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HMRC internal manual

Tax Credits Manual

From
HM Revenue & Customs
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Payment - overpayments (A-C): overpayments - bankrupt or sequestrated customers

Background

In England, Wales and Northern Ireland, when a person cannot pay their debts, they may be made bankrupt. In Scotland, the same procedure is known as sequestration.

Note: The term bankruptcy will be used from this point onwards, but this will also refer to sequestration for customers who live in Scotland.

A customer may notify you that they have been declared bankrupt or you may receive correspondence about this from the Official Receiver or an Insolvency Practitioner (England, Wales or Northern Ireland) or an Accountant in Bankruptcy (Scotland).

Any tax credits overpayment will cease to be recovered from the date of the bankruptcy declaration until the date the customer is discharged from bankruptcy. The customer will need to provide a copy of the discharge notice.

Note: A bankruptcy order normally lasts for one year and a sequestration order for three years.

If the customer is a member of a joint household then, if only one customer has been declared bankrupt, the tax credits overpayment will continue to be recovered from the other customer. This is because both members of the household are jointly and severally liable for the overpayment.

Note: If a customer notifies you that they have been made bankrupt but they also dispute or require an explanation of the overpayment, you must deal with the dispute or explanation first and then return to this guidance.

If there has been a household breakdown on the award or no continuing entitlement, then Debt Management and Banking (DMB) will have been made aware of any customers that have been made bankrupt and will be in direct contact with them.

If you have been contacted by a customer who is disputing an overpayment, or requires an explanation of an overpayment, and they state that they have been made bankrupt or sequestrated pass the claim to Customer Service and Support Group (CSSG) and take no further action.

Guidance

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

If you are notified that a customer has been declared bankrupt or they have been discharged from bankruptcy, pass to the (BY) team to consider steps 1 to 17.

Step 1

Establish if the correspondence is from the customer or an authorised personal acting body. For example, the Insolvency Practitioner, County Court or the Insolvency Service.

If the correspondence is from the customer, go to .

If the correspondence is from any authorised acting body, go to .

If the correspondence is from another organisation or individual who is not authorised, go to .

If the correspondence is a discharge notice, is correspondence relating to discharge from bankruptcy or you are dealing with an expired 12 month BF case, go to .

Step 2

You will need to check if the customer is bankrupt.

  • check household notes to see if there is a note relating to bankruptcy. For how to do this, use TCM1000067.

Note: these notes will usually have the prefix ‘OD’.

If there is a note and you are able to ascertain the date of the bankruptcy, go to .

If there is no note and you are unable to ascertain if the customer is bankrupt

If there is a record and you are able to ascertain the date of the bankruptcy

  • make a note of the bankruptcy date

then

  • go to .

If there is no record of the bankruptcy

  • update household notes with OD71 from TCM0166020. For how to do this, use TCM1000001
  • issue letter TC880a-2 from the SEES database
  • take no further action.

Step 3

If Cross Award Recovery has been identified and both members of the household are insolvent

  • access the ‘View Claim Summary - Signals’ screen
  • check if any overpayments have been transferred for Cross Award Recovery. For how to do this use TCM1000117.

Note: Bankruptcy cases are out of scope for Cross Award Recovery, so an appeal marker needs to be put on each year an overpayment occurred to send the overpayment back to the originating year. For how to do this use TCM1000444.

Step 4

You will need to check if there is a partner on the claim. For how to do this, use TCM1000129

If there is a partner, go to .

If there is not a partner, go to .

Step 5

You will need to check if the partner is bankrupt

  • check household notes to see if there is an entry relating to bankruptcy. For how to do this, use TCM1000067.

Note: These household notes will usually have the prefix OD.

If there is a household note and you are able to ascertain the date of the bankruptcy for the partner, go to .

If there is no household note and you are unable to ascertain if the partner is bankrupt

If there is a record and you can ascertain the date of the bankruptcy for the partner

  • make a note of the bankruptcy

then

  • go to .

If there is no record of bankruptcy for the partner

  • issue letter TC880a-2
  • take no further action.

If the partner is bankrupt, go to .

If the partner is not bankrupt, go to .

Step 6

Establish if each relevant household has an outstanding overpayment

  • check if there is an open award and ongoing award. For how to do this, use TCM1000197.

If there is an open and ongoing award and you know the date of the bankruptcy for the customer (customers), go to .

If the claim is ceased, terminated or open with nil entitlement and we have confirmation of bankruptcy

  • send the case papers to (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
  • complete the ‘Redirection of post’ stencil from the SEES letters and forms database
  • send to:

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(This content has been withheld because of exemptions in the Freedom of Information Act 2000)
(This content has been withheld because of exemptions in the Freedom of Information Act 2000)
(This content has been withheld because of exemptions in the Freedom of Information Act 2000)
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  • update household notes with MG01 from TCM0162080. For how to do this, use TCM1000001
  • issue TC880D from the SEES data base
  • take no further action.

Step 7

If there is a partner who is not bankrupt

  • issue a TC880b from the SEES database
  • update household notes with the note OD62 from TCM0166020. For how to do this, use TCM1000001
  • check if overpayment recovery has been suspended. For how to do this, use TCM1000084.

