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HMRC internal manual

Labour Provider Guidance

HM Revenue & Customs
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Stakeholders: Benefits and Credits

Often the risks from Labour Providers will be that they have paid staff off record or are involved in manipulating the workers gross pay. Both of these risks may have tax credit implications and if we take corrective action this may then result in a further positive consequence by reducing the award.

Although the majority of tax credits claimants are honest, error and fraud in the tax credits system costs the taxpayer around £2.27 billion per year.

Referring a suspect tax credit case to B&C 

Aide memoire outlining Tax Credit Entitlement and Risk

Tax Credits entitlement and risks

Tax credits are payments from the government. Person/s responsible for at least one child or young person, may qualify for Child Tax Credit. Person/s working, but on a low income, may qualify for Working Tax Credit. Claimants can often get both types of tax credits.

Working Tax Credit

Working Tax Credit is based on hours worked and that the claimant gets paid for, or expects to be paid for. Claim’s can be made as an employee or a self-employed person. Unpaid work doesn’t count for Working Tax Credit.

Child Tax Credit

Child Tax Credit is paid to person/s responsible for at least one child or young person who normally lives with them. Work is not a requirement to claim Child Tax Credit.

The amount of tax credits paid depends on things like:

  • how many children you have living with you
  • if you live with someone as a couple
  • whether you work - and how many hours you work
  • if you pay for childcare
  • if you or any child living with you has a disability

Payments also depend on income. The lower the income, the more tax credits a person/s can get. Whether a person/s can get tax credits, and how much they can get, depends on their individual circumstances.

If annual income is not above one of the following ‘limits’, tax credits entitlement probably exists:

  • if you have one child it is £26,000
  • if you have two children it is £32,200
  • if you’re single without children it is £13,000
  • if you’re in a couple without children it is £18,000

These are the limits for getting tax credits in the current tax year - ending on 5 April 2014.

Working hours also contribute to entitlement. The minimum hours depend on circumstances, but normally the following requirements apply, at least:

  • 30 hours a week if you don’t have children
  • 16 hours a week if you have a disability, or are aged 60 or over
  • 16 hours a week if you’re single with children
  • at least 24 hours a week jointly, if you’re in a couple with children - with one of you working at least 16 hours a week


The customer must renew their tax credits claim each tax year so that we can check we

  • paid them the right amount for last tax year
  • pay them the right amount for this tax year.

We send them a renewals pack between April and June for each claim they made, even if

  • their payments stopped before the end of the tax year
  • we did not pay them any tax credits because their income was too high
  • what they were due was too low to pay them.

The deadline date for renewing a tax credit claim is, normally 31 July - we call this the first specified date.

The customer still gets payments while we wait for their renewal as long as we expect their eligibility to continue - we call these provisional payments.

If we do not get a reply from the customer on time we will

  • finalise last tax year’s award using the information we hold
  • stop paying tax credits and
  • send them a statement of account showing any overpayment or underpayment.

If they give estimated details they must give the actual amounts by a second deadline, usually 31 January, we call this the second specified date. This normally applies to customers who declare themselves as Self employed.

If we do not get a reply from the customer before the second specified date we will finalise last tax year’s award using the information we hold.

Tax credit Risks

We currently run 75 different types of interventions and there are currently 1500 compliance people carrying out high volume interventions. The strategy is around disruption rather than investigation and prosecution.

Our research suggests the average numeracy and literacy skill of our customer base is approximately that of an 11 to 12 year old; this creates a lot of error as customers either don’t understand what they are doing or don’t understand the system.

There are three entry points at which we should be able to flag errors:

  • New claims
  • Annual claim renewal
  • Changes of circumstance

There are six key risk areas:

  • Undeclared Partners
  • Income
  • Working and Hours
  • Childcare
  • Children
  • Disability.

Undeclared Partner

This is the biggest risk as some claimants allege they are single but are actually in a partnership. This affects the tax credits they claim.


If income is falsely declared low, hours worked inflated and childcare claimed, claimants can receive high value Tax Credit Payments. Any collusion between Employer and Employee or Self Employed false accounting could inflate losses to Tax Credits and if a Self Employed Person is helping inflate a Tax Credit Claimants Hours of Work and helping to lower declared income, referrals to B&C should be made. Individuals are waiting until renewal time to report changes to their income, RTI will help us with this. Working and Hours

The main reason for error occurring were around individuals overstating their hours to 16 and 30 respectively, hence insuring they get their maximum they are entitled to (when perhaps they aren’t).


The main cause of error for childcare is customers claiming the incorrect childcare cost, highlighting the complexity of the system and individuals’ inability to understand the calculation involved. Fictitious children or children not looked after by a registered child minder, overinflating childcare costs also comes into play.


Failure to report young persons age 16-19 leaving Full Time Non Advanced Education.

Claiming responsibility for a child or fictitious child.


Claimants incorrectly stating the severity of their disability inflation to Disability Living Allowance entitlement.