How to Dispute a Tax Credit Overpayment: Step 2

Step 2: 2nd Tier Dispute & Complaints

If and when the first dispute stage fails, move on to 2nd Tier Dispute & Complaints It is important to make clear that you are continuing the dispute, not just making a complaint.

Please note that there is now a 30 day time limit to get a 2nd tier response sent in.

The basis for continuing the dispute should be that you do not feel all the relevant issues have been considered. HMRC's previous response will say they will only consider a 2nd tier dispute if you provide additional information and 'new evidence'. As such, this is the stage where I recommend giving fuller detail.

I used to recommend that people wrote a Case History for this stage, but I no longer feel that is necessarily unless your case is especially complex (i.e involves several different complex issues). Instead I now recommend only responding to the points HMRC raise in their previous response and any relevant issues that have been ignored, in a typical letter format.

How To Compose Your 2nd Tier Letter

Include your address, your National Insurance number and any reference HMRC used on their previous reply. Open the letter by heading it '2nd Tier Dispute and Complaint', and stating that you 'continue to dispute the alleged overpayments'. Then break the letter down into tax-year sections. i.e. 2010/11.

The bulk of your letter should be involve as many of the following as are relevant:

  • rebutting accusation in HMRC previous response
  • raising issues that have been ignored
  • asking questions, where the answer will further your defence
  • (see 'Examples Of What To Look For ...' below)

Usually the most common and important task is to aim to prove you did:

  • report Changes Of Circumstance (COC's)
  • and / or
  • that you attempted to correct errors you noticed on your award notices

Being able to prove you did in fact take these actions helps to prove you meet your responsibilities under the 'Responsibilities Test'.

Note that HMRC have responsibilities under this test as well. Ones that, if they fail them, should mean all relevant overpayments are dropped. HMRC failing to act on claimants notifications is a huge and common issue.

Despite their constant untruths about this issue, the failure is usually either HMRC failing to respond correctly, the use of old data, or delays in processing information.

It's important to understand the significance of Award Notices. HMRC basically use them as a butt-covering measure. They are issued to claimants when a change is notified/occurs, for the claimant to 'check and correct'. If HMRC make a mistake in updating after a notification, the claimant is expected to spot it on the award notice and correct it within 30 days of the notice. As such, during a dispute, HMRC will repeatedly refer to the date of award notices, even if it is not particularly relevant to the issues you are arguing.

Examples Of What To Look For In The Data
And HMRC's Response(s)

Look for evidence that supports your points / defence in the data you should have received by now. See the end of Step 1b for a description of what should be included in the SAR data bundle.

If you have not received your data (or some appears to be missing) by the time HMRC respond to your TC846, I suggest sending a short, simple letter in reply to acknowledge receipt of their letter, but to complain that the lack of data supplied affects your ability to dispute. And that because it is HMRC that are holding up the dispute, no response deadlines should be applied until after all the data has been supplied to you.

Look for proof that you did meet your Responsibilities Test and / or HMRC did not meet theirs:

