HM Revenue & Customs has had to withdraw a new leaflet which explains how tax credit works because of an error in its information.

The leaflet – entitled “Why do overpayments happen?” was published on HM Revenue & Custom’s website last week.

It mentions a tax credit claimant who failed to report that their income had risen from £9,000 to £20,000 per year would be paid too much tax credit. However, it does not mention that income can rise by £25.000 before any repayments are due.

A spokeswoman for the Revenue said that: “We agreed that the example used on page 2 of this leaflet concerning income is misleading and we have arranged for this leaflet to be removed from our website.

“We aim to have a revised version of the leaflet available for customers soon.”

The change in tax credit so that you had to be earning an extra £25,000 per year before it affects your annual tax credit assessment is known as the income disregard, and came about in 2006 when it was raised from £2,500.

Is the System Too Complicated?

Such a huge and sudden rise in the threshold meant that in its early years there was chaos surrounding the tax credit system and millions were overpaid and then had to be sent demands for repayments of thousands of pounds.

Some cases were caused by HMRC staff calculating tax credit incorrectly even with right original information from claimants, and other cases were caused by unawareness of claimants, or informing the Revenue too late leading to an overpayment.

Between 2003 and 2007, these overpayments totalled £7.3 billion and are currently still totalling around £1 billion a year according to a report by the MPs on the Public Accounts Committee.

Robin Williamson from the Low Incomes Tax Reform Group (LITGR) said the following: “So often we see cases of advice from the HMRC helpline that show that not even the people who are supposed to administer the system can fully understand it.”

According to the HMRC spokeswoman, the leaflet was only up for two days before the error was spotted and it was taken down. Around 250 paper copies had also been printed and sent out to HMRC offices which have also been withdrawn.

She said: “Although the example could have been better the underlying message still holds – keep HMRC up to date with charges in circumstances and changes of income to help avoid an overpayment.”

Leaflets will be re-published in mid-June mentioning income regard.

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