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HMRC internal manual

Tax Credits Manual

From
HM Revenue & Customs
Updated
, see all updates

Payment - hardship: referral received by TCO H-ART (Hardship - Adjusting Recovery Team)

Checklist

Before you follow this guidance make sure

  • you follow the guidance in TCM0138020
  • you have the correct user roles to follow this guidance
  • use TCM0322460 for the correct MU number.

Background

If a customer has suffered a reduction in their regular tax credit payments as a result of an adjustment that has been applied to their award, they may feel this reduced amount of tax credits will result in the household being in hardship.

The reduction could have been caused by

  • an in-year adjustment to the customer’s tax credit payments to prevent an overpayment occurring
  • an in-year adjustment to the customer’s tax credit payments to reduce the amount of overpayment that will occur at the end of the year
  • cross-year recovery from the customer’s tax credit payments to recover an overpayment that occurred in a previous year
  • a combination of both an in-year adjustment and a cross year recovery
  • cross-award recovery from the customer’s tax credit payments to recover an overpayment that occurred in a previous claim or previous claims.

For more information about in-year adjustments and cross year recovery, follow the guidance in TCM0232220.

An adjustment to increase the amount of tax credits paid will not normally be made if

  • the customer’s award is only made up of the Family element of Child Tax Credit (CTC)(Category D –see below)

Note: A manual adjustment will only be considered in exceptional circumstances. This is in line with departmental policy. TCO will examine the customer’s income and expenditure to determine whether a relaxation of the recovery rates is appropriate. TCO may also decide to reject the hardship claim.

Rates of recovery

Manually adjusting overpayment recovery to avoid hardship does not return the customer’s tax credits payments to the previous level. This is to ensure that some recovery of the overpayment is made during the current year.

When we recover an overpayment from the customer’s ongoing award, the amount we recover will depend on the level of tax credits the customer is entitled to. You will need to explain the rates of recovery to the customer and that these rates are designed not to cause hardship.

To determine how much is to be recovered, the customer’s award is put in to the following categories

Category A

  • 10% if the maximum entitlement is in payment
    Where the customer is entitled to the maximum award for WTC and/or CTC, a payment adjustment will be made which will take the level of tax credits paid to 90% of their current entitlement.

Category B

  • 25% if entitlement has been tapered
    Where the customer is entitled to CTC above the Family element and/or WTC below the maximum limit, a payment adjustment will be made which will take the level of tax credits paid to 75% of their current entitlement.

Category C

  • 50% if entitlement has been tapered
    Where the customer is entitled to CTC above the Family element and/or WTC below the maximum limit, and their total household income is more than £20,000, a payment adjustment will be made which will take the level of tax credits paid to 50% of their current entitlement.
    Note: The recovery of tax credit debt from ongoing awards increased from 25% to 50% from the 6th April 2016 for those customers whose total household income is greater that £20,000. From 10th October 2015, where a change of circumstances is reported and applied, the award notice issued will show the revised provisional payments for 2016/2017 based on the new 50% recovery rate for those customers who fulfil the 50% criteria.

Category D

  • 100% if entitlement has been stopped due to cross year recovery
    Where the customer is receiving the Family element only

Category E

  • 100% if entitlement has been stopped due to in year adjustments.

Any reduction in these rates can only be made in exceptional circumstances. These rates are the same for in year adjustments and cross year recovery.

Additional hardship payments

Additional hardship payments, as part of the secondary hardship process, will only continue to the end of the current tax year. If the customer wants these payments to carry over to the next tax year they must re-submit their hardship claim.

When the payment adjustment has been applied, the customer will have an overpayment of tax credits at the end of the tax year. These overpayments will be recovered from the customer by

  • reducing future payments by cross year recovery
  • recovering the overpayment direct.

Guidance

Note: When sending customer, staff or process data to another individual or team, make sure you follow the latest data security guidelines or contact the Data Guardian or Data Security Team for advice.

Step 1

Note: if an e-form referral from PT Ops is incomplete (for example there is no NINO) or the reason for the referral is unclear refer back to PT Ops.

If you are dealing with a piece or correspondence, go to Step 2

If you have received an Income and Living costs form (TC1133) through Digital Mail Service (DMS), go to Step 2

If you are dealing with a DL-H-ART Referrals in-box item, go to Step 2

If you receive an E-form referral from PT Ops, go to Step 2

If the referral is from B&C Ops-NES, go to Step 2

If you are dealing with an expired BF date for payment issue, go to Step 23

If you are dealing with an expired BF for an Income and Living costs form (TC1133), go to Step 24

If you are dealing with an expired 14 day BF for the TC2036 or the return of TC1133, go to Step 25

If you are dealing with an expired 30 day BF for for the TC2036 or the return of TC1133, go to Step 26

Step 2

Check household notes for PM21, for how to do this, use TCM1000067

If PM21 note is present, go to Step 9

If there is no PM21 note, go to Step 3

Step 3

Check the referral to establish what the customer wants

If you are not authorised to access the claim

  • follow the guidance in TCM0068160
  • complete form TC669
  • take no further action.

