Tax credit repayment rate could cause ‘financial hardship’
Families could face “serious financial hardship” under new rules around overpaid tax credits, according to campaigners.
Households that earn over £20,000 will be required to repay overpaid tax credits back at a much faster rate than previously.
Claimants are often overpaid tax credits as they are calculated on a person’s income from the previous tax year. Because of this, changes in individual circumstances can affect how much a person is entitled too, for example if they receive a pay rise.
In the past, repayments were made by reducing a persons tax credits by a maximum of 25%. Under the changes that recently come into force, this has now been increased by 50%.
The new rules have prompted campaigners to suggest that some families may struggle to afford to make the repayments, whilst meeting their costs of living.
However, the UK tax authority has argued that families will actually be helped by the new repayment structure, as it will mean that families will spend less time in debt.
Anthony Thomas, chairman of the Low Incomes Tax Reform Group said: "We fully support the need for HMRC to recover overpayment debt, but this should not be at such a rate that it has the potential to plunge people into serious financial hardship.
"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%. This is likely to hit those with high childcare costs or who receive extra payments due to disability even harder, as their awards will be higher."
The Low Income Tax Reform Group has called on HMRC to protect the most vulnerable, such as those with disabilities.
However, a spokesperson for HMRC said that the changes will ensure that over payments are recovered “faster and more efficiently” and that it would “reduce the burden on families who previously would have repaid their debt at a slower rate.”
The spokesperson for HMRC continued to say: "We wrote to all affected tax credits customers to tell them about the measure in March, so that they can manage any potential change to their finances. If anyone is worried about being unable to pay their debt, they should get in touch with HMRC as early as possible, so that we can help."
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