Tax Credits: National Statistics 2006-07

Overpayments of tax credits have fallen by £700 million since 2005-06, and are now at less than half the level they were in 2003-04, according to National Statistics published today by HM Revenue & Customs (HMRC).

The reduction is the result of measures introduced from 2006, including reducing the period in which people have to renew claims, increasing the number of changes in circumstances reported to HMRC, and allowing an increase in income of up to £25,000 before there is a change to families' entitlement.

The figures also show that in 2006-07:

5.96 million families were benefiting from tax credits
305 thousand childless individuals were benefiting from tax credits (a 12% increase in the number benefiting since 2005-6)
384 thousand families benefited from the childcare element (a 13 % increase since 2005-6)
129 thousand families benefited from extra help for workers with a disability (compared to 117 thousand in 2005-06)
Between 2005-6 and 2006-7 720 thousand families benefited from extra support from tax credits when they faced a fall in income.

Commenting on the data, Financial Secretary to the Treasury Jane Kennedy said:

"The improvements we have made to the administration of the tax credits system have significantly reduced overpayments, increased the flexibility of the system and provided certainty to families. Tax credits are providing much needed financial support to six million families, and have helped lift 600,000 children out of poverty since 1997.

"We will continue to build on this success through further improvements to the tax credit system, which I am setting out today."

A joint Treasury-HMRC discussion document "Tax Credits: improving delivery and choice", published today sets out proposals for:

tailoring support more closely to individuals' needs and making it easier for customers to claim, receive and renew tax credits, to reduce the scope for error;
giving customers greater certainty and more control over how they manage their tax credits affairs, whilst continuing to provide more timely support to customers whose income falls or whose circumstances change; and
improving the delivery of financial support for childcare through tax credits, further simplifying the system for customers.

Notes for Editors

1. The Tax Credit data is published under National Statistics and available from HM Revenue & Customs website at www.hmrc.gov.uk/stats/personal-tax-credits/menu.htm Select either "main tables" or "geographical analysis."

2. Tax credits overpayments are £1.0 bn in 2006-07 compared to £2.2 bn in 2003-04.

3. The discussion paper "Tax Credits: improving delivery and choice" which is published today on HM Treasury's website at http://www.hm-treasury.gov.uk seeks views on measures including the following options:

introducing further situations in which a run on, which extends entitlement to tax credits for a set period after a change in circumstance, is allowed;
helping customers who give inaccurate income estimates or report changes late, by rounding up any income estimates that customers provide in year through the use of income bands;
whether, in the longer-term, further reforms should be introduced, building on those introduced to date, to help customers build up end-year top-up payments by following the Australian example and giving customers more choices about how they receive their awards; and
consulting on a range of options to reform the delivery of childcare support, including measures to simplify the way entitlement to childcare support is calculated; to give customers more certainty over the childcare support they are entitled to receive; and to make the childcare support customers receive more transparent.

4. In addition the paper includes improvements, building on those announced at Budget 2008, due to take effect shortly:

better arrangements for dealing with household break-ups, which will be rolled out in 2009-10;
more flexible options for customers to pay back any debts they have incurred, including trialling from April 2009 giving customers the option of paying back debts via the Pay As You Earn system; and
additional support for vulnerable customers to help them keep their claims up to date, to start by the end of 2008.

5. Budget 2008 announced that HMRC will:

proactively contact vulnerable customers, during the 2008 renewals window, and offer them additional support to renew their claims;
help customers keep their claims up to date to avoid overpayments by proactively seeking information and making better use of the information already held;
work with Children's Centres to pilot different ways and locations for providing advice and services;
by the end of 2008, introduce new ID authentication services to help reduce error and fraud; and
support these services with improved communications products to make sure customers have the right information when they need it.

6. Many of these changes will be implemented through HMRC's Tax Credits Transformation Programme. Originally set up in 2006 it aims to create a tax credits service which is clearly understood by customers by introducing a set of services and communication products which are tailored to their customers' needs. The Programme is helping customers to do the right things at the right time so that their tax credits claim is accurate and up to date.

7. PBR 2005 announced a package of measures which HMRC have made good progress in delivering and have led to the reduction in overpayments. These included:

increasing the income disregard to £25,000 to ensure almost all families with increasing incomes do not have their tax credits reduced in the first year of the increase;
reducing the period in which people have to renew their claims and so reducing the time during which people are paid an award based on last year's information;
introducing new reporting arrangements to increase the number of changes in circumstances that are reported to HMRC and reduce the time taken to report these changes;
restricting the amount by which ongoing tax credit payments can be reduced to recover an in-year overpayment to ensure low to middle income families don't face an unexpected reduction in their payments; and
when an estimate of a reduced current year income is reported, future payments are adjusted but a one-off payment is no longer made for the earlier part of the year. Instead, when the award is finalised at the end of the year any necessary adjustment is made then, tackling the problem of families overestimating falls in their income.

8. Latest figures already published show that in 2005-06 take up of Child Tax Credit was at 82 per cent with 91 per cent of the money available being claimed. Take up for those on incomes of less than £10,000 is 97 per cent and 93 per cent amongst lone parents. The take-up of tax credits is higher than for any previous system of income-related financial support for in-work families.

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