Tax Credit Overpayments 'To Soar And Increase Debt'posted on 31 July 2010 | posted in General Category | ( 0 ) CommentsMany more people will have to pay back some of the money paid to them as tax credits in the future, experts say. At the moment credits are based on a family's own estimate of income for the coming year, with households allowed to earn an extra £25,000 before they have to pay money back to the government. But over the next 18 months that buffer will be reduced to £5,000, meaning that many families could face repayments. One expert warned the number of overpayments would "rocket". The warning comes on the last day that people can renew this year's claims for either working tax credit or child tax credit. The changes to the overpayments buffer were announced in the Budget and will be implemented from next April. Campaigners fear many more people than currently have to repay money will be hit. Take the following as an example: A women claims both working and child tax credit, but because she has changed jobs frequently over the last year, and her childcare has altered, she has been overpaid. She has now been told she now owes Revenue and Customs just over £2,000. She obviously does not have that kind of money, and has put her house up for sale and is seeking cheaper accommodation. She accepts she has to pay it back, but finding £40 out of her weekly budget is hard-going. As a result, she has been having sleepless nights, and suffering from severe stress. The worst case scenario is: she's not got the money - and going to end up in jail, due to the budget changes. She is far from being alone. Last year more than a million families were overpaid child or working tax credit, and more than £2bn was written off by the government. So the government announced changes in last month's Budget designed to recoup some of that money. At the moment the tax credit a household gets is based on its own estimate of annual income. The government has allowed people to earn an extra £25,000 over that estimate before it asks for a refund. But from next April, that leeway, or buffer, will be reduced to £10,000. The following year it will be cut to £5,000, meaning many more families face being asked to pay money back. Lee Healey, a benefits expert, thinks the consequences will be serious. "I would expect overpayments to rocket, and for many more people to be hit with an overpayment of their tax credits." 'Antiquated system' Work and Pensions Secretary Iain Duncan Smith announced a wholesale reform of the benefits system, describing it as "antiquated". The idea is to provide better incentives for people to return to work, and to cut down on bureaucracy. He hinted that one problem with working and child tax credits is the fact that families have to predict their income a year in advance. "In future," he said, "you will not have to project forward, like you do with tax credits, for a year, and guess what people might be doing." However, the Department for Work and Pensions has admitted such changes will take a few years to implement. As a result some organisations which represent single parents are concerned about the timescale. Kate Bell, from Gingerbread, welcomed the government's plans, but said action was needed much more urgently. "We'd like to see a system that takes overpayments out of the system, where people aren't having to deal with that stress." She recommends a system that would pay a fixed amount for six month. We can only see more and more people getting into debt because of this and we strongly advice that if this will effect you or it already does, then please call us for advice. Share this blog entry:
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