Tax Credits : Getting it Wrong?, 5th Report Session 2006-2007

This is the second report from the Parliamentary and Health Service Ombudsman on the Child and Working Tax Credits system. The first report ("Tax Credits: Putting Things Right - 3rd Report, Session 2005-06 (HC 124)", ISBN 0102933375) set out 12 recommendations to redress some of the problems it highlighted. "Tax Credits: Getting it Wrong? (HC 1010)" looks at how far those recommendations have been implemented by HM Revenue Customs (HMRC).The report includes a number of examples on the impact of a financial support system, which includes a degree of inbuilt financial insecurity that can properly meet the needs of very low income families and earners. HMRC has though made a number of improvements to the administration of the tax credits system, with considerable improvements in the accessibility and reliability of the advice and information available to customers in respect of their tax credit claim.Many of the technical problems affecting significant numbers of cases have been resolved. Also the complaints handling system has been improved, in particular the backlogs in both disputed overpayments and complaints. Still, the number of complaints reported to the Ombudsman Office is high. There is still a problem with overpayments, with almost a third of all tax credit awards being overpaid, mostly to people on low or very modest incomes.Complaints about the tax system fall into three key groups: the design of the tax system; a failure in complaints handling; and, the unfair and unreasonable application of COP 26 (the issue of overpayment).The Ombudsman concludes that despite having put administrative systems in place aimed at enabling HMRC to look at individual circumstances and hardship issues, opportunities were missed to take mitigating action, often increasing unnecessary distress and hardship. Six further recommendations are set out, including: with a revised COP 26, HMRC should produce a clear and comprehensive guidance for Tax Credits Office staff, along with analysis of customer feedback where there are complaints of an unreasonable application of this code of practice; HMRC should adopt a more coordinated approach with regard to overpayments to tax credit customers; and, greater consideration should be taken of individual family circumstances when recovering the tax credit overpayments.