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Tax Credits

Volume 694: debated on Wednesday 25 July 2007

My right honourable Friend the Financial Secretary to the Treasury (Jane Kennedy) has made the following Written Ministerial Statement.

HM Revenue and Customs (HMRC) has identified an administrative problem with a number of older tax credit awards. It has come to my attention that officials did not follow the correct procedure when reopening some of these cases. This now needs to be remedied.

HMRC has estimated that it needs to review around 160,000 awards in total from 2003-04 and 2004-05, out of the 6 million households that are benefiting from tax credits. These are cases where information that reduced the households’ entitlement came to light after the award for that year had been finalised and closed.

HMRC will shortly be writing to these households to inform them that their case is being reviewed in order to correct this administrative error. HMRC will contact them again once it has completed the review.

Those affected will not need to take any further action themselves, and no household that have their case reviewed as a result of this issue will have their tax credit award reduced.

Although the revised award was an accurate reflection of the households’ new circumstances, the process by which HMRC took this into account was not correct. HMRC should have notified recipients in writing at the time that it was examining the award after finalisation, but did not do so in certain cases.

HMRC is now putting in place correct procedures for all subsequent cases, to make sure this problem does not arise again. As part of this, HMRC will also write to around 90,000 households about their 2005-06 awards to make sure they are finalised correctly.