Universal Credit: HMRC quizzed on tax credit debts ‘being clawed back’ through uc payments

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Universal Credit was set up to make to the benefit claimant process more convenient and less complicated overall but in practice some difficulties have been noted. Recently, Jesse Norman, the Financial Secretary to the treasury was questioned on some of the difficulties tax credit claimants had experienced when moving to Universal Credit.

Mr Norman was questioned on this by Stephen Timms, the Chair of the Work and Pensions Committee, in late July and Last Friday the official response to the questions were published.

Within the questions, the issue of tax credit debt was raised.

Currently, some tax credit claimants are in debt with their benefit and when they transfer to Universal Credit, the debts are repaid through their new payments.

This can make it difficult for the claimant and as such, Mr Timms asked the following question: “Sir Ian Duncan Smith has recommended that, instead of it being clawed back through Universal Credit, HMRC should retain responsibility for tax credits debt. How feasible would it be for HMRC to take ownership and responsibility for reclaiming this debt?”

In answering this question, Mr Norman had the following to say: “A government decision was made by the previous Exchequer Secretary to the Treasury and the Secretary of State for Work and Pensions in 2012 that DWP will collect all tax credits debts from Universal Credit claimants.

“It was later agreed in 2014 that DWP take on accountability for any tax credits overpayments they collect from Universal Credit.

“The IT infrastructure was built based on the agreement made at that time and therefore there is currently no IT function in place to return any debt to HMRC. To change that would be at significant cost. The most efficient way to collect overpayments, and the least intrusive for customers, is to recover it from their ongoing awards.

“This is the default for recovery of any welfare debt across government. As tax credits awards end, the ability to collect through ongoing award for HMRC ends. If tax credits debt remained within HMRC, they will be left with the less efficient and more costly methods of direct recovery. More importantly, it would be a worse experience for the customer, contrary to the ethos of Universal Credit to have welfare payments managed in one place.”

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Mr Norman also disputed a question which asked why tax credit claimants were not routinely informed about their debt levels before moving to Universal Credit.

As he detailed: “It is not accurate to state that tax credits customers are not routinely informed of their debt position before moving them to Universal Credit.

“Once a tax credits recipient has an overpayment there are several occasions where they are notified about their situation and the action being taken to resolve the issue.

“This can be through the award notice they receive after notifying HMRC of a change of circumstances on their finalised award notice once the previous year’s information has been confirmed during the renewals process and, if there is ongoing tax credits entitlement, a current year award notice will confirm the overpayment and that cross-year recovery will take place.

“This cycle happens year after year of an award and means that recipients can (and often do) receive multiple notifications of an overpayment (debt) which each set out the opportunity to challenge. “When someone claims Universal Credit, this will trigger HMRC receiving a Stop Notice and subsequently, the tax credits recipient will be sent a notice telling them about the crystallised debt before it is transferred to DWP (Universal Credit team).

“This notice essentially confirms the debt amount, and the fact that HMRC will send it to the Universal Credit team for collection. If a taxpayer comes out of tax credits before claiming Universal Credit, they will receive a further notification which confirms the debt amount and the means of recovery.

“Those who have had a break between claiming tax credits and Universal Credit will have also received a ‘Notice to Pay’ informing them of the debt position and the need to contact HMRC to arrange repayment. If they do not contact HMRC on receipt of this notice, they will receive regular correspondence reminding them of the need to pay.”

Under current plans, all legacy benefit claimants will have to move onto Universal Credit by 2024.

Universal Credit will eventually replace housing benefit, employment and support allowance, jobseeker’s allowance, income support and child and working tax credits.

Anyone who is claiming these benefits will not have to move to Universal Credit yet unless they’ve had a change of circumstances.

Additionally, in some cases the DWP will write to legacy benefit claimants and ask them to move across.

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