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HMRC internal manual

Tax Credits Technical Manual

Decision Making: The Tax Credits Act and Tax Credits Regulations: The Tax Credits Act

The Tax Credits Act 2002

Detailed below is a list of the sections within the Tax Credits Act (see TCTM12000) that allow HMRC to make decisions and then subsequently amend those decisions once a claim is accepted as valid. This section only gives a brief overview and for full detail you should refer to the full chapter within the TCTM on each section of The Act.

Section 14 covers the initial decision to

  • decide whether to award tax credits
  • decide the rate at which to pay (including nil rate)
  • decide whether to award a renewal claim accepted following the making of a complete annual declaration (or on expiry of the first specified date (1SD) for auto-renewal cases - see the glossary at TCTM09530 for an explanation of these terms)

Section 15 allows HMRC to change an award, providing that this change increases the maximum rate that the claimant(s) may be entitled to, and the change was notified by the claimant(s).

  • A change to the maximum rate of entitlement can be defined as a change that adds or increases one or more of the elements that make up an award of tax credits e.g. the addition of a child or the addition of the 30 hour premium. A change to income can never increase the maximum rate payable even though it can increase or decrease the award

Section 16 allows a change to be made during the award period (see TCTM07060) only to amend or terminate an award if we believe that the rate at which an award was made is wrong or that the claimant has ceased to be, or should never have been, entitled to an award.

Section 17 does not cover a type of decision but it is rather the end of year notice that must be issued by HMRC (usually in the weeks following 6 April). However a s18 decision is reliant on the issue of a s17 notice. If a s17 notice has not been issued a s18 decision cannot be made. The s17 notice details the circumstances of the claim and elements that have been awarded for the previous year. It asks the claimant(s) to confirm their PY income and also confirm that the details on it are correct, see TCTM06106). This is usually called the annual declaration. Auto renewal cases are the exception where an annual declaration is not required unless the income is above or below the specified range or the circumstances are different.

The annual declaration serves two functions:

  • to finalise the entitlement on the previous year
  • to make a new claim for the coming year (on which a s14 decision should be made).

Section 18 says that HMRC must make a decision on entitlement and that this cannot be done until a s17 notice has been issued and an annual declaration has been made in direct response to that notice, or until 1SD has passed (auto renewal cases are an exception). The s18 decision is the first decision in the entire process that deals with entitlement to tax credits, earlier decisions relate simply to the rate at which HMRC will for the time being, pay tax credits.

A conclusive s18 decision can be revised using s18, up to and including 1SD, if the claimant(s) make a new annual declaration which changes the earlier decision. However after 1SD has passed a conclusive s18 decision can only be amended using s19, s20, s21 or under appeal (see TCTM09260).

Section 19 allows HMRC to open an enquiry into a conclusive decision. It then provides for HMRC to amend a conclusive decision if something is found to be incorrect. There are specific times when s19 can and cannot be used.

Note: Because you can only carry out one s19 enquiry for each award and there are strict rules about when an enquiry can be opened, it is vital that great care is taken when first considering a case for enquiry.

Section 20 can be used to revise a conclusive decision in two distinct sets of circumstances. These are where:

  • the tax liability of the claimant has changed and the Board believe the original decision was incorrect. This change must be made no later than one year after the Income Tax liability has changed. The specifics of these tax liabilities are detailed at section 20 of the Tax Credits Act 2002 (see TCTM10300)
  • a conclusive decision is reasonably believed to be incorrect and this can be attributed to fraud or neglect on the part of the claimant. This change must be made no later than five years from the end of the tax year to which the decision relates.

In both cases a s20 decision can only be made after the s19 enquiry window has closed (see TCTM09410)

Further detail on the use and restrictions of section 20 can be found at TCTM10300

Section 21 allows HMRC to rectify an official error by making a new decision, for s21 to apply the new decision must be in the claimant’s favour and the claimant must not have materially contributed to the error. This change must be made no more than five years from the date of the decision. Prior to 6 April 2010 the legislation read as five years from the end of the tax year to which the decision relates.