HM Revenue and Customs

3. Mrs U complains HMRC is recovering an overpayment of working tax credits even though it admitted to recording her income incorrectly. She says she did not get a letter due to postal issues, she was recovering from ill health and her husband was not aware of the tax credit issue. Mrs U says these exceptional circumstances, along with HMRC’s mistake, mean she should not have to repay the overpayment.

4. Mrs U says thinking about how to pay the debt has caused extreme worry and distress.

5. Mrs U would like the overpayment written off, HMRC to improve how it sends letters, and compensation for the last two years of stress she has had.

6. In March and August 2020 Mrs U got a text from HMRC’s tax credit office about notifying it of any changes to school costs due to COVID-19 lockdowns.

7. On 26 August, Mrs U contacted HMRC by webchat about changes to her childcare and income. She explained her children had not been using childcare services since March 2020, and she had earned £6,000 so far for the year. HMRC updated its records but wrongly recalculated Mrs U’s entitlement using a yearly income of £6,000. These changes meant she had been paid too much tax credits and HMRC needed to recover the extra amount.

8. Mrs U went into hospital a few weeks later and had an operation.

9. HMRC sent tax award notices in August and September to reflect the changes and the overpayment.

10. On 31 October the UK went into another national lockdown and Mrs U was furloughed while still recovering from her operation.

11. After the end of the tax year in April 2021, HMRC received information that showed Mrs U’s total household income was much higher than expected. When it recalculated Mrs U’s award, it showed she was entitled to much less in tax credits. Her tax credits were stopped as she was no longer entitled to them.

12. On 7 July, HMRC replied to Mrs U’s first complaint and acknowledged its mistake in updating her income. It offered £90 in recognition of this.

13. On 3 November, Mrs U sent another complaint to HMRC about the overpayment. HMRC replied on 2 December, explaining it had sent three award notices between August and September 2020. The award notices gave a breakdown of all the information HMRC held and its calculations.

14. On 7 February 2022, HMRC sent Mrs U a notice to pay £4,952 and asked for her to set up a payment plan.

15. On 24 February, HMRC replied to Mrs U’s complaint and offered a payment of £50 for the delay in replying.

16. On 11 May, the Adjudicator’s Office (AO - the second stage of the HMRC complaint handling process) partly upheld Mrs U’s complaint. It found failings in customer service but not in the way the overpayment happened. It recommended a further £50 payment for the poor complaint handling.

19. We can see Mrs U contacted HMRC in August 2020 to say her children were not in childcare due to the national lockdown. This means Mrs U would have received tax credits for childcare from April to August that she was not entitled to. This caused an overpayment because she had already received the credits by the time she told HMRC. But we can see that HMRC also wrongly recorded Mrs U’s estimated income.

20. HMRC accepted its mistake in updating Mrs U’s yearly income for 2020/21 and offered her a payment for its mistake. We understand Mrs U is not happy with this as she says she should not have to repay any credits due to her exceptional circumstances and HMRC’s mistake.

21. HMRC says it sent Mrs U three tax credit notices, giving her an opportunity to check the details and tell it there was a mistake. HMRC says it is a person’s responsibility to do this. We understand Mrs U is frustrated and she says her ill health and surgery meant she did not have the capacity to focus on the tax credit issue.

22. Mrs U also says there was a known issue with her post office, as it was working with minimal staff, meaning she did not get the tax credit notices. She would also like HMRC to consider this as a reason to write off the overpayment.

23. We looked at HMRC’s ‘Code of Practice 26’ (COP 26) to see if it has considered Mrs U’s request to write off the overpayment in line with this guidance. COP 26 explains HMRC is obliged to collect tax and can only write off tax credits overpayments in limited circumstances.

24. The guidance says, ‘If we fail to meet our responsibilities, but you meet all of yours, we’ll not ask you to pay back all of an overpayment caused by our failure. If you fail to meet your responsibilities, but we meet all of ours, we’ll normally ask you to pay back all of an overpayment. If we both fail to meet our responsibilities, we’ll look at what happened and may write off part of an overpayment.’