If the customer wants to repay their overpayment back quicker, go to Step 27

If the customer has repaid all their overpayment but recoveries are still being made, go to Step 28

If the customer states they are in hardship, go to Step 4

Step 4

Check if a tax credit is in payment, for how to do this, use TCM1000073 - How to check if tax credits are currently in payment

If tax credit is in not payment, go to Step 5

If tax credit is in payment, go to Step 7

Step 5

Check the reason the award is not in payment.

If the award has ceased because the claimant has moved to Universal Credit, go to Step 29

If CPAC is the reason the award is not in payment, for how to do this, use TCM1000283, go to Step 7

If CPAC is not the reason the award is not in payment, go to Step 6

Step 6 {#step6}  

Check household notes to see if the claim has been correctly ended (ceased or terminated cases).       

If the claim has not been correctly ended

  • update household notes with PM32, for how to do this, use TCM1000001
  • refer the case to the Immediate Payments team.

If the claim has been correctly ended

  • update household notes with PM32, for how to do this, use TCM1000001
  • no further action

Step 7

Check for any tax years that have an account status of Open. For how to do this, use TCM1000026.

If there are any Open years

If there are no Open years

  • update Household Notes with the message PM18 from TCM0168020. For how to do this, use TCM1000001
  • send papers to storage. Follow the guidance in TCM0074140
  • no further action.

Step 8

Check to see if the case is affected by ual recovery. (Check Postings-in on awards with an outstanding overpayment; check household notes for any relating to the setting up of Time to Pay agreements.)

If the case is not affected by dual recovery, go to Step 9

If the case is affected by dual recovery

  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
  • update household notes with PM33, for how to do this, use TCM1000001
  • no further action.

Step 9

Check if any Potential Entitlement is due. For how to do this see, TCM0234100 - Payment: potential entitlement: potential entitlement - review queries (Info)

Note: if you are dealing with a returned manually issued TC1133 (not an i-form) you may already have released any potential entitlement but a further change may have produced another potential payment.

If there is any potential entitlement due

  • refer the case to your FLM to release the payment
  • go to Step 11

If there is no potential entitlement due, go to Step 10

Step 10

Check the category of the recovery

If the customer receives Family element only (category D recovery), go to Step 17

If the recovery is any other category, go to Step 11

Step 11

If you are dealing with a returned Income and Living costs form, go to Step 12

If you are not dealing with a returned Income and Living costs form

  • issue form TC1133 Income and Living costs, via SEES and Central Print Service
  • update household notes with PM21, for how to do this, use TCM1000001
  • BF for 30 days

Step 12

Note: the i-form version of the Income and Living costs form can have up to 19 pages. There is a summary sheet at the end which contains all the income and costs details. Scroll to the end of the form and use this summary sheet for your calculations.

Check the income declared on the TC1133 Income and Living costs form.

Check the relevant tax credit systems (RTI/ADD/NTC) and compare the income on the Income and Living costs form.

  • check that the Tax Credit amounts declared match NTC system and the pay frequency is correct
  • check that earnings correspond with RTI details
  • check that the Child Benefit amount declared is correct and pay frequency is correct
  • check that any Social Security Benefit amounts are correct and the pay frequency is correct

Note: If customer declares an incorrect pay frequency you will need to calculate the correct weekly or monthly amounts. For example tax credits are paid weekly or four weekly but a customer may declare that they are paid monthly.

If the income and/or household costs are incomplete

Note: you must try and contact the customer by phone for the details before you consider returning the form.

  • mark the questions on the form for completion
  • issue free format letter with TC1133
  • BF for 14 days

Note: the customer is allowed 30 days to return the TC1133. Claim BF’d for 14 days to check DMS (Digital Mail Service).

If the income on the Income and Living costs form compares to the income on system, go to Step 13

If the income on the Income and Living costs form does not compare to the income on system,

  • make  a note of the details
  • go to Step 13

Step 13

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

Step 14

Contact the customer for further information or proof to establish the correct income and/or expenditure

Make two attempts to contact the customer by phone.

Discuss with the customer the reason(s) for the differences in the income. This could be because they have expenses not shown on RTI, for example a pension not paid through their employer or gift aid payments.

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

If you accept the customer’s explanation, go to Step 16

If you do not accept the customer’s explanation, go to Step 15

If you have been unable to contact the customer by phone, go to Step 15

Step 15

If you have been unable to contact the customer by phone or are not happy with the explanation the customer gave

  • Issue TC2036
  • BF for 14 days
  • update household notes with PM34, for how to do this, use TCM1000001

Note: the customer is allowed 30 days to send in any evidence. Claim BF’d for 14 days to check DMS (Digital Mail Service).

Step 16

Calculate the customer’s disposable income

  • add up all the income and deduct the living costs to obtain this figure
  • note this figure on the coversheet

If the disposable income is more than £20.00 per month, go to Step 17.

If the disposable income is £20.00 or less per month, go to Step 18.

