Taxman to claw back hardship payments

Families on low incomes that received tax credit hardship payments before April will be forced to pay the money back in the current tax year, Citizens Advice warned this week.

The consumer watchdog said the Inland Revenue will claw back hardship payments because it considers them loans, even though many families, through no fault of their own, could find themselves put in further hardship when the sums are deducted from their current tax credit payments.

Thousands of families were overpaid tax credits last year and forced to pay the cash back, often several months after the overpayments were made. During February and March the Revenue demanded families settle their overpayment debts before the new tax year. Often this meant freezing any further tax credits.

In response, tax offices were inundated with requests for hardship payments to help families pay rent and other essential bills. Jobs & Money highlighted the plight of many families faced with steep cuts in tax credit payments.

Citizens Advice says working tax credit claimants are being sent forms over the next two months that will assess if families are still eligible for payments.

Hardship payments from last year will be counted against this year's tax credit contributions, cutting monthly payments.

"Overpayments on tax credits has been our biggest issue," says a spokeswoman. "This could make the situation for many families even worse. They will delay sending back the forms and then find the money is deducted over the last six months of the tax year, making the cuts even harder to bear."

She says the tax credit helplines continue to suffer from long delays.

"The Revenue is still oversubscribed and under-resourced, and while we are told there have been improvements people still have terrible trouble getting through," she says.