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HMRC internal manual

Tax Credits Manual

From
HM Revenue & Customs
Updated
, see all updates

Specialist areas: international: miscellaneous: complex overpayments - manual action

Checklist

Before you follow this guidance make sure

  • you have the correct user roles to follow this guidance. Use the B&C Roles and Access Catalogue. You can find this by going to the Benefits & Credits homepage, selecting ‘R’ on the B&C A-Z index, selecting ‘Roles and Access Process’, selecting ‘Roles & Access Catalogue’ from the Related links menu
  • you are in the correct MU. See TCM0322460 for the correct MU number
  • you have access to the tax credit computer system (NTC)
  • you have set up a manual file and recorded on form TC648
  • you have today’s date input as a change of circumstances on the SEES calculation.

Background

The purpose of this guidance is to tell you what action needs to be taken once an overpayment has been calculated and identified as recoverable.

A SEES calculation will have already been completed confirming what the customer’s entitlement is and the amount of the overpayment incurred.

A decision tree has been created to determine which method of recovery you will apply to recover the overpayment. The decision tree may tell you to apply more than one recovery method and which method to apply first.

Reallocation is the recovery method which is always considered against each tax year first followed by set off then an in year adjustment with cross year recovery always being the last action to be taken.

Reasons not to follow this guidance

Do not follow this guidance if

  • a SEES calculation has not been completed
  • there is no overpayment.

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 / Data Security Team for advice.

Step 1

If tax credit has ended and no further money is due to be paid, return to the guidance you were previously following to consider TC33 direct recovery action.

If the customer’s claim to tax credits has ended and further money is due to be paid, go to .

If the customer’s claim to tax credits has not ended and no further money is due to be paid but there is an overpayment, return to the guidance you were previously following to apply TC33 direct recovery action. 

If the customer’s claim to tax credits has not ended and no further money is due to be paid, refer to TALLO.

If the customer’s claim to tax credits has not ended and further money is due to be paid, go to .

Step 2

  • access the shared SEES decision tree ‘Tax Credit Manual Overpayments’. For how to do this, use TCM1000257 
  • on return to this guidance, note TC648 of which recovery method applies.

If you are applying the In Year Adjustment method of recovery, go to .

If you are applying the Set Off method of recovery, go to .

If you are applying the Cross Year method of recovery, go to .

If you are applying the Reallocation method of recovery, go to .

Step 3

In Year Adjustment method of recovery

An in year adjustment is applied whenever a tax credits award is revised in the current tax year. If the amount of tax credits paid to date is greater than the amount due to date, the difference is recovered from future payments of that tax credit, reducing them to nil if necessary. 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

  • for a customer who is in receipt of an untapered award, 10% of their regular payments will be recovered until the overpayment is cleared
  • for a customer who is in receipt of a tapered award, 25% of their regular payments will be recovered until the overpayment is cleared
  • for a customer who is in receipt of the Family element, 100% of their regular payments will be recovered until the overpayment is cleared.

Note: The adjustment is applied to the tax credit that has been overpaid first. If the overpayment is greater than the total outstanding award amount, the balance will be recovered from the next award. The in year overpayment is repaid first before cross year recovery is set up.

Note: Once reallocation and set off recovery methods have been considered, the next action is an in year adjustment. In year adjustments will always be used to repay current year overpayments first.

Consider the following example to your case

  • WTC due to today’s date is £600. CTC due to today’s date is £1200. Remaining entitlement from today’s date to the end of your calc is WTC £100 and CTC £300. Payments made today’s date is WTC £600 and CTC £1275. WTC has been paid correctly and CTC has been overpaid by £75. WTC due for the remainder of the year is £100 (5 payments of £20). CTC is £300 (5 payments of £60). Applying an in year adjustment of 25%, WTC will remain the same and CTC will be reduced to £225 (5 payments of £45)
  • check the SEES calculation held and apply the principle of the above example to your case
  • update the locally held pro-forma to show details of recovery and where appropriate any outstanding overpayment. For further information on how to do this ask your line manager,

If you need to apply another recovery method, go to .

If the recovery is now complete, return to the guidance you were previously following.