  • Notes and screen captures that confirm dates / ‘events’ / contact you say happened. There may be evidence that they did take that call from you dispute more recent claims that you did not ring.
  • Do payments suddenly change? Like a recalculation has been done, even though they claim you didn’t notify them of any changes? Use these changes to prove you did. Why would the payments change otherwise? A new awards notice is only generated when information on the claim is altered.
  • Did payments go down after you reported COC's (ones they acknowledge you did report) because if not, they have caused an overpayment to increase further by failing to act on information you declared.
  • Where HMRC got the start figures for each new award from. It was probably the last figure they had from the previous year, which is usually from BEFORE that years 'finalisation'.
  • ‘Provisional Payments’ (PP). When HMRC are finalising the previous year's award they pay out new year's award payments on old data until they can catch up. Claimants didn’t supply the income information used for this purpose and should not be made responsible for it. It’s a huge risk to take and its HMRC taking that risk, not the claimant, who didn’t know this happened. I argue that all PP overpayments should be written off, as the claimant did not consent to the use of old data, nor was forewarned of the risks of PP.
  • Manual payments or lump sums bigger than usual – these are notorious for being wrong. Is there any indication of why this was paid – declared changes acted on wrongly / income recorded wrongly, etc?
  • When was the first award notice of each year received? Until claimants have an award notice, they have nothing to 'check'. If there was an unfair delay then claimants should demand all overpayments up until that point are written off because they were unable to perform the required checks.
  • HMRC have a nasty little habit of 'hiding in plain sight' inconvenient details. For instances they may say that 'an award notice was sent on X date' but omit to point out that this was after the overpayment had already occurred.
  • Please note that after the Tax Credit Casualties proved that not all calls were/are recorded, HMRC officially agreed that 'in the absence of any tape recording of the call the claimant will usually be given the benefit of the doubt, with any ensuing overpayment being written off.' Make sure to quote this if relevant to your case.
  • (Minutes of the Tax Credits Consultation Group (TCCG) meeting 04 December 2008 here. Load page, press [F3] key, then search 'telephone calls'. Result 2/2)

To ‘translate’ the data for dispute purposes, I separate the documents out in the Tax Years. Please note that I don’t actually focus on what payments were made when etc. (so please do some quick maths to check that they did pay you at least the figure they claim you are overpaid by).

At this point please remember that HMRC operate each year as a separate account and that their ‘year’ runs from the 6th of April one year to the 5th of April the following year. So you will check documents not just for the date they were produced / sent but also for the date / tax year they are relevant for.

Other Issues To Include: Health Issues

If you have experienced health problems during the time the overpayment occurred, either your own health or a family member’s that affected you, do please mention that in your case history. Tragedy, trauma, stress, hospital visits, can all impact on what expectations can be made of you during that period.

Mental health is a common issue and one that people don’t often raise, despite it having massive affects on how they can cope. A letter from your doctor would be very useful if your doctor was aware that you were experiencing these problems; either one that just states your diagnoses / symptoms or if possible (if you doctor is willing to be extra helpful) one that details the effects the illness had on you and what affects the continuing overpayment dispute is likely to have on you. HMRC are also expected to "deal with mental health cases carefully and sympathetically to avoid distress to the customer."

Summing Up

So, make sure to include, if appropriate:

  • Copies of any data, or references the date of phone calls, that back up the fact that you did make contact.
  • Demand that the duration and total of Provisional Payments are disclosed and written off as based on information you did not supply for that purpose.
  • Demand to know the dates of all awards notices and the circumstances on each.
  • Mention any health issues.
  • Quote the TCCG minutes regarding missing content of calls.
  • Complain that payments should have been reduced in-year to reduce overpayment.
  • Tell HMRC they have instructions to be more lenient in disputes for the first two years of the system (03/04 & 04/05) due to the errors and complexity of the initial system if these are years you have been overpaid for.
  • Don’t say, ‘I didn’t see forms before my wife / ex sent them in’, etc. Your name is on the award so it means they deem you had a responsibility to check it ... UNLESS domestic violence is an issue that either caused the overpayment or prevented you from being able to respond as expected.
  • Request a Notional Entitlement assessment is done to reduce the bill. Use this if whole or part of a year’s claim has been disallowed / annulled / cancelled due to wrong number of adults on the award.
  • Raise that repayment will cause 'hardship'.

When You Have Finished The Letter

I recommend posting your letter to the address the HMRC response came from.

If you experience demands to repay during disputing please see this page Harassment.

This stage is only over if and when they write to inform you they deny your dispute. Until they make this statement, all the other external agencies you can present your case to will keep bouncing your case back to HMRC.

Please note that it is common to receive a partial success around this point. i.e. one or more portions of the overpayment may be written off if HMRC accept they caused the event that created that particular portion. This is good and typical of most overpayment disputes, as they are won bit-by-bit, one round/portion/cause at a time.

Now have a look at Step 3 and determine whether you think getting your MP involved would be useful.