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Universal Credit claimants could lose cash after tax credits overpaid

Emma Lunn
Written By:
Emma Lunn

Thousands of people face benefit deductions because they were unknowingly paid too much in tax credits in the past.

Where tax credits have been overpaid, the money is clawed back from Universal Credit payments, leaving cash-strapped households with even less money to live on.

Tax credits are calculated according to claimants’ circumstances at the start of each financial year. But changing situations and fluctuating incomes mean some people are overpaid through no fault of their own.

According to an investigation by the BBC, more than 800,000 households on Universal Credit received less money last year because they were previously awarded too much in tax credits.

Where an overpayment has been made, the Department for Work and Pensions (DWP) can reduce benefits by up to 25% for people working, or 15% for those not in work.

Campaigners are calling for this figure to be capped at 5%, so deductions are more manageable for claimants.

The DWP says safeguards are in place to protect vulnerable households – but debt charities said the deductions are leaving households “in a spiral of debt”, with some unable to afford rent or adequate food.

Data obtained by the BBC through a Freedom of Information request shows that the DWP has to claw back more than £1.5bn in overpaid tax credits. According to HMRC data, about a third of all households in the UK claiming tax credits will be overpaid, and 13% underpaid.

With about 1.5 million tax credit recipients set to be transferred on to the Universal Credit system from September, campaigners fear the problem will get worse.

Tax credit overpayments: ‘An illogical situation’

Citizens Advice told the BBC an “illogical situation” had occurred in which households facing deductions were being referred to local authority hardship schemes funded by the DWP for support.

HMRC puts the onus on claimants to report any change in their circumstances as soon as possible, but debt advisers say this can be hard for people on zero-hours contracts, those with disabilities or mental health issues, and people who do not speak English as a first language.

In other instances, tax credits may be wrongly calculated by the system, leaving people in debt to the Government.

Grace Brownfield from the Money Advice Trust told the BBC: “Because deductions from benefits are taken without any assessment of what’s affordable for the individual, we’re seeing parents who are skipping meals to feed their children, people that have health conditions who haven’t been able to afford to put on the heating.”

In theory, when claimants are informed of a deduction, they can dispute it. But people say the process of challenging the deductions is difficult, while there is no time limit for the Government to reclaim overpayments.