Step 4

Set Off method of recovery

Set off takes place when there is an underpayment in one award period and an overpayment for the same household in another award period.

Note: Previous years and earlier set offs can only be considered if the claim has been finalised. Current year set offs can only be applied if there has been an in year underpayment and there is an arrears payment due. This is usually the result of a change in circumstances or following finalisation of the previous year.

Consider the following example to your case

  • WTC is overpaid by £1000 in 2010-2011 tax year. The 2009-2010 award table has not been generated but there is entitlement of £1500 which should have been paid. The entitlement for 2009-2010 can be set off and used to reduce and balance the 2010-2011 tax year, leaving £500 to be paid for the 2009-2010 tax year as an arrears payment
  • check the SEES calculation held and apply the principle of the above example to your case
  • update the locally held pro-forma to show details of recovery and where appropriate any outstanding overpayment. For further information on how to do this ask your line manager.

If you need to apply another recovery method, go to .

If the recovery is now complete, return to the guidance you were previously following.

Step 5

Cross Year method of recovery

When an overpayment cannot be fully recovered by an in year adjustment, reallocation, or an overpayment from an earlier period has not been fully recovered at the end of the previous award period, the balance is recovered from future awards of that tax credit. This is cross year recovery.

Note: Cross year recovery from current year to previous year or earlier can only be considered on finalised awards.

This means, when an underpayment is identified on an unfinalised previous year or earlier award the arrears can be used towards current years (current year underpayments can not be used towards previous year or earlier unfinalised awards but can sit on the account as potential underpayments and do not need to be paid until the previous year claim has been finalised).

The rate at which the overpayment is recovered is dependent on the type of award the customer has. The rates of recovery are as follows

  • for a customer who is in receipt of an untapered award, 10% of their regular payments will be recovered until the overpayment is cleared
  • for a customer who is in receipt of a tapered award, 25% of their regular payments will be recovered until the overpayment is cleared
  • for a customer who is in receipt of the Family element, 100% of their regular payments will be recovered until the overpayment is cleared.

Note: Recovery is applied to each payment issued and is not accounted as having been made until the payment has been issued. Recovery is only made against the tax credits that were overpaid. It’s applied to another tax credit only when entitlement to the originally overpaid tax credit ends.

Consider the following example to your case

  • following finalisation of the 2009-2010 tax year, arrears of £100 CTC are due. But, the 2010-2011 tax year currently has an in year adjustment in place to recover £75.00 WTC. The underpayment up to the total of £75.00 is retained against the 2009-2010 tax year. Cross year recovery action is applied to repay the overpayment of WTC against the 2010-2011 tax year. The remaining arrears of £25.00 CTC for 2009-2010 can be paid as a lump sum. The In Year Adjustment for 2010-2011 is lifted returning the customers payments to their regular amount for the remaining award period
  • check the SEES calculation held and apply the principle of the above example to your case
  • update the locally held pro-forma to show details of recovery and where appropriate any outstanding overpayment. For further information on how to do this ask your line manager.

If you need to apply another recovery method, go to .

If the recovery is now complete, return to the guidance you were previously following.

Step 6

Reallocation method of recovery

Reallocation takes place where there is an overpayment of one tax credit in a particular award period, and an underpayment of another tax credit in the same period. An amount of the overpaid tax credit is deemed to have been paid as the underpaid tax credit, up to the amount of the underpayment. Any balance of the overpayment is recovered from future awards by cross-year recovery, or by set off. Any balance of the underpayment is set off against overpayment from earlier award periods. If there is no remaining overpayments, the balance of the underpayment is issued to the customer as arrears.

Consider the following example to your case

  • WTC is overpaid by £100. CTC is underpaid by £150. Instead of paying the customer £150 underpayment for CTC and leaving them with an overpayment of £100 for WTC, the £100 owed on the WTC is reallocated and paid off using £100 from the CTC. The customer is left with £50 underpayment that is sent to them as arrears
  • check the SEES calculation held and apply the principle of the above example to your case update the locally held pro-forma to show details of recovery and where appropriate any outstanding overpayment. For further information on how to do this ask your line manager.

If you need to apply another recovery method, go to .

If the recovery is now complete, return to the guidance you were previously following.