Millions of families face the prospect of having to repay the government hundreds of pounds following tax credit overpayments, according to figures from the Inland Revenue.

During the financial year 2004 to 2005, £1.8 billion was overpaid in 1.96 million claims for Child and Working Tax Credit – an income based credit introduced in April 2003.

Experts say the overpayments have arisen because the credit is based on income for the previous year.

"There are two main causes of overpayment. One is a change of circumstances not involving income," claimed Robin Williamson, from the Low Incomes Tax Reform Group of the Chartered Institute of Taxation (CIOT).

"The other cause of overpayment that causes a lot of difficulty is official error. If it's the Revenue's mistake, it will write off the overpayments and people wouldn't have to repay, but only if the Revenue took the view that the claimant was reasonable in thinking their award was correct."

The government has announced plans to increase the amount at which a claimant's income can go up during the course of a tax year without it affecting tax credits to help those people who change jobs or receive a pay rise unexpectedly boosting their income during the claim.