Annual Report 2007-08 - the Parliamentary and Health Service ...

Her Majesty’s Revenue & CustomsOf the 91 complaints against HMRCaccepted for investigation during2007-08, 85% were about tax credits.Similarly, 91% of the 68 complaintsaccepted against the Adjudicator’s Officewere about their handling of tax creditcomplaints.It is clear that, despite the considerableimprovements HMRC has made in itsadministration of tax credits, it still hasa long way to go to be appropriatelycustomer-focused. It is also clear thatmany tax credit recipients still do notunderstand how the tax credit systemworks, and their complaints can often,therefore, relate to the system workingas it is intended.Most of the tax credit cases referredto us for investigation in 2007-08 relatedto the recovery of overpayments. Moststemmed from the early years of thescheme (2003-06), after which, in the2006-07 tax year, HMRC changed thelevel of income disregarded from £2,500to £25,000. A number of factorshampered our ability to process HMRCcases during the year. The most significantthree are outlined below.• Section 18About 25% of the tax credit cases weassessed or investigated in 2007-08were affected by the ‘section 18’procedural error announced inParliament in July 2007. As a result ofthis error, HMRC is required to reviewapproximately 250,000 tax credit cases,which it says may take up to three yearsto complete. This has already led tosome delays in the resolution of casesbecause HMRC is unable to provideaccurate information to theOmbudsman, the Adjudicator or itsown complaints teams on an affectedcase, until the review of that case hasbeen completed.• Code of Practice 26Uncertainty over whether changesto the application of Code ofPractice 26 (COP 26: the guidanceHMRC use to determine whetherto waive overpayments) would beapplied retrospectively delayedmost of our tax credit assessmentsand investigations for several weeksat the start of 2008 until the positionwas clarified by HMRC.• Lost CD-ROMsOur ability to progress with someinvestigations was affected by the lossin November 2007 by HMRC of twoCD-ROMs. These contained thepersonal details of families receivingchild benefit. As a result of the loss,HMRC had to review the security ofall its external communication channelsand was accordingly unable tocommunicate with us by post, faxor email for a number of weeks, andunable to recommence sending ustelephone recordings (relevant to manycases) for over three months.Still getting things wrongIt is clear from the complaints receivedthat attempts by HMRC to recoveroverpayments made under the tax creditsystem continue to cause distress andhardship for a significant number ofpeople. As one complainant put it:‘Tax credits are supposed to help families,not cause them money worries’.In June 2005 the Ombudsman publishedTax Credits: Putting Things Right, herfirst special report on the issue. Thisconcluded that many of the difficultiesfamilies were facing were a result ofHMRC having developed a ‘one size fitsall’ system that was designed to requireminimum human intervention, beingmainly IT-based. The consequences ofthis systemic inflexibility are seen in thecase of Mr C.18