About a million letters with wrong information on child tax credits entitlement have been sent out by tax officials.
The letters claim the maximum household income for a family to be eligible for the benefit will be £26,000 a year from April, but this is not a universal cap. The fear is this incorrect figure could put some genuine claimants off (details of what to do are below).
The £26,000 figure is correct for most families with one child, but the maximum income limit rises to £32,200 for a typical family with two kids, £38,800 with three and £45,400 with four, according to HM Revenue & Customs (HMRC).
Some families — such as where a child has a disability — will be subject to different thresholds. At present, households that earn £41,300 a year are usually eligible for child tax credits.
HMRC insists the letters, sent over the past few weeks, only went to families its records say will become genuinely ineligible for tax credits — so earn above the new thresholds — as a result of huge cuts taking place next month. It says implying the £26,000 reference is universal was simply an error.
However, we have seen reports on our forum that dispute this. One recipient, chriswalessw, says his family, with two children, currently earns less than £30,000 a year yet he still got the letter. His family would probably be eligible for child tax credits under the new system.
Click on the thumbnail below to see the template used by HMRC for the letter. We have highlighted the incorrect sentence.
Families put off claiming
Dan Plant, MoneySavingExpert.com money analyst, says: "It's yet another unfortunate error from HMRC. People don't claim what they are entitled to in the first place, that's why it is key people do a five-minute benefits check-up to ensure they get what they're due."
The danger is some families who earn above £26,000 could be put off claiming if their income has dropped to within the thresholds without HMRC knowing, therefore making them eligible again.
For example, if a family has two children, and HMRC thinks they earn £35,000 a year, that would make them genuinely ineligible and would rightly get this letter.
But if that income fell to £30,000, they would be entitled to a payout, even though they earn over the £26,000 sum quoted in HMRC's letters. But they may feel there is no point claiming if they believe the letter to be accurate.
One reader emailed us to say: "If people believe the mis-information in these letters they could let their claims lapse and end up missing out on money they are entitled to."
From April, HMRC says child tax credit recipients with one child can get up to £7,375 each year, though only families with a child who has a disability will get anywhere near that figure. Most get up to about £3,000 a year.
What should you do?
Quite simply, if you fall within the thresholds and wrongly got this letter then let HMRC know by 31 March, particularly if you think your income will fall, or know it will fall, this year or next.
HMRC says if a claimant is taken out of the tax credits system they will receive an S17 form next month, which shows the recipient the income HMRC believes they earn.
The form then asks families to inform HMRC as soon as possible if that figure is wrong.
An HMRC spokeswoman says: "We accept that a recent letter sent out to some tax credits claimants was not as clear as it could have been.
"We apologise if any confusion has been caused. If claimants are unsure of what the upcoming changes to tax credits mean for them, they should check our website at www.hmrc.gov.uk/taxcredits."