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Tax Credit Briefing 1
Annual review and renewal
Introduction
Her
Majesty’s Revenue and Customs (HMRC) embarks on the task of reviewing and
finalising all tax credits awards for 2007/2008 in April 2008.
This is called the Annual Review and it is necessary because tax credits
paid in a tax year are generally based on estimates of that year’s earnings
until the final figures are known after the end of the tax year when the final
decision on entitlement for the year is then made.
HMRC
will write to everyone who claimed tax credits in the year 2007/2008 shortly
after the end of the tax year (ie 5 April 2008), enclosing an annual review
form. An annual declaration form
will also be included except where the claimant/s have an ongoing award for the
family element of Child Tax Credit or a nil award. These forms, once completed
and returned, are the basis of the provisional claim for the new tax year
2008/2009.
Until
the renewal claim has been processed, tax credits should continue to be paid at
the 2007/2008 rate.
This
briefing aims to cover the law and procedure applicable to the annual review and
renewal process and to conclude by raising awareness of potential problems and
how to deal with them.
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Under
Section 17 of the Tax Credits Act (2002), HMRC must issue a final written notice
to claimants.
The
notice will require a claimant to declare that the relevant circumstances set
out in the notice are correct. In certain cases, the claimant will be informed
that s/he will be treated as having made a declaration that the relevant
circumstances were as specified unless the claimant declares otherwise.
Where
the information is not accurate, the claimant is obliged to set out any
differences. In addition, the notice
will also require claimants to provide details of their actual income for the
tax year 2007/2008 (or to declare that the income was no more than £25,000
above the figure stated). In certain cases, the notice will inform the claimant
that s/he will be treated as having made such a declaration in response to the
notice except where the income fell outside of the specified range.
This must be done by 31 July 2008 (see HMRC procedure section).
The legislation allows HMRC discretion to treat a claimant as having made
a declaration.
Under
Section 18 of the Act, the information given or confirmed by a claimant is used
by HMRC to make a final decision on entitlement for the last tax year (ie
2007/2008). Where a claimant’s
entitlement is less than the amount s/he was paid, there will be an overpayment
of tax credits. Where entitlement is
greater than the amount paid, there will be an underpayment.
Following
an adjustment of entitlement, the claimant will be sent a final notice of
entitlement for the previous tax year. Any
underpayment will be repaid in a lump sum. For
details of how overpayments are dealt with, see Briefing 2, Recovery of
Overpayments.
The
declaration (or deemed declaration) about a claimant’s circumstances and
income made in connection with a final notice is also treated as a renewal claim
for tax credits for 2008/2009. Under
Section 14 of the Act, this is treated as an initial award which may be revised
later in the year.
If the
declaration is made (or treated as made) by 31 July 2008, then the claim is
automatically backdated to 6 April 2008, if there is entitlement. If a claimant
fails to respond by 31 January 2009, s/he cannot renew the claim.
Instead, a fresh claim will have to be made which can only be backdated a
maximum of three months and any amount paid as a provisional award after April
2008 will be recovered as an overpayment.
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From
April 2008 onwards, HMRC will issue annual review packs.
This should be an automatic process and claimants should not have to ask
for the pack. A pack will be issued
with the following details.
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The
annual review form (TC603R) contains details of personal circumstance on
which entitlement to tax credit in 2007/2008 was based.
This includes:
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the
names and dates of birth of each claimant plus any qualifying children
or young people;
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details
of any employment, and childcare costs;
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details
of any additional elements of Child Tax Credit and Working Tax Credit
paid because of disability.
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A
claimant is expected to confirm the details are correct or to notify HMRC of
any changes.
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The
annual declaration form (TC603D) seeks details on each claimant’s relevant
income or an estimate of income for the tax year 2007/2008.
The form also asks a claimant to confirm that the circumstances in
the annual review form are correct or to set out any changes to the
information supplied. The
declaration must be signed alongside the notice that this constitutes a
claim for tax year 2007/2008.
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In
automatic reply cases, only TC603R will be issued.
This will tell a claimant that s/he will automatically have the award
finalised and the entitlement renewed unless the information provided of the
previous and current year’s details on the form is incorrect.
The claimant is advised to contact HMRC if the details are wrong.
These
forms must be returned by 31 July 2008 otherwise any ongoing payments will be
stopped and financial penalties may be imposed.
The provisional award for 2008/2009 may be revised at a later date when
details of actual income are supplied. However,
if the claimant fails to respond by 31 January 2009, the claim cannot be renewed
and instead a fresh claim must be made which can only be backdated up to a
maximum of three months.
