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HMRC internal manual

Debt Management and Banking Manual

Debt and return pursuit: tax credits: interest: background

Interest is only charged in cases where an overpayment of tax credits arises as a result of fraud or neglect by the claimant(s). It is charged under section 37(1) of the Tax Credits Act 2002 (TCA) and there is a right of appeal against a decision to charge interest (section 38 TCA).

Interest is charged on an overpayment which has arisen as a result of a compliance examination or enquiry and the award has been amended, creating an overpayment.

If the examination has been settled prior to the end of the financial year to which it relates, and it was established that there had been no entitlement for the whole of that year, the overpayment is recoverable in-year. The overpayment is due and payable 30 days after the issue of the revised decision notice and interest then runs from this date.

For all other examinations and all enquiries, interest is chargeable 30 days after the ‘first specified date’, which is currently 31 July. For earlier years, the specified date may be later.

Interest bearing overpayments will be

  • passed from the NTC system to the Integrated Debt Management System (IDMS) for direct recovery because a contract settlement cannot be agreed and there is no future award
  • recovered from a future (on-going) award - also known as Cross Year Recovery (CYR)

In addition, clerical tax credit overpayments (TC33 (NTC)) cases, dealt with on SAFE may be interest bearing.

As the majority of tax credit overpayments do not attract interest, only a few interest related cases are expected.

Interest is to be considered for the purposes of section s29 (3) to (5) TCA (recovery and enforcement of tax credit overpayments) as if it were part of the overpayment to which it relates.

Closure letter

In cases where interest is being charged, when an examination/enquiry is completed, either a closure letter or a separate interest decision notice is sent to the claimant(s). The closure letter must include a paragraph warning the claimant(s) that interest will be charged on the overpayment and explain that they have a right of appeal against this decision. A copy of the closure letter must be attached to the stencil.