Changes to tax credit overpayment recovery rules

By 4th May 2016Latest news

The Low Income Tax Reform Group (LITRG) was established in 1998 to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.

A new press release from the LITRG has highlighted the fact that tax credit claimants earning over £20,000 may see sharp cuts in their payments as HMRC recover overpayments at a higher rate. The highest rate at which ongoing payments are reduced in order to repay debts increased from 25% to 50% with effect from 6 April 2016. The change was first announced in the March 2014 Budget.

Whilst this change will allow claimants to repay overpayments at a faster rate it is likely to increase hardship for many tax credit claimants as payments are significantly reduced. The LITRG has asked HRMC to offer some form of protection from the 50% rate rise for those receiving help with childcare costs and disability tax credits.

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%. The cliff-edge income threshold means it is going to affect families with household income of more than £20,000 whatever their circumstances.’

The in-year income disregard for tax credits was also reduced to £2,500 from £5,000 from 6 April 2016.

Source: Other | 20-04-2016