In the first article in this series (see link below), we considered how an overpayment of tax credits could arise simply from the way in which the system dealt with fluctuations in income during the tax year. We saw how, even if you keep the Revenue fully informed about all your changes in income and circumstances during the year, the system can still produce an overpayment at the end of it.
As we explained in the previous article, tax credits overpayments are quite different from overpayments of benefits, and the principles of recovery also are different.
An overpayment of benefit usually arises because the benefit claimant has made a material misrepresentation, or omitted to state a material fact, about their claim. Unless the overpayment is caused by such a misrepresentation or omission, the DWP is not entitled to recover it from the claimant.
Tax credits are quite different. The first award is only provisional and may be amended after the end of the tax year. Therefore, overpayments can arise through no fault of the claimant; but the Revenue are entitled to recover them, at their discretion, whatever caused the overpayment.
Notifying changes of circumstances
While it is impossible to prevent an overpayment from building up in all circumstances, it is possible to reduce the amount by remembering to tell the Revenue straight away about certain key events, should they happen.
Changes that must be notified
It is mandatory to tell the Revenue about the following changes in circumstances, within three months of their occurring. If such changes are not notified, the Revenue can impose a penalty of up to £300.
- Any change in the composition of the adult members of the household. So if you enter or leave a relationship, or your partner dies, the Revenue must be told within three months – the sooner the better.
- You are in a couple, and one of you goes abroad for more than eight weeks. This period is extended to 12 weeks if your absence abroad is for medical treatment; or to visit your partner or child who is having treatment abroad; or because your partner, or a child or relative of either of you, has died.
- You are claiming the childcare element of working tax credit, and your childcare costs have ceased, or have dropped by more than £10 a week for four weeks in a row.
Any of these events will bring about a change in your entitlement. If you are in a couple, and you break up, or your partner dies, then you are no longer entitled to claim as a couple and must make a new claim as a single person. If one of you goes abroad for a long spell, the partner who remains in the UK must make a new claim as a single person, because the partner who has gone abroad is no longer ‘in the UK’, which is one of the conditions for eligibility to claim tax credits. And if your childcare costs drop significantly, or you stop paying childcare altogether, that again can affect your entitlement.
Other changes which should be notified
There are other changes which you are not obliged to report, but would be well advised to bring to the Revenue’s attention so that they can adjust your award before any substantial overpayment builds up. These include:
- A change in your working hours – particularly if you drop below 16 hours a week (when you will no longer be entitled to working tax credit) or cross either side of the 30 hours a week threshold which entitles you to extra element working tax credit.
- Any change in your level of income which will result in your income for the tax year exceeding your income for the last tax year by more than £2,500. Initially, your 2003-04 award is based on your income for the tax year 2001-02. If your income for 2003-04 turns out to be greater than your income for 2001-02 by no more than £2,500, the amount of your award is unaffected, and no overpayment will arise. If your income for 2003-04 is greater than your income for 2001-02 by more than £2,500, the excess will give rise to an overpayment. If your income declines by any amount, however small, you should tell the Revenue straight away because it will entitle you to a higher award.
- A child or young person for whom you are responsible and whom you maintain leaves your household, or reaches the age of 16 (19 if in full-time education or certain types of training), or serves a custodial sentence of longer than four months, or dies. Any of those events will reduce your entitlement, and contribute to an overpayment if not reported promptly. If a child is born, or a child or young person joins your household and you are responsible for and maintain them, you should also tell the Revenue as it will increase the amount of your award.
- If you or anyone in your household becomes sick or disabled, you may be entitled to one of the disability elements in working tax credit, or disabled child elements in child tax credit. Conversely, if you have been claiming one of those elements but cease to be eligible, you should tell the Revenue in order to keep down the level of any overpayment.
- You are claiming the childcare element of working tax credit, and you change your childcare provider. The Revenue need up-to-date details of childcare providers so they know with whom they should carry out checks. Failure to do this will not of itself lead to an overpayment, but any check carried out will show a discrepancy which could result in the childcare element being temporarily withheld.
- Any change of circumstances which will increase the level of your award should be reported within three months, as any revised award showing an increased entitlement can only be backdated by three months.
Reporting those changes as soon as possible after they happen will help keep any overpayment to manageable levels, so long as the Revenue process the change correctly and promptly. If they do not (and there have been instances over the past year where people have reported changes of circumstances using the helpline but have not received a revised award notice, or the new details shown are wrong), then the Revenue are in error and this might in certain circumstances restrict their ability to recover any overpayment. What those circumstances may be will be the subject of the third in this series of articles.
Contact Name: Robin Williamson (Contact tel: 0844 579 6700, Fax: 0844 579 6701)
Relevant Link: First article on overpayments