31 July 2010 Last updated at 13:39

Tax credit repayments 'to soar'

By Brian Milligan Business reporter, BBC News

Many more people will have to pay back some of the money paid to them as tax credits in the future, experts say.

At the moment credits are based on a family's own estimate of income for the coming year, with households allowed to earn an extra £25,000 before they have to pay money back to the government.

But over the next 18 months that buffer will be reduced to £5,000, meaning that many families could face repayments.

One expert warned the number of overpayments would "rocket".

The warning comes on the last day people can renew this year's claims for working tax credit or child tax credit, with a spokesman for Her Majesty's Revenue and Customs (HMRC) reporting its claims helpline has been inundated with calls.

The HMRC has extra staff on its helpline, but the BBC has had e-mails and texts from people unable to get through.

The changes to the overpayments buffer were announced in the Budget and will be implemented from next April.

Campaigners fear many more people than currently have to repay money will be hit - people like Sarah Holding, a single mother from Wigan who works as a receptionist.

She claims both working and child tax credit, but because she has changed jobs frequently over the last year, and her childcare has altered, she has been overpaid.

She has now been told she now owes Revenue and Customs just over £2,000.

"Obviously I don't have that kind of money," says Sarah, who has put her house up for sale and is seeking cheaper accommodation.

She accepts she has to pay it back, but finding £40 out of her weekly budget is hard-going.

As a result, she says, she has been having sleepless nights, and suffering from severe stress.

"The worst case scenario is: I've not got the money - I'm going to end up in jail," she says.

Budget changes

Sarah is far from being alone.

Last year more than a million families were overpaid child or working tax credit, and more than £2bn was written off by the government.

So the government announced changes in last month's Budget designed to recoup some of that money.

At the moment the tax credit a household gets is based on its own estimate of annual income.

The government has allowed people to earn an extra £25,000 over that estimate before it asks for a refund.

But from next April, that leeway, or buffer, will be reduced to £10,000. The following year it will be cut to £5,000, meaning many more families face being asked to pay money back.

Lee Healey, a benefits expert, thinks the consequences will be serious.

"I would expect overpayments to rocket, and for many more people to be hit with an overpayment of their tax credits."

'Antiquated system'

On Thursday, Work and Pensions Secretary Iain Duncan Smith announced a wholesale reform of the benefits system, describing it as "antiquated".

The idea is to provide better incentives for people to return to work, and to cut down on bureaucracy.

He hinted that one problem with working and child tax credits is the fact that families have to predict their income a year in advance.

"In future," he said, "you will not have to project forward, like you do with tax credits, for a year, and guess what people might be doing."

However, the Department for Work and Pensions has admitted such changes will take a few years to implement.

As a result some organisations which represent single parents are concerned about the timescale.

Kate Bell, from Gingerbread, welcomed the government's plans, but said action was needed much more urgently.

"We'd like to see a system that takes overpayments out of the system, where people aren't having to deal with that stress."

She recommends a system that would pay a fixed amount for six months.

The claims helpline closes at 2000 BST, but an HMRC spokesman said officers will look "sympathetically" on cases where people have genuinely tried several times to get through but failed, refusing though to give any blanket promises.

However, he also pointed out that renewal forms went out in mid-April giving plenty of time for claims to be processed before today's deadline.

The standard helpline telephone number is 0845 300 3900 - or for customers who are deaf or hearing or speech impaired there is a textphone number 0845 300 3909.