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HMRC internal manual

Tax Credits Technical Manual

From
HM Revenue & Customs
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Payment of Tax Credits: Overpayments: Recovery of overpayments of tax credits from other payments of tax credit

Tax Credits (Payment by the Commissioners) Regulations 2002 Regulation 12A

Where the Commissioners for HM Revenue & Customs intends to recover an overpayment of tax credits from other payments of tax credits the following maximum rates of recovery apply:

  • where the only amount of tax credits to which the person is, or, in the case of a joint claim, the persons are, entitled, is the family element of Child Tax Credit, 100% of that tax credit
  • where the total amount of tax credits to which the person is, or, in the case of a joint claim, the persons are, entitled is not subject to reduction —

    • because they are in receipt of a Social Security benefit (section 7(2) of the Tax Credits Act 2002); or
    • because their income for the relevant year does not exceed the relevant income threshold prescribed in his or their case in regulation 3 of the Tax Credits (Income Thresholds and Determination of Rates) Regulations 2002;

10% of that tax credit; and

  • in any other case, the income related percentage of the tax credits to which the person is, or in the case of a joint claim, the persons are, entitled.

 

The income related percentage means:

  • 50% if annual income exceeds £20,000; and
  • 25% in any other case.

 

Note:  “Annual income” in this respect refers to actual income as opposed to “relevant income” as defined under section 7(3) of the Tax Credit Act 2002 (see TCTM07042)

 

An example of 50% recovery rate of overpayments

The claimant declared £19500 income for PY as part of their s17 annual declaration. The £19500 was used to calculate their tax credit award for CY. The claimant then notified HMRC that his CY estimate of income had increased to £20500. Whilst this meant that his ‘relevant income’ used to calculate his CY tax credits award remained at £19500 (as the estimate was within the £2500 income increase disregard), his annual income is actually £20500. Therefore this would result in the 50% recovery rate being applied.