If recovery has been suspended

  • remove the suspension marker. For how to do this, use TCM1000336
  • take no further action.

If recovery has not been suspended

  • take no further action.

Step 8

Note: You need to establish which overpayments can be included in the bankruptcy, as these will no longer be recovered.

You will need to view S17 details to see if the relevant year was ‘Reply required’ or ‘Auto renewal’. For how to do this use TCM1000204.

If the year you are looking at is ‘Auto-Renewal’

  • make a note of 1SD
  • go to .

If the year you are looking at is ‘Reply Required’

  • check to see ifa final award notice has been issued. For how to do this, use TCM1000069

then

  • go to .

Step 9

If an award notice has been issued

  • make a note of the version date as these will no longer be recovered. For how to do this, use TCM1000070
  • repeat the process for all finalised years affected by the bankruptcy

then

  • go to .

If a system generated award notice has not been issued

  • issue a manual award notice. For how to do this, use TCM1000538
  • go to .

Step 10

If the case has been referred by DOP or CSSG, go to .

If the case has not been referred by DOP or CSSG

  • check if the case has been finalised more than once. For how to do this, use TCM1000068.

If the award has been finalised more than once, go to .

If the award has been finalised only once, go to .

Step 11

Note: Establish if re-finalisation was valid. For how to do this, use TCM0264020.

If the re-finalisation is valid, go to

If the re-finalisation is not valid, go to .

Step 12

You have established that the re-finalisation is not valid

  • suspend overpayment recovery. For how to do this, use TCM1000335
  • enter household note OD69 from TCM0166020. For how to do this, use TCM1000001
  • pass the case to your manager for referral to the s18 team
  • when the case is returned check for any changes on the award.

If there are any changes to the award

  • go back to and re-start bankruptcy action.

If there are no changes to the award, go to .

Step 13

Note: Check 1SD for auto renewal cases or the finalisation date for ‘Reply Required’ cases for each affected award, to establish if the award was finalised before or after the bankruptcy declaration date. For how to do this, use TCM1000070.

If the award was finalised after the bankruptcy date

  • issue a TC880a from the SEES database
  • enter household note OD63 from TCM0166020. For how to do this, use TCM1000001
  • check if payment suspension has been set. For how to do this, use TCM1000368
  • check that the customer has been discharged from bankruptcy by checking the Insolvency Register for an entry
  • un-suspend recovery. For how to do this, use TCM1000327
  • send to storage. For how to do this, use TCM0074140
  • take no further action.

If the award was finalised before the bankruptcy date

  • check the amount of overpayment outstanding for each applicable award. For how to do this use TCM1000056 then return to this step
  • remit the overpayment amount for each applicable year. Follow the guidance in TCM0230060
  • remove any appeal markers set earlier in the process. For how to do this useTCM1000453

then

  • go to .

Step 14

Note: You will need to establish whether there have been any recoveries made against the overpayments included in the bankruptcy. You will need to establish the date of bankruptcy and reimburse any overpayment amount already recovered.

  • establish the amount of recovery already made on or after the discharge date then return to this step. For how to do this, use TCM1000065.

If there is an amount to be repaid

  • update household notes with OD68 from TCM0166020. For how to do this use TCM1000001
  • issue letter TC880c from the SEES data base
  • send a non-postable manual payment request to the Manual Payments team for the amount to be repaid. For how to do this use TCM1000110 then return to this guidance.

Note: These manual payments must be not be posted onto the tax credits computer record as they are not to be recovered. Ensure that when the manual payment request is sent, that the request is marked as not to be posted.

  • go to

If there is not an amount to be repaid, go to .

Step 15

If there are any overpayments outstanding that have not been remitted under the bankruptcy order, go to .

If there are no overpayments outstanding following remittances under the bankruptcy order, go to .

Step 16

Note: If there are any overpayments outstanding that have not been remitted under the bankruptcy order, we are unable to make recoveries for a 12 month period. The recovery suspension should be set until the customer has been discharged from bankruptcy.

  • suspend recovery of the outstanding overpayment. For how to do this, use TCM1000334
  • enter household note OD69 from TCM0166020. For how to do this use TCM1000001
  • go to .

Step 17

  • send all case papers including any copies of the bankruptcy notice or discharge notice to storage. For how to do this, use TCM0074140
  • take no further action.

Note: If you have the original copies of the bankruptcy notice or the discharge notice, make copies and return the originals to the customer.

Step 18

When the customer is discharged from bankruptcy, recovery of any outstanding overpayment can commence.

  • check to see if there is any outstanding overpayment. For how to do this use TCM1000216.

If there is an outstanding overpayment amount,

  • remove the recovery suspension marker. For how to do this use TCM1000336.
  • send all case papers including any copies of the discharge notice to storage. For how to do this use TCM0074140
  • take no further action.

If there is no outstanding overpayment amount,

  • send all case papers including any copies of the discharge notice to storage. For how to do this use TCM0074140
  • take no further action.

Note: If you have the original copies of the bankruptcy notice or the discharge notice, make copies and return the originals to the customer.