Tax credit overpayment - is this correct?

Mr__M_5

Hi - we currently have two overpayments of around £3000 combined on tax credits, and have now been informed that we have to pay them off as we no longer get any tax credits. I was hoping to ask for some advice, as one of these in particular seems a little bit "iffy" to me…

The first overpayment was for the 2008-2009 period. This was a period of upheaval, where I had been made redundant in June 2008. I finally got a new job in Feb 2009, and phoned the tax office to say that I was now earning £35K (this is very clear on the phone recording – I had requested a copy of all our information along with phone calls). The problem with this period was that when I was made redundant, I believe my wife phones them up (can't actually recollect this, and for some reason there's no trace of this call in the call log). Supposedly she gave a low estimate as to my expected income as it didn't take into account my redundancy pay. Whilst I rectified this when I got a job, this resulted in an £2500 overpayment (which has slowly being paid off, and is now down to £1200) – don't think I can really argue this one.

The second overpayment was for the 2009-2010 period. It was actually in June 2010 when I was reviewing my documents, that I noticed our child care costs were incorrect. They were still stating we were claiming £50 for our son (when he had finished 09/2008), and we hadn't started claiming £16 for my daughter (who started 03/2009). A bit bad on my part for the oversight – but since we never got any childcare costs in our tax credits, I didn't think it mattered. I phoned up and stated as much, and gave the full details. The operator agreed that it shouldn't change anything much, so I wasn't concerned by it. Then, a little while later, the tax credits were recalculated and we were hit with an overpayment of £2038 (which currently sits at around £1750 left to pay). I was a little shocked to say the least! Our initial dealings with the tax office didn't give a very clear picture, and I ended up just accepting that we would end up paying it off with future tax credits. But now we don't qualify, I really want to check that this is correct!

I've phoned them back, and an operator actually explained how it has happened. They said that that for the 2009-2010 period we got the following – best shown on the Feb 2010 revised award notice. This was before I had phoned up with the revised childcare costs, so is the last award notice to show them in the calculations. Incidentally, I got this notice after an amended awards notice came out in Jan 2010. This still had me down as a combined income of £23,501 – not the £35,000 +£3,500 (wife's employment) that I had clearly reported in Feb 2009.


Working Tax Credit :
Basic £1889.70
2nd adult £1861.50
30-hour element £777.45

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Total £4529.65
Income Reduction £4529.65

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Amount for this period £0.00

Childcare element of working tax credit
Total £2100.80
Income Reduction £2100.80

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Amount for this period £0.00


Child Tax Credit :

2 qualifying children £4474.90
Family Elements
Basic £547.50

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Total £5022.40
Income Reduction £31.13

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Amount for this period £4991.27


So at this stage, we're not getting any working tax credits, we're not getting childcare help, and we're not being overpaid. But in June, that all changed with the revised childcare costs. They would take them out of the calculations, and with the tapering, it meant our tax credits should have been around £3000 – so we now owed around £2000.

Now my point that I've put to them is that if they had used my actual income that I gave to them in Feb 2009, the extra £15,000 worth of tapering (at 39p to the £), would have resulted in a deduction of £5850 instead of £31.13 (the operator I was speaking to seemed to agree with this logic). Which would mean we would only get the basic tax credit for the 2009-2010 period. We would have got a lot less tax credits, but it means we wouldn't have it all to pay back either. I gave them an accurate income figure, and they say their procedures would make them choose the lower figure of what you earned the year before (£23,500) - regardless of the fact that I was redundant and so not earning for the whole year.

Sounds stupidly complicated to me and just asking for trouble - they'll be giving me tax credits for two years based on an income of £23,500 when I'm earning a lot more (so I would get more tax credits in the second year compared to someone else who has always earned £35,000). Okay – my fault for not noticing the childcare costs, but since we've never been paid them, it really didn't seem to matter – and it wouldn't have mattered if they had used my income.

So – I'm hoping to ask any of you experts who know more about this than me – is this a worthwhile thing to raise a dispute over, or am I wasting my time? Would appreciate a quick reply – I've got to sort out how to pay back £3000 within the next week or so (thanks to the pleasures of having to wait 40 days just to get all your data back from the tax office!).

Thanks, M.

zagfles

Yes, by the looks of it it's the childcare which has caused the overpayment, not income.

In 2009/10 there was a £25k disregard for income increases, so if your 2008/9 income was £23500 and 2009/10 was £35k they are correct to use the £23500 figure for both years (assuming 2007/8 was over £23500).

So it's not income that caused the 2009/10 overpayment, it's childcare. Now although you weren't actually getting any childcare element, as you were claiming it it was using up some of the taper (income reduction), which would otherwise have been used against your CTC. So claiming too much childcare will have caused the overpayment.

Mr__M_5

Thanks zagfles - that's how the tax credits were explaining it - just wondered if I had any chance to fight it due to them not using the correct income in the first place. Doesn't look likely really, so guess I'm going to have to see how flexible they are with the payment arrangements!