These will be cases where claimants, or their agents, have sent in a Form TC846, or where the claimant or agent has otherwise requested that HM Revenue & Customs (HMRC) reconsider recovery of a tax credit overpayment on the grounds of official error. The procedures do not apply to:

• Cases where the quantum of an overpayment is in dispute. In these cases an appeal is made against an award notice, and the cases settled through the usual appeal procedures. If such a case results in a final overpayment figure, and it is considered that the rules of COP26 would apply and HMRC should not seek recovery of the overpayment, then the case may become one to which these new streamlined procedures would apply.
  
• Cases where the recovery of an overpayment is disputed on grounds of hardship, as opposed to official error.

Statistics published on 1 June indicate that there were over 1.8 million awards overpaid at 5 April 2004. The number of cases, to 31 May 2005, where claimants have requested reconsideration of recovery is 271,000 (although this figure also includes 2004/05 overpayments). Of these, on 4 July 2005, 151,000 had been decided upon and the balance was awaiting a decision. Answers in Parliament on the same day show that in the month of May 2005 overpayments to the value of £30.8 million have been written off.

The new procedures involve HMRC using risk-based criteria to concentrate efforts on checking official error claims on those where the risk of exchequer loss is greatest. In lower-risk cases they are applying limited investigation and a shortened calculation, using streamlined procedures.

The streamlined procedures

In the cases to which the streamlined procedures apply, HMRC will accept that official error relief is due without investigating each award version in depth to identify any HMRC error or whether the claimant could reasonably have known that their award was incorrect. HMRC will also perform a shortened calculation of the amount of the relief. The claimant will receive a standard letter (known as a TC859A) advising them of the amount of overpayment that will not be recovered (copies of all the overpayment letters are attached to this article).

In most cases, the shortened calculation produces the same result as the full calculation or works to the claimant’s advantage by producing a higher amount of relief. But in a small proportion of cases, it results in a lower amount of relief than the full calculation. For instance, if the HMRC error was £1,000 but the overpayment was only £600, a full calculation would show these figures, and in this situation the £600 could be written off with the claimant also being entitled to a further £400 of tax credits. The shortened calculation would only result in the £600 being written off.

Claimants falling into the category who may be disadvantaged by the shortened calculation will receive a TC859A explaining this and telling them that they can ask for a full calculation if they wish. However, because the shortened calculation generally produces the same result as the full calculation or works to the claimant’s advantage requesting a full calculation will often not be in the claimant’s interests. The consequences of requesting a full calculation might mean less relief, rather than more. This is because there is always the possibility that:

• The full calculation will show that there was no HMRC error;
  
• The full calculation and the full examination of the case will show that the claimant should have reasonably known that their award was incorrect; or
  
• The full calculation will show that there was an error, but that it is less than the overpayment being written off.

In these cases the claimant will lose out by asking for the full calculation, because HMRC will then apply the full procedures and only write off that part of the overpayment which arises from an error (including HMRC delay), and then only if the claimant could reasonably have thought their award was correct.

The purpose of these procedures is to expedite the reconsideration of overpayment recovery and clear the current backlog of cases. The new procedures apply to disputed 2003/04 end of year overpayments and 2004/05 in-year overpayments, and the approach to 2004-05 overpayments will be reviewed in the light of experience.

Other cases

Cases which cannot be dealt with under the streamlined procedures will be subject to a full calculation, full consideration of the circumstances in which the overpayment arose and full consideration of the likelihood of the claimants knowing that their award was incorrect.

If it is decided that the overpayment arises purely from HMRC error (including HMRC delay), which the claimant could not reasonably have identified, then the whole overpayment will be written off and the claimant will receive the letter called TC859B.

If it is decided that no error occurred or the claimant should reasonably have known that their award was incorrect, then the overpayment will be recovered in full and the claimant will receive the letter TC859C.

If it is decided that the HMRC error accounts for only part of the overpayment and, for that part, the claimant could not have reasonably known that their award was incorrect, then that part of the overpayment will be written off and the rest of the overpayment will be recovered. The claimant will receive letter TC859D.

These procedures will be applied to all disputed 2003/04 end of year overpayments and all 2004/05 in-year overpayments which fall outside the criteria for the streamlined procedures. They are the usual procedures that applied before the streamlined procedures were introduced.

Cases which have already been reconsidered by HMRC

If a case has already been decided on the old rules it will not be reconsidered under the new rules. Claimants will have received the correct amount of any official error relief due.

However, it is still up to a claimant to challenge a TC859C or D letter if they believe HMRC have made an incorrect decision or if they have additional evidence that HMRC has not previously considered. This usually involves identifying how the overpayment arose, and putting the arguments that it was either a case of HMRC delay or HMRC error, and the claimant could reasonably have thought their award was correct.

The Chartered Institute of Taxation
22 July 2005