Step 17

Hardship referral to be refused

If the hardship request is refused because of disposable income

  • send a TC873 to the customer
  • update Household Notes with message PM24, for how to do this, use TCM1000001
  • PA casepapers

If the hardship request is refused because the TC1133/TC2036 has not been returned

  • update Household Notes with message PM22, for how to do this, use TCM1000001
  • PA casepapers.

Step 18

Check the type of recovery and consider adjusting the recovery rate, for how to do this, use TCM1000199

If recovery is Cross Year or Cross Award only, go to Step 19.

If recovery is in Cross Year (which may be as a result of Cross Award Recovery) and In Year, go to Step 19.

If recovery is In Year only, go to Step 20.

Step 19

Cross Year recovery or Cross Award recovery

  • print out the payment schedule for the current year
  • transfer payment information on to the Hardship Payment Profile Sheet
  • calculate the arrears payment by adding all the recovered amounts shown on the schedule from the date of first contact (from coversheet) to the date of the next payment
  • transfer this figure onto the Hardship Payment Profile Sheet
  • calculate the new recovery rate to bring the customer in credit by £20.00 per month, reducing in 5% increments
  • transfer the payment dates onto the Hardship Payment Profile Sheet
  • calculate the first payment due by adding the arrears payment noted earlier to the first new payment amount due
  • refer to Manual Payments Team for payment, for how to do this use TCM1000110.

Note: If the customer has a Post Office Card Account (POCA) ensure that the Manual Payment Referral is noted

  • update Household Notes with message PM26, for how to do this use TCM1000001.
  • BF for two weeks before next payment is due.

Step 20

In-year recovery only

Calculate the amount of the adjustment required to ensure that the customer has disposable income of £20.00 per month.

  • calculate the amount of arrears due from the date the secondary hardship was received to the date you apply the adjustment using the Manual Backdating Spreadsheet (Excel 26.5KB)

If there are arrears due, go to Step 21

If there are no arrears due, go to Step 22

Step 21

  • refer the one off manual payment to the Manual Payment Team, for how to do this, use TCM1000110
  • update household notes with PM26, for how to do this use TCM1000001

Note: if the customer has a Post Office Card Account (POCA) ensure that the manual payment referral form is noted

  • access Adjust In Year Payments screen and enter the percentage (%) adjustment, for how to do this, use TCM1000523
  • issue TC886
  • update Household Notes with message PM29, for how to do this, use TCM1000001.
  • PA casepapers

Step 22

  • access Adjust In Year Payments screen and enter the percentage (%) adjustment, for how to do this, use TCM1000523
  • issue TC868
  • update Household Notes with message PM28, for how to do this, use TCM1000001.
  • PA casepapers

Step 23

Check claim to see if there has been any changes to the award amount.

If the award amount has not changed

  • update coversheet
  • refer to Manual Payment Team for payment, for how to do this, use TCM1000110
  • BF for two weeks before next payment is due.

If the award amount has changed

The award adjustment will have to be recalculated, go to Step 16.

Step 24

Check if the Income and Living costs form has been returned

If the Income and Living costs form has been returned, go to Step 9

If the Income and Living costs form has not been returned,

  • update Household Notes with message PM22, for how to do this, use TCM1000001.

 

  • PA casepapers.

Step 25

Check DMS queue to see if correspondence has been returned

If no correspondence has been returned, BF the case for the remainder of the 30 day BF period

If evidence has been returned, go to Step 16

Step 26 {#step26}   

Check DMS queue to see if correspondence has been returned

If correspondence has not been returned, go to Step 17

If evidence has been returned, go to Step 16

Step 27

  • Issue TC1129 advising the customer we cannot increase overpayment deductions but they can make extra payments if they want to pay back their overpayment more quickly by contacting the Tax Credit Payment Helpline
  • update household notes with PM31, for how to do this use TCM1000001
  • take no further action

Step 28

Where we are still recovering an overpayment that has been fully recovered, the action you take will depend on whether the overpayment is in cross award recovery or cross year/in year recovery.

If recovery is by Cross award recovery (CAR)

  • return the overpayment to the original year by using the appeal/manual as detailed in Newsboard Message: 016/15
  • update household notes with PM35, for how to do this use TCM1000001

If recovery is in-year or cross year recovery apply the 1p workaround.

In function Change of Circs

  • input 0.01 in the ‘other income’ field for BOTH the PY (where the OP originated) and CY
  • in function Amend Finish select Cancel
  • remove the penny from ‘other income’ field for BOTH the PY and CY tax years,
  • select ‘OK’
  • complete the Amend Finish screen
  • update household notes with PM36, for how to do this use TCM1000001
  • BF the case for 48 hours to check the workaround has gone through.

Step 29

  • update household notes with PM32, for how to do this, use TCM1000001

 

  • no further action

Note: if the customer is unhappy with the closing down of their claim due to moving to Universal Credit or are experiencing problems because of the close down, refer the correspondence to the STC Joint Enquiry Team - (This content has been withheld because of exemptions in the Freedom of Information Act 2000) . Note PM32 that the case has been referred to JET.