance as suggested above by Mr. H, or at least claimed in a much less fussy/difficult way than filling in that 'form' (which is like reading War and Peace...).

    I always think that if I find it difficult to fill the flippin' form in then how on earth do people cope who have no admin background or have English as a second language?

    We have also (apparently) been overpaid in the past - but whether or not their calculations were right was anyone's guess. :confused:
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  • indipop
    indipop Forumite Posts: 4 Newbie
    We gave up on this useless, obfustacting system three years ago. Two kids (now 9 and 5), in one year our income changed by 2k (from not very much in the first place), and after a year of no payments they were chasing us for money!

    Once this became an issue for us, we spoke to many friends who it turned out had the same experience. Overpaid, then demanded repayment, threatened with court action etc...

    We' ve now gone three years without any payment, so by my reckoning they owe us money. We just took the view that it was better if they left us alone (and since the CDs were lost with everyone's data on them, they've been surprisingly quiet). We appealed but were sent some b***s**** letter that ignored the fact they hadn't paid us anything in years.

    As we're not married we got two sets of forms sent out every time they needed to contact us: probably cost more in admin than they were paying out...

    The galling aspect of all this is that it's a system set up ostensibly to benefit kids, so - by inference - they're the ones missing out.

    This is the next 'bank charges' scandal waiting to happen. A con, an absolute con.

    Mr. H: you're suggesting something dangerously close to socialism... and I like it! :-D

    PS Thank the Lord! It's about time this site got back to campaigning issues, instead of telling me where I can save 20 quid on a Wii or get a free luxury burger. Meh.
  • tanyamason
    tanyamason Forumite Posts: 2 Newbie
    Tax Credits - brilliant idea! ... but in reality... what a nightmare! My friend gave up on them as the hastle of getting things right wasn't really worth £25 or so a month. I nearly gave up myself but then decided to carry on as things got into some sort of order after the initial mess. On a couple of occasions I did my own calculations and proved their calculations wrong and got a 'refund' of what they thought was an overpayment on their part which they later admitted to be an 'underpayment'. Once we got too much tax credit which I suspected from the very start and rang them up at least 6 times to double check whether we should really be receiving all that money and each time they reassured me that the money was mine to spend except that six months later they said that I claimed the money I wasn't entitled to and that I should now be paying it back a sum of around £1500. Thankfully but not painlessly after two years of dispute I won the case and they admitted to making a mistake and said I didn't have to pay the money back after all. However, it took many phonecalls, letters and a lot of headache. I think I can defienetly do a better job at calculating Tax Credits than their 'trained' staff and their 'super smart' computer sytem. All I would say, always double check their calculations and ring them if in any doubt and if they still insist on the fact that the money is yours to keep and later turn around and ask for it back - you've got the case! Do record the dates, times and customer service advisers' names each time you ring them - it really did the trick for me! Makes my hair stand up just thinking about it now. :eek:
  • indipop
    indipop Forumite Posts: 4 Newbie
    And, after posting - and lamenting the lack of a support group - I found whitvanwoman's post (on another thread), regarding this site:
    (Sorry, site won't let me post full link - just add the necessary...)

    Sending their URL to everyone I know who's been battered by this mess.
  • tanyamason
    tanyamason Forumite Posts: 2 Newbie
    About the double letters... we are married and they still send us a letter each. I totally agree - what a waste of paper and resources!!!
  • whitevanwoman
    whitevanwoman Forumite Posts: 351 Forumite
    edited 29 July 2009 at 1:04AM
    Here's a link

    Check out their forum and post your queries / problems in the new members section.

    If you've got an overpayment (OP) look in the How to Dispute section of the main website (use links on left hand side of page) for advice on what to do.
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  • cjfcampbell
    cjfcampbell Forumite Posts: 1 Newbie
    I also agree. Each year the 'renewal' process annoys me intensely, not so much because I have to take the best part of an evening to work through it, but because, like Coupon-mad above, I pity those who would struggle with such a detailed, accounting exercise, using terms that many of us are simply not as familiar with as the exercise demands.

    I don't think there is any doubt that the system is intended to be as off-putting as possible to minimise the number of claimants.

    Further, the notes give misleading or incorrect guidance regarding how to factor in contributions to pension schemes, ref: Renewal Pack book (TC603R), pg 22, top box re deductions for pension contributions; it states “Do not include pension contributions you paid through your employer. Your employer will have already deducted your contributions from the pay figure entered on your P60 or P45”. I believe that the pension scheme I am in is fairly typical these days; a defined contribution (i.e. not final salary), group personal pension scheme, where my contributions are all detailed on my payslips, administered via my company’s payroll, but they are not deducted from the total pay on my P60. So I do have to deduct the gross contributions, apparently contrary to the guidance.

    Thankfully I figured it out and know I have to deduct the gross contributions, but it is contrary to the guidance “Do not include pension contributions you paid through your employer”. The fact that this specific deduction will likely affect the bottom line total income figure by thousands makes it all the more significant. Yes, they say “phone the helpline if you’re not sure”, but with guidance this specific it, I’m sure many just take it at face value. The subtlety is probably in the “paid through your employer” wording, but it beats me!

    I went to the HMRC web site last night to feed this back to them, but there does not appear to be any easy way to do so. The only feedback option I found was regarding the web site itself.

    And as for figuring out 'gross' figures, don't get me started...

    Go Martin – take on HMRC!
  • whitevanwoman
    whitevanwoman Forumite Posts: 351 Forumite
    Go Martin – take on HMRC!


    Yes, go on, Martin, we need your help here
    The independent woman's checklist for success :
    1. Look like a lady, 2. Act like a man, 3. Work like a dog
    Life instructions : 1. Breathe in, 2. Breathe out, 3. Repeat ad infinitum
    [strike]2008 - £4k challenge member 063[/strike] gave up halfway thru, not sure I even earned that much, so probably achieved it :confused:
  • nearlyrich
    nearlyrich Forumite Posts: 13,698
    Part of the Furniture Combo Breaker Hung up my suit! Mortgage-free Glee!
    It's over five years since we were entitled to the basic tax credits, every year we still get two lots of everything, a small forest worth of waste paper. Every year they say they will stop sending them but we still get over 100 A4 sheets of paper and I wonder how many others do too?
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