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Thank you, your feedback has been submitted. In this section. Share on Twitter Share on Facebook Print this page. The information in this sub-section applies to direct recovery cases. Information about hardship in ongoing recovery cases can be found below. If that is the case, there are two potential options available. Debts remitted due to hardship remain recoverable but may be pursued until later review of financial circumstances. In such cases, HMRC should suspend recovery for 12 months.
At the end of that period, the case should be reviewed and if there is no likelihood that circumstances will improve, consideration should be given to remitting the overpayment or, at the very least, suspending it for a further 12 months. If circumstances have improved, HMRC will seek a time to pay arrangement see above for more details.
If a claimant becomes entitled to universal credit then the tax credit debt can be collected by DWP from the UC award.
Where a claimant is in receipt of a sickness benefit such as employment and support allowance, cannot afford to offer any repayment to HMRC and there is little prospect of them ever gaining employment, HMRC should remit the outstanding overpayment.
If there is some prospect that the claimant may be able to enter employment in the future, recovery should be suspended for 12 months and the situation reviewed at the end of that period.
If the claimant becomes entitled to universal credit then the tax credit debt can be collected by DWP from the UC award. In situations where a claimant cannot meet essential living expenses such as water, gas and electricity, they should request that the overpayment recovery be suspended until their circumstances improve.
Where there is no likelihood that this will happen, a request for the overpayment to be remitted on financial hardship grounds should be made. In our experience this is most likely to succeed where evidence of their current situation is given to HMRC.
For those in the direct recovery process, DM are tasked with recovering the debt and it is with them that initial contact should be made to discuss financial hardship. The DTO should then assess the case based on the information received or by contacting the claimant for further information. Any letter sent to the claimant should include a phone number for the DTO dealing with the case.
The claimant should be informed by letter of the outcome, regardless of whether the decision is to temporarily suspend recovery or to remit the overpayment in full. The legislation states that in this respect tax credit overpayments are to be treated the same as underpayments of tax.
However, they are continuing to use it in cases where it is unlikely the person will be moving to UC - for example because they are over state pension age and a single claimant. HMRC's tax credit operations is responsible for ongoing recovery cases.
Ongoing recovery is used where there is an ongoing claim still in payment following the claim which gave rise to the overpayment. In the legislation, there are certain limits on the amount by which payments of tax credits can be reduced in order to recover an overpayment which arose in the previous year cross-year overpayment.
Those limits depend upon household income. From April , the limits are as follows:. This could be a current year estimated figure or the previous year income figure.
This may not be the same figure as the claim is based on. Sometimes HMRC adjust an award during the award period to try to prevent or reduce an overpayment from accruing by the end of the tax year. Potential overpayments that are identified during the award period in this way are loosely termed in-year overpayments. In such cases, the limits above should also generally apply. This is to prevent a build-up of overpayments by the end of the year.
Previously, HMRC continued to make payments to claimants in this situation unless they specifically asked HMRC not to all of which became recoverable overpayments at the end of the year. Ongoing recovery of old tax credits debt cross-claim recovery. This change was introduced from October Essentially, it means that any households with outstanding overpayments from ended claims that include the same household member s will have those old debts recovered from the new ongoing award.
Cross claim recovery will only take place when there is a suitable ongoing claim. This is one where:.
Where an old debt is already being repaid directly, it will not be included in this ongoing recovery. Where there are a number of old overpayments from different years, awards or households, these will all be moved to the ongoing award and collated as one single overpayment amount.
But if the ongoing award ends before the total overpayment is repaid, the outstanding debts will be returned to their original awards. HMRC have produced a more detailed note about recovering old tax credits from ongoing awards, including full details of how the payments will be reconciled. More information can also be found in the Tax Credits Technical Manual. Financial hardship in ongoing recovery cases.
In certain circumstances, HMRC will agree to reduce the recovery percentages from the figures set out above. Any financial hardship in ongoing recovery cases is dealt with by HMRC's tax credit operational processing teams. This form is used to ask HMRC to reduce recovery rate where it is causing financial difficulty.
The form asks for various details about the claimant and their partner, their household and their income and expenditure. Claimants will need to log in to their personal tax account.
To do this they will need to use the Government Gateway for verification. If they do not have an account, they can set one-up and if they do have an account they will need to sign-in. Each time someone signs in to their PTA, they will need their mobile phone to receive an access code. Once in the PTA, claimants will need to click on tax credits and on the first page there is a list of tax credit forms that can be filled in and submitted through the PTA.
After the form has been submitted, it can be tracked via the PTA which is again accessed from the account home page. The first step is for the claimant to contact the tax credit helpline to ask that the recovery percentage is reduced. Once a referral is received by the hardship team, they will send out an income and expenditure form TC Once the form is returned, HMRC will compare the income and expenditure figures against figures they hold for various household expenses and make a decision.
HMRC aim to make a decision within 2 working days of the form being returned, however sometimes HMRC may contact the claimant by phone or letter if no telephone number is held for more information or evidence before making a decision.
Any arrangement will only last until the end of the current tax year. It appears there is no way to challenge a refusal to reduce the percentage recovery rate, but a fresh hardship request can be made. If the cases warrants it, a complaint could also be made. The law says that an overpayment debt for a couple can be collected by HMRC in full but only once! The stated policy of HMRC where this has happened following a household breakdown is to write to both members of the former couple making every effort to trace any former partner for whom they do not have an up-to-date address.
If the claimant believes that there should be a difference in what they and their former partner should pay, then HMRC will take into account the circumstances of both of them and may ask each of them to pay a different amount, or one of them to pay the full amount.
Alternatively, they can agree between them to pay different amounts and inform HMRC of this decision. This often meant the mother with care of the children had to repay the whole joint overpayment debt where the absent partner was difficult to trace.
Instead they will pursue the other partner, and if they cannot collect the money will not go back to the engaging partner to collect it. It is important to note that the law still allows HMRC to pursue either partner for the full amount of the joint debt.
Also, this process is not well advertised by HMRC, so you should ensure that you ask Debt Management and Banking if you think it applies to your client. Notional entitlement Sometimes known as notional offsetting. Sometimes, tax credit claimants who form a couple or who become single, either because they separate or because one partner dies, are slow in reporting the change to HMRC.
Yet in many cases, if they had acted promptly they would have continued to be entitled to tax credits, albeit in a different capacity. Until 18 January , HMRC would recover the whole of any overpayment arising on the old claim, but give no credit for what the claimant would have received had they made a new claim at the right time.
From 18 January , HMRC introduced a new policy that means tax credits recipients who start to live together, or who become single after being part of a couple, but are late reporting the change to HMRC or don't report the change and have their award changed as a result of a compliance investigation by HMRC , can ask HMRC to reduce the overpayment on their old claim by whatever they would have been entitled to had they made a new claim promptly.
A new claim must be made for this policy to apply. If this doesn't happen automatically, claimants should contact the tax credit helpline to ask for their case to be referred to the 'notional entitlement or notional offsetting ' team in the Tax Credits.
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