25. We can see HMRC did not record Mrs U’s income correctly in August 2020 when she told it about a change in childcare. This is not in line with its responsibilities outlined in the guidance, which say: ‘We should accurately record and use the information you give us when you make or renew your claim, to work out your tax credits and pay you the correct amount.’

26. But we can see Mrs U did not meet the criteria of ‘your responsibilities’ as outlined in the guidance. This means both parties did not meet their responsibilities.

27. The guidance says:

‘You should tell us as soon as possible about any changes in income and circumstance, so we have accurate and up-to-date information to reduce the chance of an overpayment happening […] Let us know as soon as possible if you do not get an award notice within 30 days of telling us about a change in circumstance’.

28. Mrs U contacted HMRC in August 2020 to report changes. We cannot see any barrier that stopped Mrs U reporting these changes earlier, and by that time she had received a significant amount in credits. We understand claimants faced uncertainty during the pandemic.

29. We also understand Mrs U was in ill health from August 2020 onwards and she told us postal issues meant she did not get the tax credit notices. We empathise with Mrs U as she had surgery and was recovering during this period. We looked at whether HMRC has considered the ‘exceptional circumstances’ of its guidance.

30. The guidance says, ‘We understand that exceptional circumstances may prevent you from meeting your responsibilities on time. For example, you or a close family member may have been seriously ill so you could not report a change, check your award notice or tell us about our mistake within 30 days of the date on your award notice.’

31. HMRC explained that as it was a joint claim, both Mr and Mrs U share the responsibility to report any changes. Mrs U says she manages the claim and Mr U would not have been aware of her call to report changes or have known to expect a notice. But in making a joint claim Mr U accepted the responsibilities for tax credit claimants, and we have not seen any reason why he could not have met those responsibilities.

32. Mrs U says she was only aware of the error at the end of the tax year in April 2021 when HMRC sent her annual review. Although Mrs U was poorly from August 2020, neither she nor Mr U contacted HMRC until eight months later, when the annual review was sent. HMRC explained it has not seen any evidence to show that Mr and Mrs U were not able to act quicker or that their circumstances were exceptional.

33. We cannot see any signs of failings in HMRC’s decision that Mr and Mrs U did not meet their responsibilities outlined in the COP 26 guidance. We cannot see any reasons to suggest that Mr or Mrs U could not have contacted HMRC about not getting a tax credit notification. As Mrs U had received tax credits notifications before, it would have been clear that some were missing. It would also have been clear to her that her payments had increased, which would trigger a notification, but there is nothing to suggest they contacted HMRC to query the reason for the increase.

34. The evidence available to us shows HMRC acted in line with its guidance when it considered if it could write off the overpayment under COP 26, including considering the exceptional circumstances criteria.

35. Even though its error in recording Mrs U’s income does not mean it can set aside the overpayment, HMRC recognised that error and offered £90 to put right its mistake. We looked at our guidance on financial remedies and considered the evidence outlined above from HMRC and the AO.

36. We can see the error caused Mrs U avoidable frustration. As explained above, we can also see the overpayment had already happened due to Mrs U’s late notification of a reduction in childcare. HMRC’s error increased that overpayment but effectively meant the family received credits they were not entitled to. This means there is no financial loss, but there is an emotional impact to Mrs U. We consider £90 and the apology to be enough to put right what happened, in line with our Principles which say people should be compensated appropriately.

37. It would not be proportionate or in line with that guidance to recommend the overpayment be written off. The overpayment is properly owed to the public purse. If the HMRC mistake had not happened, Mrs U would still have had an overpayment, but it would have been less.

38. We hope this statement clearly explains the reasons for our decision.

1. The Parliamentary and Health Service Ombudsman has carefully considered Mrs U’s complaint about HM Revenue and Customs (HMRC). We are sorry to learn the reasons for Mrs U’s complaint and the financial hardship and stress she says she experienced.

2. After reviewing the evidence provided by Mrs U and HMRC, we can see that although HMRC made a mistake, it has already done enough to put it right. Because of this, we have decided to take no further action. We explain our reasons for this decision in this statement.