The Low Incomes Tax Reform Group (LITRG) is urging tax credit claimants to check their 2012-13 final award notices in order not to lose their right to challenge any overpayments as HMRC has now imposed a three-month time limit for disputes regarding overpayment.
In addition, the tax authority will no longer stop recovery of an overpayment while it is still considering a dispute for overpayment.
HMRC can ask claimants to repay all overpayments including those caused by HMRC error; however, their policy is to allow claimants to challenge repayment of overpayments by 'disputing' them.
Under the dispute process, if HMRC has made a mistake and failed to meet its responsibilities but the claimant has met all of theirs, then HMRC will 'write off' the overpayment debt and the claimant will not have to repay it.
Until 6 April 2013, disputes could be made at any time but, from 6 April 2013, HMRC introduced a three month time limit.
LITRG's chairman, Anthony Thomas, said that tax credit overpayments have long been the most problematic part of the tax credits system since it started in 2003 and a worrying one for claimants.
'For this year only, the time limit will apply to all overpayments shown in the 2012-2013 final award notice. It is not always very easy to tell if there is an overpayment or in which particular year the overpayment arises.
'The important thing is that if the award notice shows any overpayment and the claimant wishes to dispute it, then the dispute must be lodged with HMRC within three months of the date on that final award notice,' said Thomas.
According to Thomas, the HMRC's intention is that once the three-month time limit expires, claimants will lose the right to dispute overpayments from April 2003 to 5 April 2013 unless there are 'exceptional circumstances' as to why it was not possible to dispute the claim within three months.
'There is an alternative to the dispute process which allows an award to be changed if it is wrong due to HMRC error and the claimant did not materially contribute to the error.
"Unfortunately the complexity of the tax credits system, and in particular the lack of flexibility in the IT system, has meant that the workings of the time limit are complicated and difficult to communicate to claimants.
'The fact that claimants will continue to receive award notices that suggest they can dispute overpayments when the official time limit will have passed will be confusing and worrying too.
'In light of this we welcome the fact that HMRC have agreed these limited relaxations of the time limits until October 2013,' said Thomas.
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