Thousands of hard-up families have received the wrong tax credit payments for the third year in a row.

Figures published yesterday show almost half the 143,300 Sussex families in receipt of tax credits during 2005-06 were either over or underpaid - adding up to £33.6 million or equivalent to £804 per household.

Revenue and Customs will try to reclaim the vast majority of overpayments, threatening thousands of families with financial hardship, while 20,400 households were underpaid by a total of £13.3 million - £652 each on average. They will be compensated with extra payments.

Nationally, £1.7 billion was overpaid in 2005-06. The problems stem from the failure of the system to respond to fluctuations in families' income and circumstances from one month to the next.

When credits were introduced in 2003, overpayments were deducted from families whose incomes rose by more than £2,500 during the year.

In April 2006, the Government raised this "disregard"

to £25,000. The change, which will show up for the first time in next year's figures, will effectively write off about a third of overpayments.

The system has also been hit by IT problems and targeted by organised criminal gangs using stolen identities to defraud the taxpayer.

Stephen Timms, chief secretary to the Treasury, said: "As a result of tax credits the effective point at which a family with two children starts paying tax is now £22,485. Tax credits are effectively wiping out income tax liability until earnings reach £432 a week."

David Laws, Lib Dem work and pensions spokesman, said: "The Treasury is supposed to be the guardian of public money but it has presided over waste on a monumental scale. A pound out of every £5 paid out by Gordon Brown in tax credits has been overpaid.

"Not only has the taxpayer lost out but the Government is now trying to claw back money from people on very low incomes."

Have you been affected by wrong tax credit payments? Leave your comments below.