Government to outsource tax credit debt collection

| December 6, 2012
Government outsourcing tax credit debt collection

Government plans to outsource the collection of tax credit overpayments has raised alarm among campaigners.

A pilot scheme will be launched, with private companies appointed to collect overpayments.

These can often occur when a claimant’s income increases – when they move to a better paid job, for example.

Claimants should report a change in their circumstance to the Tax Credit Office, but if there is a delay, or they forget to do so, a debt may accrue.

Overpayments may also occur if a claimant makes a mistake on their application.

The Low Incomes Tax Reform Group has expressed concern that outsourcing the collection of overpayments to private debt collectors may not be an appropriate way of collecting this type of debt.

The group is calling for the Government to ensure that any debt collectors appointed are required to work to the highest standards.

Robin Williamson, technical director at the Low Incomes Tax Reform Group said: “We must seriously question whether dealing with tax credit overpayments just like any other debt, by outsourcing recovery to commercial debt collectors, is an appropriate or proportionate response to the problem.

“If HMRC persist in this course of action, they must take great care to impose the same standards and safeguards as they would themselves when recovering these highly sensitive and untypical debts.”

There are two types of tax credit available for people on low incomes: child tax credit which is for parents with at least one child; and working tax credit.

Currently, overpayments are collected by HM Revenue and Customs (HMRC) by reducing the payments being made, or by collecting the overpayments through a claimant’s tax code, if the debt is less than £3,000.

Claimants can also pay the debt as a lump sum.

In his Autumn Statement, Chancellor George Osborne announced that the Child Tax Credit will increase by just one per cent for the next three years.

With the rate of inflation currently standing at 2.7 per cent, early years groups have warned that this is a cut in real terms.

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