Debt and return pursuit: tax credits: general: overview
Basis of a tax credit award
Tax credits are awarded on a provisional basis for a tax year, but the award can be revised during the year to reflect any change in circumstances. At the end of the tax year claimants are sent a renewal notice which sets out the payments made during the year and the personal circumstances on which they were based.
Claimants and ‘Households’
Tax credit awards are made to a ‘household’. A ‘household’ means either:
- a single person
- a married couple living together
- an unmarried couple living together as husband and wife
- a single sex couple living together, whether in a registered civil partnership or not.
Note that a claimant can be a member of more than one household within an annual period.
Tax Credit Regulations provide for claims to be made on behalf of a claimant by an ‘appointee’. The Board of Her Majesty’s Revenue and Customs, Secretary of State or a Court of Law can appoint such a person to act formally on behalf of someone who:
- is, or may be, entitled to tax credits
- is unable to act for themselves.
If the appointee provides information in the claim that they know to be false or incomplete they may be liable to financial penalties and/or prosecution, but not for any resulting overpayment.
The renewals process
The renewals process aims to finalise each award for the closed tax year (CY-1) and renew awards for the current year (CY).
Claimants are asked to confirm their details so that the closed year’s entitlement can be finalised but at the same time will continue to receive provisional payments for the new tax year based on the previous year’s award. Claimants who have not replied to the renewal notice, by 31 July following the end of the tax year, will have their provisional payments stopped.
When the renewal notice is returned the award for the closing year is finalised and any under or overpayment of tax credits is calculated.
Where finalisation determines that entitlement to tax credits should have been stopped during the closing year, all the provisional payments for the current year become recoverable. In these circumstances claimants can have an overpayment for both 2007-08 and 2008-09.
In addition to the process described above Claimant Compliance Offices will identify and investigate cases where the claimant was not entitled to the amount of the tax credits claimed. Any resulting overpayment will either be included in a contract settlement or, if it is not possible to agree a contract settlement, be collected directly.
If you become aware of a new address or phone number it is essential that you use the TBS Maintainer role to update the details on all cases.
For any other changes you should send the details on the appropriate stencil to the Tax Credit Office because the changes may impact eligibility.
Code of Practice (COP 26)
COP 26 entitled ‘What happens if we’ve paid you too much tax credits?’ explains how HMRC deals with tax credit overpayments. Please take time to read this.
The majority of overpayments do not attract interest.
Interest is only chargeable on an overpayment arising as the result of fraud or neglect (see DMBM555500). It is raised under section 37(1) TCA 2002.
Joint and several liability
Section 28(4) of the Tax Credits Act 2002 provides that for a joint claim, overpayments are recovered jointly and severally; both claimants are responsible for payment of the whole of the overpayment.
However, current policy is that in a HHBD case we will only seek 50 per cent of the original overpayment from each former partner. This is regardless of whether one of the former partners cannot afford to repay their share.