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HMRC internal manual

Claimant Compliance Manual

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HM Revenue & Customs
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Undisclosed Partners: Recovery of Overpayments from 18 January 2010 - Overview of different scenarios

A tax credit award ceases at the point the customer can no longer claim in that capacity so a single claim ceases when a partner joins the household and a joint claim ceases on the date the couple separate.

When such a change comes to light, the strict legal position is that the claim is terminated as of the date of the change regardless of the date the change was notified. Where the original claim was made in an incorrect capacity at the outset the strict legal position is that the claim will be terminated as of the date it was originally made as it was never a valid claim. The tax credits paid from the date of the change (or the date the claim was made if it was wrong at the outset) will be overpaid.

Where it takes some years for the error to come to light we may decide to restrict the period for which we go back. Often we will not go back beyond the previous year and so there will not be an overpayment for the earlier years because we have not disturbed the award.

The customer will be able to make a new, correct claim and this can be backdated by up to three months but this often produces a period for which there is an overpayment but the new claim cannot be backdated.

Example

Cindi made a single claim to tax credits in 2005 but failed to tell HMRC that Rio moved in with her on 1 June 2009. This came to light on 26 January 2010 following a compliance intervention. Cindi and Rio made a joint claim on 1 February 2010 and this was backdated to 1 November 2009.

Cindi will have an overpayment for 1 June 2009 to 26 January 2010. The new joint claim is backdated to 1 November but it cannot be backdated for 1 June 2009 to 31 October 2009 even though the couple would have been entitled to tax credits if they had made a correct claim at the correct time.

If Cindi’s overpayment for those 5 months was £2,700 and Cindi and Rio would have been entitled to £900 if they had made a correct claim at the correct time it means that the true loss to the Exchequer is £1,800.

From 18 January we will consider remitting all or part of an overpayment to reflect the monies that would have been paid out if a correct claim had been made. This procedure is known at notional entitlement because it involves looking at what would have been paid if the correct claim had been made at the correct time. In the above example the notional entitlement would be £900.

The notional entitlement calculation does not include the period for which the new claim was backdated because we have already paid tax credits for that period.

How we apply notional entitlement, if appropriate, depends on the nature of the error. You must refer to the guidance as follows:

  • Late notification of an in-year change, refer to CCM15730 
  • The old claim was incorrect at the outset, refer to CCM15740 
  • The old claim was originally correct but they failed to notify a change in a previous year and that year has now been finalised, refer to CCM15780 
  • The old claim was originally correct, they then failed to notify a change in a previous year but there has since been another change, refer to CCM15810