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Thousands of Universal Credit claimants hit by tax grab

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Tens of thousands of families receiving Universal Credit have had their payments cut by the taxman as a result of historic tax credit overpayments.

A Freedom of Information request by The Times found that since January 47,000 claimants per week have seen their Universal Credit payments reduced because they had previously received more in tax credits than they should have. 

In many cases, this overpayment was not due to the claimants themselves, but rather due to mistakes made by the government.

And now HM Revenue & Customs is attempting to claw back that money from some of the nation’s poorest-paid households.

Where things went wrong

Tax credits were introduced by the New Labour government back in 2003 as a way of supporting low-income households. However, there were significant issues with getting the calculations right over how much a family should actually receive.

According to the taxman’s latest annual accounts, there is still around £3.5bn outstanding in tax credit debt owing to these overpayments.

Since 2019 there have been no new claimants for tax credits, with recipients instead being moved onto Universal Credit. 

Getting the money back

According to the Freedom of Information request, between April and November last year the Department for Work & Pensions reduced claimant payments by a total of £63m on account of these historic overpayments. The cuts had been paused at the onset of the pandemic but were then reintroduced from July.

Since this January cuts have started for new referrals from the taxman of people who had started claiming the benefit for the first time during the pandemic.

What’s more, HMRC confirmed that it had sent almost 140,000 letters to claimants warning them that they faced payment cuts between April and December last year, while since 2016 it has sent more than 2.2 million letters to claimants to inform them of cuts because of such overpayments.

A spokesperson for the government told The Times that most overpayments were down to delays in claimants reporting changes in their circumstances, and said safeguards were in place to ensure deductions were manageable.

The cuts come at a time when the government has been pushed into extending the £20 uplift to Universal Credit ‒ which was first introduced last year due to the pandemic ‒ until September. The extension followed significant pressure from MPs, with some calling for it to be extended by a full year.

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