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The LITRG is urging tax credit claimants to check their 2012-13 final award notices carefully in order not to lose their right to challenge any overpayments.

Background

HMRC have introduced two new changes that affect anyone wanting to dispute a tax credits overpayment. Claimants now only have three months to dispute any overpayments and HMRC will no longer stop recovery of an overpayment whilst they consider a dispute.

Tax credit overpayments have been the most problematic part of the tax credits system since it started in 2003. HMRC have the legal power to ask claimants to repay all overpayments, even those caused by HMRC error; however, their policy has always been to allow claimants to challenge repayment of overpayments by ‘disputing’ them. Under the dispute process, if HMRC have made a mistake and failed to meet their responsibilities but the claimant has met all of theirs, then HMRC will ‘write off’ the overpayment debt and the claimant will not have to repay it.

Until 6 April 2013, disputes could be made at any time as – unlike appeals – there has been no time limit. However, from 6 April 2013, HMRC introduced a three-month time limit.

When does the three-month time limit run from?

Claimants have three months to dispute an overpayment. The three months runs from:

• the date of the claimant’s final award notice; or
• if their claim is auto-renewed, the date their renewal notice says a final decision will be made (normally 31 July); or
• if they have appealed and either lost their appeal or partially lost the appeal, the date of the decision letter.

Does it apply to new overpayments only?

For this year only, the time limit will apply to all overpayments shown on the 2012-2013 final award notice. This could include overpayments for any year from 2003-2004 onwards.

What action should be taken?

All tax credit claimants need to check their final award notice for 2012-2013. Part 3 of the award notice sets out payments and overpayments. It is not always easy to tell if there is an overpayment or which year the overpayment is from. The important thing is that if the award notice shows any overpayment and the claimant wishes to dispute it, a dispute must be lodged with HMRC within three months of the date on that final award notice.

What if the claimant fails to dispute within the time limit?

HMRC’s intention is that once the three-month time limit expires, claimants will lose the right to dispute overpayments from April 2003 to 5 April 2013 unless there are exceptional circumstances as to why they couldn’t dispute within three months, such as serious illness or hospitalisation.

There is an alternative to the dispute process, which allows an award to be changed if it is wrong due to HMRC error and the claimant did not materially contribute to the error. This is called ‘official error’ and it has a much longer five-year time limit. Although normally used in situations where the appeal time limit has expired, it can be used as an alternative to disputes in limited circumstances.

Will HMRC stop recovering the overpayment?

For disputes received by HMRC before 15 July 2013, HMRC stopped recovery of the overpayment while they considered the dispute. However, they will no longer do this for disputes received after that date.

Problems with the time limit

Unfortunately, the complexity of the tax credits system and, in particular, the lack of flexibility in HMRC’s IT system, have meant that the workings of the time limit are complicated and not easily explained to claimants. The fact that claimants will continue to receive award notices that suggest they can dispute overpayments when the official time limit will have passed will be confusing for all involved.

Some respite until October – but action required

These complexities have meant that some relaxation of the time limits have been agreed until October 2013. These are explained in LITRG’s detailed article for advisers on their Revenuebenefits website. However, because the rules are so complicated, the Group’s advice remains that claimants should check their latest 2012/13 final award notice carefully and take action as soon as possible if they want to dispute any overpayments shown on it.

If in any doubt, claimants should lodge a dispute or seek advice from a welfare rights organisation or local Citizens Advice Bureau.

Useful links

More information on official errors and time limits can be found on the RevenueBenefits website.