Tax credits revival

Issue 238 (February 2014)

Mark Willis considers some recent and forthcoming changes to the administration of tax credits.

Reports of the death of tax credits have been greatly exaggerated. Up and down the country, advisers, families and low-paid workers are still battling with overpayments, penalties and appeals. As HM Revenue & Customs (HMRC) attempts to squeeze every last drop out of overpaid claimants and balance the books, claimants continue to be confused and confounded by ever-increasing compliance initiatives.

New claims

The hitherto catastrophic failure of the universal credit (UC) experiment has led to considerable confusion for claimants and advisers on the position of new claims for tax credits. The DWP’s initial position that there would be no new claims for tax credit from April 2014 has finally unravelled completely. It is now clear that new claims for tax credits will have to be accepted as normal from April 2014 in all areas where UC has not been introduced. Given past failures, any future DWP announcements on the phasing out of tax credits should be treated with extreme caution.

Even in the 10 areas where UC has been introduced, tax credit claims must still be accepted from people who do not fall into the very limited group of single jobseekers without children who can claim UC. The only people who are excluded from claiming tax credits are those who are already entitled to UC, while people getting tax credits are excluded from UC.1 If a tax credit claimant and a UC claimant become a couple, the tax credits claim is terminated and they are treated as making a joint UC claim. In these cases, the tax credits claim may be finalised according to income at that point in the year.


Recent caselaw has indicated that the power to accept late appeals outside the 30-day limit has been unintentionally removed, although human rights law suggests otherwise (See Bulletin 234, ‘Better late than never’). The government confirmed in a parliamentary answer that legislation is due to rectify the problem, but that in the meantime HMRC will accept late appeals.2 HMRC’s information still refers to late appeals where there are good reasons, up to 13 months after the decision.

At the time of writing, draft legislation has been published to make changes to the tax credit appeals legislation. Some advisers have found HMRC has objected on this point, or it has been raised by the First-tier Tribunal itself. Advisers faced by this situation can email CPAG at for a draft submission to use in cases of late appeals.

The appeals procedure itself is also expected to be aligned with the DWP by introducing mandatory reconsideration before appeal from April 2014. The legislation needs to be changed to require the claimant to first request a revision and receive a ‘mandatory reconsideration notice’, before lodging her/his appeal directly with the tribunals service. HMRC has already committed to a target of 42 days to settle an appeal or make its submission to the tribunals service, and it is expected this will be the target for mandatory reconsideration. The time it takes to set a date for the appeal hearing may vary, but it can be dealt with urgently where children are in hardship.3

Recovery of overpayments

The law on overpayments has not changed, but the practice has and will again soon, to the detriment of claimants. HMRC may recover overpayments, but has discretion, which is covered by ever-changing guidance.4 A new three-month time limit for disputing recovery was introduced in July last year, but late requests can be accepted in exceptional circumstances. A further change is that recovery of the overpayment is no longer suspended while HMRC considers the dispute – but amounts recovered will be refunded if the dispute is found in the claimant’s favour.

However, if a claimant appeals a decision which created the overpayment, then any recovery action is still suspended until the outcome of the appeal is known.5 HMRC has stated suspension of recovery will also apply during the mandatory reconsideration stage from April 2014. Debt collection agencies are increasingly used by HMRC to pursue recovery of a tax credit overpayment, but not where it is subject to an appeal or dispute, and such agencies are still bound by HMRC’s charter and standards.

In the 2013 autumn statement, it was announced that HMRC will stop tax credit payments during the year where, due to a change of circumstance, a claimant has already received her/his full annual entitlement. This is effectively recovery at 100 per cent and may cause extreme hardship. It is a return to the situation back in 2003 which caused chaos and misery for thousands of claimants. For example, a lone parent receives childcare costs for eight months, when it is discovered that the provider’s registration ended at the start of the year. If s/he has already received her/his correct entitlement for the full year, this policy could mean no tax credits for the remaining four months, although HMRC has said that hardship would be considered. It has also proposed that recovery of overpayments from ongoing awards may be used for old debts arising under a different claim. Further guidance on when and how these changes will be introduced is awaited.

We are grateful for the feedback from advisers that the reality on the frontline is often very different from the official guidance, and contradicts the assurances given at consultation level. If you have cases where the official guidance is not being followed, this should be the subject of an urgent complaint (it may help to involve the local MP), or potentially a judicialreview. For more assistance, please contact CPAG's advice service. You can email us for advice about tax credit issues at

Tax credits are not going away for some time, and are still a vital source of income for the majority of families in the UK, who will continue to need help if they get into difficulties. They were introduced with the intention of reducing poverty and making work pay. Sound familiar?


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