A campaigning group for the lower-paid has described the Revenue’s way of deciding challenges to clawbacks of tax credit overpayments as "a lottery".

It has called on the Government to set up an independent review of an estimated 100,000 cases where objections to clawback decisions have been dismissed.

The Low Incomes Tax Reform Group (LITRG) said the Revenue’s generally hard-line approach to appeals was unfair because it contrasted with the more lenient approach it adopted between May 2005 and February 2006.

Tax credits are means-tested allowances which were introduced in April 2003 and designed to boost family income and help members of lower-paid households into work. But errors in calculating benefits and claimants’ changing circumstances meant that each year the Revenue has paid out too much money to about two million families.

For the first two years of the new system, the Revenue sought to claw back virtually all these overpayments. Claimants seeking to have a clawback waived had to show, firstly, that the overpayment they had received was the result of a Revenue error and, secondly, that it would not have been reasonable to have expected them to spot the mistake.

The LITRG said: "The so-called ‘reasonableness’ test was very stringently applied by the Revenue, which frequently expected claimants to spot errors the Revenue staff themselves had not spotted."

But despite the fact that few challenges were successful, their sheer number, amounting to hundreds of thousands each year, meant that by last summer (2005) the Revenue was struggling under a huge backlog of cases. It decided to adopt what it called a ‘streamlined’ approach where some overpayments would be written off where an excessive amount of paperwork was involved.

But this February, after clearing the backlog, the Revenue reverted to its old, much tougher test. John Andrews, chairman of the LITRG, said: "It is wholly unfair that the system of challenges to overpayments should have effectively become a lottery dependent on the date when the claimant lodged an objection. We want the Government to reconsider the cases of all those whose challenges were rejected under the ‘reasonableness’ test."

A spokeswoman for the Revenue said: "We cannot comment on the LITRG’s call for a review until we receive full details from them."

More on tax credits here