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HMRC internal manual

Tax Credits Manual

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HM Revenue & Customs
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Payment - hardship (general): Hardship - overview of claims and overpayment recovery (Info)

Background
In-year adjustment
Cross-year recovery
In-year adjustment and cross-year recovery
Cross award recovery
Direct recovery
Exceptional circumstances

Background

When dealing with cases where hardship is claimed, you must first check whether the customer has made any reference to

  • appeal against a decision
    or
  • disputing an overpayment.

If so, these cases must be sent to the relevant area for action.

If the customer claims hardship and an overpayment is being recovered directly from the customer (there is not an ongoing award for that household or family), then the case must be forwarded to Debt Management and Banking (DMB) for their action.

If the customer has previously claimed hardship and their payments have already been adjusted, unless there have been any further changes to their entitlement, there is no further provision to alleviate hardship and nothing further we can do. In order to claim hardship, a customer has to have an ongoing recovery of an overpayment on their award. This is because the only action HMRC can take to alleviate hardship is to alter the level of recovery.

Note: There is no provision to award hardship payments to any customer who simply says that the amount of tax credits awarded to them is not enough and they are in hardship as a result.

Tax credits overpayments are recovered in four ways

  • in-year adjustment
  • cross-year recovery
  • cross award recovery
  • direct recovery.

Note: It is possible to have both in-year adjustment and cross-year recovery (which may be as a result of Cross Award Recovery) on one award.

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In-year adjustment

An in-year adjustment is applied whenever a tax credits award is revised in the current tax year. For more information on how this is applied, use the Revised award part of TCM0232200.

As a result of this adjustment to recover the overpayment, payments can be reduced to zero, which may cause hardship to the customer. Any remaining overpayment that has not been recovered by in-year adjustment at the end of the tax year is carried over to the following year’s award and recovered by cross-year recovery.

In-year adjustments are recovered at set rates to avoid hardship. The rates of recovery are set by the computer and are automatically applied to any in year adjustment following these rules

  • 10%, if the maximum entitlement has been payable
  • 25%, if the entitlement amounts have been tapered

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Cross-year recovery

The rules governing cross-year recovery are the same as those governing in-year adjustment. Payment amounts can only be reduced by 10%, 25% or 50% dependent on the individual’s circumstances

  • 10%, if the maximum entitlement has been payable
  • 25%, if the entitlement amounts have been tapered
  • 50%, if the entitlement amounts have been tapered and the total household income is over £20,000

These levels are set so as to avoid placing customers into hardship.

Note:  50% recovery rate comes into effect on 6 April 2016, but customers will be notified about this change from 10 October 2015.

Note:  From November 2015 changes will be implemented to maximise the recovery of tax credit debt. In all instances overpayments of WTC can be recovered from both payments of WTC and additionally Child Tax Credit (CTC), and overpayments of CTC can be recovered from both payments of CTC and additionally WTC.

Example: WTC overpayment amount is £1000. Customer is in receipt of a weekly payment of WTC at £10.00, and a weekly payment of CTC at £400. 25% recovery will be made from the WTC payments (£2.50) and also 25% from the CTC payments (£100), taking only 10 weeks to recover the overpayment.

For more information on how this is applied, use the cross-year recovery part of TCM0232200.

The decision as to whether hardship is being caused by cross-year recovery only is based on certain factors laid out by HMRC policy. DMB will decide whether the customer’s hardship is sufficient to justify remitting the overpayment or whether the customer has cause for us to reduce the amount of cross-year recovery by increasing their current payments.

Where there is cross-year recovery only and no in-year adjustment, initially explain the reason and rates for the cross-year recovery. If, in exceptional circumstances, the customer is still claiming hardship, then the case must be referred to DMB for investigation. Follow the guidance in TCM0218020.

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In-year adjustment and cross-year recovery

It is possible that an award could have both in-year adjustment and cross-year recovery (which may be as a result of Cross Award Recovery) taking place at the same time.

If a customer is subject to both in-year adjustment and cross-year recovery, and Function ADJUST IN YEAR PAYMENTS is used to adjust in-year payments, cross-year recovery is automatically stopped by the computer. This does not remit the overpayment, merely postpones the repayment of the overpayment.

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Cross award recovery

Where a household has ended, overpayments may still remain unpaid on that award. If the customer becomes entitled to tax credits and submits a new claim, we may make recoveries from the ongoing payments to repay the outstanding overpayment(s) from their previous claim(s). This is known as cross award recovery.

Payment amounts can only be reduced by 10%, 25% or 50% dependent on the individual’s circumstances

  • 10%, if the maximum entitlement has been payable
  • 25%, if the entitlement amounts have been tapered
  • 50%, if the entitlement amounts have been tapered and the total household income is over £20,000

These levels are set so as to avoid placing customers into hardship.

Note:  50% recovery rate comes into effect on 6 April 2016, but customers will be notified about this change from 10 October 2015.

The decision as to whether hardship is being caused by cross award recovery is based on certain factors laid out by HMRC policy. We will decide whether the customer’s hardship is sufficient to justify remitting the overpayment or whether the customer has cause for us to reduce the amount of cross award recovery by increasing their current payments.

For more information on cross award recovery use TCM0232200.

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Direct recovery

Direct recovery is the method of overpayment recovery where there is no ongoing award of tax credits to make cross-year recovery from. When entitlement ends, the customer is told of the overpayment in an award notice or Statement of Account (SOA).

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

If the customer cannot pay the direct recovery amounts due to hardship, they can contact the Payment Helpline at DMB and request a time to pay arrangement. This is where DMB will agree an amount the customer can afford over a realistic time scale so as not to cause hardship.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Any severe hardship claims are considered and dealt with by DMB after obtaining full income and expenditure details from the customer.

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Exceptional circumstances

If we have exhausted the hardship routes outlined earlier in this guidance and fully explained the recovery rates applied and the customer still maintains the amounts we are recovering is causing hardship, we can only then consider exceptional circumstances. In all cases exceptional circumstances must be documented and agreed by at least Officer grade.

All details of why the customer still believes they are suffering hardship and has exceptional circumstances must be forwarded to DMB for investigation.

Upon investigation DMB may decide

  • to remit all of the overpayment
  • to further increase the customer’s payments
  • that exceptional circumstances don’t apply and no further assistance is available.