It is
possible to provide HMRC with the requested information by:
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returning
the forms in the envelope provided;
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registering
to complete the forms online at the Revenue’s website; or
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phoning
the Tax Credits Helpline. |
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A
claimant who is not receiving tax credits because s/he had a ‘nil award’ or
who is only receiving the family element of Child Tax Credit will receive a
special version of the annual review form with details of personal
circumstances. S/he is asked to check that these are correct and to notify any
changes.
The
claimant is also asked to check that income for 2007/2008 is within the range
stated in the form and, if not, to notify actual income.
The
form also confirms entitlement for 2007/2008 and sets out details of the award
for 2008/2009, based on the details in the form and assuming there are no
changes of circumstances to report.
The
claimant is not sent or required to complete a declaration form but is told that
s/he will be treated as having declared that the information in the review form
is correct and that s/he is claiming tax credits for 2008/2009 unless HMRC is
contacted by 31 July 2008 with different information.
The
claimant is also warned that if it later transpires that the information on the
form was incorrect, then s/he may have to repay any overpayment and may be
liable to financial penalties.
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From
the beginning of 2008/2009, provisional payments will be made by HMRC while a
claimant renews her/his claim.
The
provisional payments have been calculated automatically, based on the current
information the Revenue holds about the claimant’s circumstances and they do
not take account of any overpayments. The
Revenue cannot issue a notice about this until a claim is renewed or a change of
circumstances processed.
‘Provisional
payments’ of tax credits for 2008/2009 replace 2006/2007 awards from April
2008. Provisional payments will
continue to be paid until the reconciliation and renewal process is completed.
Where a claimant has not provided an up to date estimate of income, the
provisional payments will be based on the assumption that 2007/2008 has
increased from the previous year in line with average earnings. However,
payments of tax credits will stop where a claimant fails to return the
declaration forms by 31 July 2008.
From
April 2008 onwards, HMRC will issue annual review and declaration forms.
These will be sent to claimants receiving Child Tax Credit with Income
Support, Jobseeker’s Allowance or Pension Credit first.
Claimants receiving the child and family element of Child Tax Credit,
Child Tax Credit family element only, Working Tax Credit only and those with
finalised tax credits will receive their forms last.
31
July 2008 is the deadline for returning declarations and notifying changes in
circumstances. HMRC will issue a
reminder about outstanding declarations.
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In
automatic cases: the
previous year’s award will be finalised and the claim for 2008/2009 year
will be renewed automatically based on the details contained in the TC603R
already issued unless there are changes. |
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In
reply required cases:
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if
the declaration is returned by 31 July 2008, the claimant will receive a
final notice of entitlement for 2007/2008 and a new award notice for
2008/2009. The claim and
award for 2008/2009 will be backdated to 6 April 2008 and any arrears
due will be paid to the claimant (including arrears due to provisional
payments being paid at last year’s rates);
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if
the declaration is not returned by 31 July 2008, provisional payments of
tax credits will stop from that date and the claimant will be asked to
repay payments made since 6 April 2008.
A final previous year award notice will be issued based on the
information held.
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Where
the declaration is not returned by 31 July 2008, the claimant will receive a
notice that tax credits have ceased. If
the renewal claim is returned within 30 days of the date of the notice then
the renewal claim will be backdated to 6 April 2008.
Where
the declaration is not returned within 30 days of the notice that tax
credits have ceased but is returned before 31 January 2009, then a claimant
must show ‘good cause’ for returning the renewal form late to have the
claim backdated to 6 April 2008. Good
cause is not defined but HMRC guidance, in its Tax Credits Technical Manual,
suggests it includes very exceptional reasons, for example, bereavement or
serious illness. If the reason
for the delay is not accepted, a claimant can appeal the decision not to
find good cause.
Where
the annual declaration form is returned between 31 July 2008 and 31 January
2009 and good cause is not accepted, then a new claim must be made and it
will only be backdated three months.
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The
rules allowing a late return of a declaration do not apply if:
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the
previous claim was based on the claimant being single and s/he is now a
member of a couple; or
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the
previous claim was based on the claimant being a member of a couple but s/he
is now single.
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31
January 2009 is the final
deadline for returning declarations and notifying actual (as opposed to
estimated) income for 2007/2008.
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If
the declaration is not returned by 31 January 2009, there will be no
‘deemed claim’ from 6 April 2008 and any new claim for tax credits will
only be backdated for a maximum of three months under the normal rules.
This applies regardless of the reasons for the delay in the reply.
There will also be a recovery of any payments made from 6 April 2008
to the date of the new claim. |
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Claimants
and advisers face a number of potential problems with the proposed procedure,
which include those set out below.
