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It is important that tax credit claimants make sure that they
let HM Revenue and Customs (HMRC) know of any change in their
circumstances that might affect their claim – e.g. splitting up
with their partner or moving in with a new one. This is to ensure
that the correct amount of money is being paid and to avoid
compliance checks and overpayments.
If you are advising anyone about tax credits, you should also be
aware of the following information.
HMRC routinely collects information from credit reference
agencies for data matching against tax credit claims.
Where data matching information shows, for example, that a person
has applied for a loan or a credit card from an address where
another person is claiming tax credits as a lone parent, that could
trigger an HMRC investigation into whether the tax credit recipient
has an undeclared partner living with them.
Compliance checks are done to check that the right amount of tax
credits are being paid, particularly there has been a change in
circumstances – for instance when a lone parent is late in telling
HMRC about a new partner moving in or couples who have been making
a joint claim fail to inform them that they have separated. In such
cases, where a new claim needs to be made as a single person or as
part of a new couple, reporting the change late can result in a tax
HMRC may suspend payment of tax credits during a compliance
Advisers who deal with tax credit problems will be aware of the
difficulties clients can have if their award is subject to a
compliance check. It is often very difficult to assist them when
compliance teams are involved and a long investigation can cause
Where HMRC decides that a person’s award has been incorrect, for
example where they discover that a lone parent has been living with
a partner, they will reassess the tax credits award on the correct
basis. They may also treat any amounts already paid on the previous
claim as an overpayment.
In many cases, when HMRC calculate the amount overpaid, they
will take into account the amount the person should have received,
had the award been correctly assessed. HMRC call this process
‘offsetting notional entitlement’.
For example, if someone was paid £5,000 in tax credits on their
original claim as a lone parent, the whole of this amount may be
considered as an overpayment if they are subject to a compliance
check and found to have been paid the wrong amount. However, if
they are entitled to £3,000 on their new claim as part of a couple,
the overpayment can be reduced to £2,000.
HMRC guidance says that offsetting notional entitlement should
be possible in most cases, except when HMRC believe the claimant
was deliberately dishonest.
It is very important to make sure that HMRC do consider
offsetting notional entitlement when appropriate, as the difference
between the amount overpaid and notional entitlement may be
comparatively small. However if offsetting of notional entitlement
is not allowed, all tax credits paid from the incorrect award will
need to be paid back.
The Tax Credit Helpline (link opens in a new window) can
See the HMRC
website for official guidance on when offsetting should be allowed
(link opens in a new window).
HMRC does have a special procedure for vulnerable clients - for
example, where domestic violence is involved - and has promised to
provide information about this procedure to advice agencies. We
will let you know in a future edition of Turn2us News when we get
further details about this.
Next month, Turn2us will shortly be publishing new information
sections on Overpayments and Fraud investigations in relation to
benefits and tax credits.
See the HMRC website for general information on tax credit
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