1 TAX CREDITS Appeals, Disputes, Complaints & the new COP 26. Victoria Todd Low Incomes Tax Reform Group LOW INCOMES TAX REFORM GROUP NAWRA Workshop – March 12 th 2008

2 Who are LITRG? Initiative of the Chartered Institute of Taxation (CIOT) Primarily involved in tax, tax credits and cross over benefit issues for those on low incomes Website contains detailed tax credit information, sums and an overpayment guide (which will be updated shortly for new COP 26). Chair Tax Credit Co-ordinating Group (TCCOG) Member of Tax Credit Consultation Group (TCCG) LOW INCOMES TAX REFORM GROUP

3 Workshop Overview Appeals Customer Service Support Groups Explanations Complaints COP 26 LOW INCOMES TAX REFORM GROUP

4 Administrative Error Announced by FST in July ,000 tax credit awards affected These are cases where awards were re-opened following finalisation without following the correct administrative procedures. Complaints, disputes and appeals relating to cases affected by this administrative error have been ‘stockpiled’. HMRC have told us that they are clearing these cases and the consultation group has asked for further details of numbers of cases still to be resolved. This may explain lengthy delays in correspondence. LOW INCOMES TAX REFORM GROUP

5 Appeals Appeals can only be made against ‘entitlement’ decisions. Recovery of an overpayment cannot be appealed. Appeals are generally settled by HMRC. Current figures: 150 with the appeals tribunal 300 for which submissions are being prepared 400 awaiting initial consideration Balance work in progress where HMRC have contacted appellants with their proposals for settling their appeal by agreement. LOW INCOMES TAX REFORM GROUP

6 Appeals – Problems Claimant confusion between appeal & dispute HMRC confusion between appeal & dispute No answer to letters Time limits – 30 days from date of decision, but provision to accept late appeal within 12 months. LOW INCOMES TAX REFORM GROUP

7 Customer Service Support Groups (CSSG) Merger of Complaints, disputes and explanations Rolling process by surname. Full transition will possibly complete August 2008 HMRC suggest addressing correspondence to ‘Customer Service team’ Acknowledgement of correspondence within 2 working days (at most 5 working days). LOW INCOMES TAX REFORM GROUP

8 Explanations There is a team within TCO that issues explanations about how overpayments have arisen. This team should respond when a claimant or adviser asks for an explanation of an overpayment even if part of a letter about something else, or a request via the helpline. HMRC manuals state that this team can also remit overpayments where they consider corrective action is needed. If an adviser requests an explanation, the response should be sent to the adviser. LOW INCOMES TAX REFORM GROUP

9 Problems requesting explanations Often the explanation is wrong There is no suspension of recovery whilst an explanation is requested/issued. Evidence that letters asking for explanations are not answered. This function will pass over to CSSG LOW INCOMES TAX REFORM GROUP

10 Complaints – current process Complaints can be made by telephone, fax or in writing Telephone complaints to contact centres – there should be an onward escalation route to TCO Caseworker approach adopted April 2006 Acknowledgement should be sent within 2 days (max 5 days) with name of caseworker, contact details and a date when a full response should be sent. LOW INCOMES TAX REFORM GROUP

11 If the specified deadline cannot be met then the claimant should receive a letter with a revised deadline. If the complaint response unsatisfactory at the first stage (Tier 1) then it should be escalated to a Tier 2 officer. If the claimant is still unhappy with the Tier 2 response then TCO should advise the claimant to contact the Adjudicator. LOW INCOMES TAX REFORM GROUP

12 Problems with complaints No response to initial communication Missing deadlines with no explanation Long delays in responding Points often missed or misunderstood Low amounts of compensation given Currently no suspension of recovery during complaint stages LOW INCOMES TAX REFORM GROUP

13 Disputes Process used when asking HMRC not to recover an overpayment HMRC act as judge & jury on disputes Disputes have been dealt with by a dispute team in TCO. There are no time limits for disputes (despite an incorrect 3 month time limit on award notices). LOW INCOMES TAX REFORM GROUP

14 Section 28 TCA 2002 – HMRC may recover all overpayments (including those caused by official error). COP 26 is the guidance on how HMRC use the Section 28 discretion. Overpayment recovery should be suspended upon receipt of a dispute. It will be released for recovery as soon as a dispute decision is made. Recovery will only be suspended again if a 2 nd dispute is made with new evidence. LOW INCOMES TAX REFORM GROUP

15 Recent changes to COP 26 New COP 26 introduced 31 st January 2008 Our understanding is that the new COP 26 rules will apply to all decisions made on or after January 31 st (even if sent prior to that date). If it is a 2 nd dispute then it will be dealt with using the same test as the original decision (E.g. if original decision was May 2007 under reasonable belief test, the new decision will be considered using that test). LOW INCOMES TAX REFORM GROUP

16 The old ‘reasonable belief’ test 2 stage test: (1) Was there a HMRC mistake? (2) Did the claimant reasonably believe their award was correct? Extremely high standard set by HMRC for 2 nd part Difficult for cases where claimants had spotted an error and HMRC had not acted upon this. (Circularity cases) Different decisions on similar cases Dispute decisions often not explained and points raised by claimants or advisers ignored. LOW INCOMES TAX REFORM GROUP

17 The new COP 26 Reasonable belief test abandoned Replaced by a set of responsibilities for both HMRC and Claimant If the claimant has met their responsibilities and HMRC have not– overpayment is remitted If HMRC have met their responsibilities and the claimant has failed their responsibilities – overpayment is not remitted. Contentious area remains where both parties have failed to meet their responsibilities. LOW INCOMES TAX REFORM GROUP

18 Improvements made by new COP 26 The circularity cases no longer occur – once HMRC are informed of an error on an award notice the overpayment will not be recovered. Responsibilities for both sides are clearer. Where the claimant meets their responsibilities and HMRC do not – the overpayment will be written off without the need to consider whether it was reasonable. LOW INCOMES TAX REFORM GROUP

19 Problems with new COP day processing time Evidence of meeting/failing responsibilities Claimant awareness of responsibilities Complexity of checklist and award notices Write off for hardship LOW INCOMES TAX REFORM GROUP

20 HMRC & claimant have failed responsibilities Exceptional Circumstances Draft Operational Guidance – soon to be put on HMRC website. Based on a series of steps to reach decision, appears to remove discretion. In this situation, guidance to staff indicates a partial remittance is possible seemingly based on the part attributable to HMRC error. This partial remittance seems to only occur if: (a) For an overpayment occuring in or later – the claimant notified HMRC of a mistake more than 30 days after receiving the award notice. AND/OR (b) HMRC delayed processing a change of circumstances for more than 30 days AND/OR (c) HMRC incorrectly processed a change of circumstances that has contributed to the overpayment. (We are still waiting clarification from HMRC on this part of the draft operational guidance)  The remaining part of the overpayment attributable to claimant error will not be remitted. LOW INCOMES TAX REFORM GROUP

21 Monitoring COP 26 It will take time for the new COP 26 decisions to start feeding through We are keen to have feedback of how the new rules are operating particularly: Are explanations any better? Cases where advisers believe there would have been a write off under the reasonableness test but HMRC are not writing off under the current test. Any anomalies in the operational guidance (once published) Any examples of cases not covered by the guidance. LOW INCOMES TAX REFORM GROUP