Low-income families in benefits nightmare

The tax credit fiasco just got worse. One family who contacted Jobs & Money has been forced to put their home up for sale. Peter Smith (not his real name), who suffers from multiple sclerosis, says the trial by Inland Revenue has dragged on for months and he must sell his home before he falls into arrears on his mortgage.

Other low income families have been forced to borrow from friends and family while the Inland Revenue argues with the benefits office over which government agency should be paying them cash.

The problems centre on those families where one or both parents lose their jobs or experience a drop in income. When they report the change in circumstances, the Revenue attempts to claw back tax credits it says have been overpaid.

Catherine Thomson, the lone parent of a 12-year-old daughter, has been told it could take two years to clear up her case. She has been refused crisis payments by both the Inland Revenue and her local benefits office. Her temporary job stopped in September. She informed the Revenue and instantly made herself poorer and a key figure in her own Kafkaesque nightmare.

"I don't understand the figures - it's driving me nuts. The Revenue says it's the benefits people's fault and the benefits people say it's the Revenue. They don't look like agreeing any time soon, so Christmas looks like it's going to be miserable," she says.

Caroline McGuigan, a mother of three who lives in Glasgow, is in the farcical position of owing the Revenue tax credit centre in Preston £1,274 in "overpaid tax credits" while holding a cheque in her hand for £506.80 - a top-up payment issued by her local tax office.

The tax office computer can't talk to the tax credit centre in Preston. It doesn't know what she should be receiving in tax credits but officials could see from her bank statements that tax credit money was not going in.

Ms McGuigan is a single parent who lost her job at the end of August when the care home where she worked part-time closed down. She earned £556 a month. Her tax credit payments had always been erratic, but she trusted the Revenue to top up her income with the right amount of cash.

"You didn't imagine that they could be getting it wrong. They are the experts," she says.

After a wait from April to June for the new working tax credit and child tax credit payments, when she was forced to borrow from friends and family, she received wildly different amounts in her bank account.

On June 5 alone she received payments of £84.99, £139.58 and £1,206.24, which she presumed were, in part, back payments for April and May. On June 11 she had three more payments and on June 19, payments of £85.69, £111.67 and £205.27.

"The old system paid me £291 a fortnight, every fortnight," she says. It allowed her to budget and plan for her children. Since April she has been able to do neither.

"I told the Inland Revenue I had lost my job but they just didn't take any notice. They kept paying me credits. When they did, they cut my tax credits. The problem was the benefit office didn't believe I wasn't still getting tax credits and they cut my income support payments," she says.

The Oneplus centre in Glasgow, which supports single parents, says Caroline is one of many who suffer at the hands of the Revenue. Adviser Craig Mackenzie says anyone who has changed circumstances faces the possibility of a collapse in their income while the Revenue computers work out payments and the benefit system catches up.

Ms McGuigan, who is living on her child benefit, £29 child tax credit and £46 income support a week, is bitter that she has been abused by the Revenue after being encouraged back to work. "This system was set up to encourage single parents to go and work but it does the opposite. It's just a joke."

Like most people facing the prospect of paying back tax credits, she has been told the Revenue will work out a deal to smooth the repayments. But that effectively means she faces deductions from either her benefits or future tax credits.

An Inland Revenue spokesman says: "Welfare rights organisations are being consulted on the draft code of practice as part of our continuing informal consultation. The Revenue will be publishing the code of practice later this year."

At the other end of the scale are Rob & Kath Fidler. They have received the full child tax credit payment of £545 since April without any problem. They wrote to Jobs & Money, however, when four cheques totalling £1,400 arrived for Rob, and Kath received £1,200 - all from the Inland Revenue.

"I've earned more money from my savings than anything else in the past month. It is crazy that we get these payments when there are people who are getting nothing."

They think the trigger for the payments was a phone from Kath to say she had stopped working. "But that still doesn't explain how this money turned up," she says. "No doubt we will be receiving a rude letter in due course claiming the money back, implying that I had embezzled the money."