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HMRC internal manual

Claimant Compliance Manual

Discrepancy Examinations: Action: Considering income discrepancy

Estimated income for current year

Post-award examinations. If the customer asks for the award to be based on their estimated income for the current year

  • check RTI for their current year income
  • estimate the customer’s expected annual income from the information on RTI.

To do this

If the Pay Frequency is shown as ‘Calendar Monthly’

  • Divide the total income by the number of the month on RTI, then multiply by 12.
    For example
    If the income shown on RTI is £7,000 and we are now in July, shown on RTI as ‘Tax Month Number 4’, the calculation will be;
    7000 ÷ 4 x 12 = 21000
    And our estimate of the customer’s CY earnings will be £21,000.00

If the Pay Frequency is shown as ‘Weekly’

  • Divide the total income by the number of weeks since 6 April then multiply by 52.
    For example
    If the income shown on RTI is £7,000 and today’s date is 16 July we are in the 16th week (of the financial year), and the calculation will be;
    7000 ÷ 16 x 52 = 22750
    And our estimate of the customer’s CY earnings will be £22750.00
  • discuss with the customer whether their estimate is realistic and matches ours. Taking into account any legitimate deductions as shown in CCM17290.
  • if their estimate does not match ours advise them that if their end of year income is higher than their estimate they may have to pay back some money
  • close the case according to CCM17360 

Gift Aid payments, pension contributions and trading losses

Customers are entitled to deduct from their income:

  • Gross payments to charity under Gift Aid
  • Gross contributions to an HMRC registered pension scheme
  • Trading losses

Working Sheet TC825 helps customers to work out these amounts. There is not a separate box for customers to record these amounts in on the claim form or renewals form. They should deduct them from their income in the following order:

  • Taxable Social Security Benefits
  • Employed income
  • Self-employed income
  • Other income

This means that if they have made £500 Gross payments under Gift Aid and their earnings are £7,700 they will declare income of £7,200 for tax credit purposes. The P14 will show £7,700 but the customer has declared the correct figure on their claim or renewal notice.

Other Discrepancies

For detailed information on things to consider in income discrepancy cases involving:

  • Taxable Social Security Benefits, see CCM17280 
  • Employed income, see CCM17290 
  • Company cars and fuel, taxable vouchers and payments in kind, see CCM17300 
  • Self-employed income, see CCM17310 

If necessary ask your manager for advice.

You will not normally investigate income discrepancy cases involving other income.

For more information on income see the Tax Credit Technical Manual TCTM04000