Campaigners have called on the government to ensure debt collectors have high standards when collecting tax credit overpayments.
The Autumn Statement documents reveal that the collection will be outsourced on a payment-by-results basis.
The pilot scheme, which will see debt collectors retrieving money that may have been claimed in good faith, has sparked some worries.
Overpayments are common as claimants’ circumstances change.
Tax credits are payments from the government to those on low incomes.
People who are responsible for at least one child or young person may qualify for child tax credit. Those who work, but are on a low income, may qualify for working tax credit, or both.
The system is based on an assessment of what each individual may receive in income. If they get a better paid job, or another income boost, then tax credits may be overpaid and so the money may be clawed back.
At present, this is done by HM Revenue and Customs (HMRC), but the government wants to test to see whether private companies can take the job on. This has concerned the Low Incomes Tax Reform Group.
“Overpayments and underpayments often arise naturally as an integral part of the system. They are an inevitable feature of the design of tax credits,” said Robin Williamson, the group’s technical director.
“We must seriously question whether dealing with tax credit overpayments just like any other debt, by outsourcing recovery to commercial debt collectors, is an appropriate or proportionate response to the problem.
“If HMRC persist in this course of action, they must take great care to impose the same standards and safeguards as they would themselves when recovering these highly sensitive and untypical debts.”
The Autumn Statement documents also reveal that old tax credit debt may be recovered with lower current tax credit awards. Claimants might also have to provide evidence of any high childcare costs as part of their tax credits claim.