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The
system relies on a claimant being able to confirm or provide relevant
information about income and personal circumstances.
HMRC guidance suggests that this will include, where appropriate, a
P60 tax form, final pay slip or self employed tax return for 2007/2008 when
completing the forms. Details of
taxable social security income for 2007/2008 may be provided by the Social
Security Agency. In some cases,
a claimant will not have this information and will find it difficult to
estimate income. In such cases,
it is better to send in the form with estimated figures rather than delaying
a response. Staff at local HMRC
offices should be able to provide some guidance on issues relating to
income. Likewise, Social Security Agency staff should be able to provide any
necessary information about social security benefits.
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There
will also be the problem of lost forms and declarations.
It is wise to advise a claimant to take a copy of all forms being
returned and proof of postage.
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A
claimant will be sent a separate set of forms for each claim made in
2007/2008. This will affect
separating and divorcing couples (or, if they are a same-sex couple,
separating or having their civil partnership dissolved) and single people
who became part of a couple during the year.
Where a couple on tax credits separate during the year and then make
further claims for tax credits either as individuals or as members of new
couples, they will receive a set of forms to complete for each claim.
All the separate claims must be returned.
When an award ceases mid-year, the claimant is still required to
complete an end of year declaration to finalise the award for that year.
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There
are different rules for backdating the renewal claims and backdating when
there are changes of circumstances. Certain
changes of circumstances resulting in increased entitlement to tax credits (eg
birth of a child or increase in childcare costs by more than £10 a week for
four weeks in a row) which occur prior to the claimant returning the
declaration, must be reported within three months to secure full backdating.
If a claimant only notifies the change when returning the
declaration, s/he will only receive up to three months arrears from the date
of notification. If the claimant
notifies the change before the declaration has been returned, HMRC will
alter the provisional award. |
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The
Annual review and renewal is an enormous and complex administrative task.
The potential difficulties for claimants obtaining all the information
required of them demonstrate how the process can face problems even if
everything else runs relatively smoothly.
Keeping
up-to-date with the way the process is going will be vital for advisers who are
likely to face a significant number of tax credit inquiries in the months ahead.
Advisers
and claimants are urged to work with HMRC to provide all the necessary
information as promptly as possible and to check all correspondence with care to
avoid later disputes.
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Her Majesty’s Revenue and Customs
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Postal correspondence
Tax Credit Office
Preston PR1 0SB
Local enquiry centres
0845 302 1481
Antrim
12-14 Castle Street
Antrim BT41 4JE
Ballymena
Kilpatrick House, 38-54
High Street
Ballymena BT43 6DR
Banbridge
Bridgwater House, 25
Castlewellan Rd
Banbridge T32 4AX
Belfast
Beaufort House, 31
Wellington Place
Belfast BT1 6BH
Coleraine
Fern House, 1A Adelaide
Avenue
Coleraine BT52 1AJ
Craigavon
Marlborough House, Central
Way
Craigavon BT64 1AH
Enniskillen
Abbey House, Head Street
Enniskillen BT74 7JL
Lisburn
Moira House, 121
Hillsborough Road
Lisburn BT28 1LA
Derry
Foyle House, Duncreggan
Road
Londonderry BT48 0AA
Newry
Downshire House, 22
Merchants Quay
Newry BT35 6HS
Telephone helpline
0845 300 3900
0845 300 3909 (text phone)
Welfare rights workers priority helpline
0845 300 3946
Website
www.hmrc.gov.uk
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Adjudicator
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Adjudicator’s office
Haymarket House
28 Haymarket
London SW1Y 4SP
Telephone
020 7930 2292
Website
www.adjudicatorsoffice.gov.uk
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Ombudsman
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Office of the Parliamentary Commissioner
for Administration
Millbank Tower, Millbank
London SW1 4QP
Telephone
0845 015 4033
E-mail
opca-enqu@ombudsman.org.uk
Website
www.ombudsman.org.uk
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Law Centre
(NI)
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Belfast office
Law Centre (NI)
124 Donegall Street
Belfast BT1 2GY
Advice line: 028 9024
4401; 9.30 am-1.00 pm (Monday to Friday)
Textphone: 028 9023 9938
Western Area office
Law Centre (NI)
9 Clarendon Street
Derry BT48 7EP
Advice line: 028 7126
2433; 9.30 am-1.00 pm (Monday to Friday)
Website
www.lawcentreni.org
©
Law Centre (NI) 2008
All
rights reserved. No part of this publication may be reproduced, stored on any
retrieval system or transmitted in any form by any means, including photocopying
and recording, without the prior written permission of Law Centre (NI).
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