FAMILIES will see their Tax Credits automatically reduced from January, if they have had overpayments made to them because of a change in their circumstances.
The measure, buried in the paperwork of the Pre-Budget Report, is a sea-change in the way that HM Revenue & Customs deals with the recoup of overpayments, and will mean that families have to face the possibility of getting less money from the Revenue each month if they have failed to tell it about a change in their circumstances.
The amount of money that families will lose will depend on exactly how much they are getting from the Revenue. Anyone getting maximum Tax Credits with no reduction due to income could see their awards fall by 10 per cent.
Those entitled to Child Tax Credit above the family element, or Working Tax Credit below the maximum, could see a quarter of their entitlements disappear until the overpayment has been recouped by the Revenue.
If you are only getting the family element of Child Tax Credit, you could lose your award altogether.
If someone moves in with a new partner, or has any other change in their circumstances that will cause their entitlements to fall, they have a duty to tell the Revenue as soon as that change is made. At present, the account for that person or family will be closed, and a new one opened to deal with the change in circumstances. This means that the Revenue will effectively send a bill to the person concerned to recoup any overpayments.
However, from January, the account will no longer be closed and a new one opened. Instead, the account status will just be changed to accommodate any differences in circumstances, so it will become possible to reduce any continuing payments to recoup overpayments.
In 2007/08, the aggregate amount overpaid on Tax Credits was £1 billion, with around 1.3m accounts being overpaid - making an average of just under £750 each, according to Revenue figures.
A Revenue spokesman said: “We cannot recover an overpayment on one account for another, but you can if it is on the same award. But the overpayment caused by the delay in telling HMRC of the change will be offset by the amount the person would be entitled to if they had told us of the change promptly.”
Guidance is expected shortly, but there are just a few weeks until this measure comes into effect.
