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Tax credits

Tax credit changes

When you make a claim for tax credits, Her Majesty's Revenue and Customs (HMRC) will make an initial decision about your entitlement based on the information you give. If your circumstances change (this could be a change in your personal situation or income), this could affect your entitlement to tax credit. Tax credits are designed to respond to changes in your circumstances.

If you report these changes, your payment can be adjusted to take them into account.

You can report changes by contacting the tax credits helpline on 0345 300 3900, or textphone 0345 300 3909 (open 8am-8pm daily except Christmas Day, Boxing Day and New Year’s Day).

There are some changes that you have a duty to report to HMRC. Some changes can be reported at the end of the tax year but others must be reported within one month or you could be subject to penalties.

It's usually best to report changes as soon as they happen. Even if it's a change that can be left until the end of the tax year, if the change is in your favour (it entitles you to more tax credit), any increase in payment can only be backdated by three months. If the change means you're entitled to less tax credit, this will result in an overpayment, which you'll probably have to pay back.

Changes which must be reported within one month include:

  • a change in the number of adults in the household (for instance, you and your partner split up or you were claiming as a single person but now have a partner)
  • a child or young person stops being your responsibility or ceases to be a 'qualifying' young person (for instance, they leave school, start work or claim benefits in their own right)
  • you begin working less than 30 hours a week or less than 16 hours a week, you stop working or you're on strike for more than 10 days in a row
  • you or your partner leave the UK permanently or are temporarily absent for eight weeks (or 12 weeks if you're leaving for medical treatment or someone in your family has died)
  • you or your partner lose the right to reside in the UK
  • your childcare provider is no longer registered
  • your average weekly childcare costs go down by £10 or more for at least four weeks, or you no longer pay for childcare
  • you start getting childcare vouchers from your employer

Changes that can be reported at the end of the tax year include:

  • changes in the number of children in your household (such as a new baby)
  • changes in your weekly working hours (other than those in the list above) 
  • changes in your entitlement to a tax credit element (for instance, you now qualify for a disability element)
  • changes to your annual income (an increase of up to £10,000 makes no difference to your entitlement for the current tax year but will affect your renewal claim)
  • an increase of at least £10 a week in your average childcare costs for four or more weeks (or you start paying childcare costs)

The official online source of government information on benefits is GOV.UK.

Click on the bars below for more detailed information on changes to your tax redit claim.

Increases in income

Your income can increase by up to £10,000 in the current tax year without affecting your entitlement. This 'tolerance' will help to prevent overpayments of tax credits. However, you need to tell HMRC of an increase in your income by the end of the tax year at the latest, as it will affect your tax credit award for the following tax year. This means that if you have had a large pay rise you may keep your tax credit for the current tax year, but your award may be a lot less or may stop altogether the following year.

If your income has gone up by more than £10,000 it will affect your current year’s tax credit award. If you don't report the increase to HMRC, an overpayment of tax credits will build up, which you'll have to repay.

Underpayments and overpayments

Your tax credit claim is renewed at the beginning of each tax year. At this point, HMRC will look at what you were paid in the last tax year, check any changes you've reported as part of the renewal process, and decide if they've paid you too much (overpayment) or too little (underpayment).

If you've been paid too much, HMRC can recover the overpayment from you, no matter how the overpayment occurred. This is usually done by reducing your award for the following year. You can dispute an overpayment but you cannot appeal against a decision to recover an overpayment.

Overpayments (or underpayments) are best avoided by reporting changes of circumstance as they happen so that your tax credits can be adjusted within the tax year.

If you've received too little tax credit, the shortfall will be paid to you.

Overpayments

An overpayment occurs when you're paid more tax credit than you're entitled to in a particular tax year. It can happen if you haven't reported changes of circumstance that affect your entitlement. An overpayment could also be the fault of HMRC, or could be due to failures on both sides.

At the beginning of each new tax year, HMRC will review your tax credit award and make a final decision about how much you should have been paid. If they decide that you’ve been overpaid during the last tax year, they must tell you at this point.

It's also possible for your tax credit award to be reduced in the current tax year if HMRC think this will reduce or stop a likely overpayment.

If HMRC decides that you’ve been overpaid, you can appeal against their decision. However, HMRC is entitled to recover all overpayments, however they were caused, and you don’t have right of appeal against their decision to do so. See the section below on Recovery of overpayment for how the money is recovered.

If your appeal involves an overpayment, you should include a request to suspend recovery of the money. You may want to seek independent help and advice to make an appeal or dispute an overpayment.

Interest may be added to an overpayment if HMRC believes that it arose through fraud or neglect on your (or your partner’s) part. Interest may apply from the date of your final notice or the date of a decision terminating your tax credit award.

Disputing overpayments

Although you don't have a right of appeal against the recovery of an overpayment, it's at the discretion of HMRC to recover the money or reduce the amount they'll recover.

If you want to dispute an overpayment (for example, you argue that you took all possible steps to prevent the overpayment and it only arose because of mistakes made by HMRC), you can do this using form TC846. You can download the TC846 form (PDF, 126kb).

When you submit this form, HMRC will suspend their recovery action while they look into the matter. Once the investigation is complete, HMRC can restart recovery of the money.

You can write to HMRC instead of using the form, but your letter should contain full reasons for disputing the overpayment.

There's a code of practice that sets out the circumstances in which overpayments may be written off. The code of practice sets out your responsibilities (such as checking your award notices, giving correct and up-to-date information and reporting changes at the correct time) and those of HMRC (such as accurately recording what you tell them, giving correct advice and information, and working out your entitlement correctly).

If you've fulfilled all your responsibilities and HMRC have failed in theirs, they may write off the overpayment. If there is shared blame, they may write off part of the overpayment. If the overpayment arose because of a failure on your part, it remains recoverable from you.

Recovery of overpayments

Overpaid tax credits are usually recovered by reducing your payments in the following tax year. HMRC reduce payments by different levels according to how much tax credit you get. They can reduce your award by:

  • 100% if you only get the family element of child tax credit
  • 10% if you get the maximum tax credits you’re entitled to (with no reduction for income)
  • 25% in all other cases

If you're not entitled to tax credit in the following year, the overpayment can be recovered directly from you. It's payable 30 days from notification that there has been an overpayment. You're usually asked to make the repayment in 12 monthly instalments, but you can negotiate a longer payment period.

If repayment would cause you financial hardship, call HMRC’s tax credit payment helpline on 0345 302 1429.

You may be asked to submit financial details to show your current income and outgoings, financial commitments and ability to repay the overpayment. The details may include your family circumstances, your current and future income, your rent or mortgage, gas, electricity and council tax bills, financial assets available to you and debts you may owe, including any other overpayments.

In exceptional circumstances, repayment may be postponed or the overpayment written off. Exceptional circumstances may include you or a member of your family being seriously ill.

You can seek independent help and advice to negotiate a repayment.

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Page last reviewed: 21/03/2013

Next review due: 21/03/2015

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