[For cases where claimant has undisclosed partner]
Our ref.
URGENT
HMRC Solicitors' Office
South West Wing
Bush House
Strand
London WC2B 4RD
By post and by fax to: 020 7438 4336
[Date]
Dear Sir/Madam,
Tax credits overpayment offsetting – proposed claim for judicial review
Proposed claimant:
Proposed defendant: Her Majesty’s Revenue Customs
Details of the matter being challenged
1. We are writing concerning our client, [name], whose authority is enclosed, in accordance with the judicial review pre-action protocol. The decision which is the subject of the proposed claim is HMRC’s decision of [date] to recover from our client an overpayment of tax credit.
2. Our client was notified of HMRC’s decision to pursue recovery by letter dated [date], a copy of which we enclose. For the reasons we set out below we believe this decision to be unlawful. We would be grateful for your response to this letter by 5 pm on [date 2 weeks in advance], failing which [we are instructed to issue proceedings for judicial review without further notice to you/ we are instructed to refer this case for judicial review proceedings to be issued without further notice to you].
Background
3. Our client lives at the above address with [list family names and dobs of children. Give details of any illness, disability, relevant family circumstances].
4. Our client receives [list any benefits or other income the family receives].
5. Our client was overpaid child tax credit in the tax year [insert date]. We understand the overpayment arose when [name] joined the household on [date] [add any other relevant details about the circumstances] [Explain whether the client notified HMRC and if not why not]
6. [If there is any uncertainty about how the overpayment has been calculated you could add in a request for further information here]
7. On [date] we wrote to HMRC and asked it to consider offsetting any overpayment against underlying entitlement. In its response dated [insert date], a copy of which has been enclosed, HMRC has refused to offset [amend as necessary]
8. It appears that the overpayment arose because by s 3(4) Tax Credits Act 2002 (“2002 Act”) entitlement to a tax credit pursuant to a single claim ceases if the persons by whom the claim was made could no longer make a single claim.
9. This is a technical overpayment; there has been no loss to the public purse. Our client would have been entitled to the same amount of tax credits for her children if she had claimed as part of couple with [name] on [insert date]. This is because child tax credit only contains elements payable for children, it does not contain elements payable in respect of either parent.
The law
10. By section 28 of the 2002 Act, the Commissioners of the Inland Revenue have a discretion as to whether to recover an overpayment or any part of an overpayment of tax credit in any given case.
HMRC’s policies on recovery
11. We understand the Child Poverty Action Group wrote to Jane Kennedy MP on 23/10/07 expressing its concerns about HMRC’s policy on offsetting overpayments. We understand that policy is currently under consideration.
12. The Claimant Compliance Manual (CCM) contains a policy allowing for offsetting in cases where there is no loss to the public purse at paragraphs CCM15510 onwards. Paragraph CCM15530 is headed “Undisclosed Partners: Recovery of Overpayment for cases opened before 17 May 2007 – Notional Entitlement Where a Partner Still Lives With The Claimant.” This goes on to state:
“Where the claimant is still living with the partner you will calculate the notional entitlement as if the couple have made a joint claim at the correct time.”
The examples given at CCM15535, CCM15540, and CCM15550 make it clear that to arrive at the net overpayment notional entitlement is deducted.
13. If this were followed in our client’s case, her net overpayment would be reduced to nil, since her underlying entitlement equals the amount of the overpayment.
14. However, this policy was changed with effect from 17/5/07 for cases “opened” on or after that date. The new policy is contained in CCM15605-15695. The new policy restricts the circumstances in which set offs will be considered to cases of “genuine error” on the claim, and does not apply to changes in circumstances. It states (at CCM15605) that “it cannot be considered where a claimant was late in telling us about a change in their circumstances” (emphasis added).
15. However, we understand the policies in the CCM are not, in any event, applied to circumstances such as those of our client, since they only apply where an enquiry or examination has been opened. As far as we are aware, this has not happened in our client’s case. Rather, where the overpayment has come about as a result of the claimant’s notification of a change in circumstances, then we understand the recovery policy in COP26 would apply. COP26 was changed with effect from 28/1/08. Neither version contains any provisions allowing for offsetting for any claimants.
The issues in the proposed judicial review
16. The first matter of concern is that the offsetting policy contained in CCM 15560 (under which no net overpayment would have arisen) has not been applied to our client’s case, firstly because the overpayment in this case came to HMRC’s attention after 17/5/07 and secondly because her case appears to be being considered under the policy in COP26.
17. In respect of the first issue, we consider the change to the policy in the CCM so as to narrow the range of circumstances in which offsetting will be considered to be unlawful: firstly as an unlawful fetter on HMRC’s discretion under section 28 of the 2002 Act and secondly, because the fact that different policies in the CCM may apply to the same facts arising on the same date, depending only on the date when the overpayment comes to HMRC’s attention seems to be a distinction made on an arbitrary and irrational basis.
18. In respect of the second issue, we are of the view that it is arbitrary, unfair and irrational, having regard to the purposes of the tax credit scheme, to have two different policies on writing off overpayments with wholly different results, dependent only on how they came to HMRC’s attention, without any apparent justification. Indeed claimants who are dealt with under COP26 are less likely to be blameworthy, since they themselves have brought the overpayment to HMRC’s attention.
19. Further, we consider it to be an unlawful fetter on HMRC’s discretion under section 28 of the 2002 Act for HMRC not to consider writing off an overpayment in circumstances where the claimant has an underlying entitlement.
20. [If your client has an argument that COP26 applies use this paragraph – otherwise delete it] HMRC has failed to apply COP26 correctly in this case [add in details of why your client meets the test in COP26 – either the old or new versions]
Conclusion
21. The overpayment HMRC seeks to recover represents money intended for our client’s children to live on. In seeking to recover it, HMRC is essentially recovering money from our client’s children. Our client would be left albeit retrospectively, with no means of supporting them, save child benefit. If our client had claimed in the right way sooner she would have been entitled to the same amount of money as she actually received. Effectively, HMRC is seeking a windfall at the expense of these children. This is directly contrary to the government’s policy objectives in combating child poverty and to the purpose of the tax credits scheme.
22. [If your client’s overpayment is higher because s/he has received disability elements for a disabled child, you can point out this is unfair and potentially discriminatory here]
Details of the action that the defendant is expected to take
23. For all the reasons given above, no overpayment of tax credit ought to be recovered from our client. We therefore ask that you review our client’s case, having regard to all the matters set out above and in the attached correspondence, and confirm that no overpayment will be sought from her. We also ask that you repay to her the sums she has repaid.
24. Further, we consider both the apparent change to the CCM15510 policy and the absence of offsetting recovery provision in COP26 to be unlawful for the reasons given above. We invite HMRC to amend the relevant guidance to reinstate the provisions for offsetting in CCM 15510, to extend them to all cases where there is no loss to the public purse and to incorporate them in COP26.
Proposed reply date
25. As set out above, we expect a reply to this letter as soon as possible and at the latest by [insert date], [failing which we are instructed to commence proceedings for judicial review/ we will refer this case for proceedings for judicial review to be commenced] without further notice to you. The address for reply is above.
We look forward to hearing from you.
Yours faithfully,
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