• Once you have made your claim (see Making your claim ), you do not have to keep filling in new claim forms each year.



• HMRC will automatically send you a set of renewal papers, and so long as you do what you are asked within the time limits requested, the legislation treats you as having claimed again for the new tax year. This section describes how the renewal process works.



• The process aims to do two things: to reconcile what you are entitled to for the year just gone (the current year) with what you have been paid; and to renew your tax credit claim for the coming year.



• Although the process is often referred to as the ?renewals process?, not everyone will want or need to renew their claim. Some people, for example where a joint claim ended in the tax year just ended, will need to finalise the old claim but will not be making a new claim. In this case they are not renewing merely finalising the old claim.

The renewal process

• Your claim for the current year was based initially on your circumstances for that year, and your income for the year before (the previous year). One of the functions of the renewal process is to establish your income for the current year, and to review any changes of personal circumstances during it, so that your final entitlement for that year can be ascertained.



• Having established your income for the current year, it is used, together with your latest set of personal circumstances, to set your initial award for the coming year.



• So we have a three-year rolling programme. The initial claim for 2009/10 was based on circumstances current in 2009/10 and income for 2008/09. The renewal process for 2009/10 compares the actual income of 2009/10 with that for 2008/09 to fix the final entitlement for 2009/10, and uses the income figure for 2009/10 to fix the initial award for 2010/11.




• The comparison works like this (concentrating only on income and leaving aside changes in entitlement which are due to changes in circumstances):

  • If 2009/10 income is less than 2008/09 income, the final award is based on 2009/10 income and there is likely to be an underpayment.
  
  
  
  • If 2009/10 income is equal to or greater than 2008/09 income by £25,000 or less, the final award like the initial award is based on 2008/09 income and there is likely to be no change in the finalised award. Thus an increase in income of £25,000 or less is disregarded (hence the £25,000 is commonly known as 'the disregard').
  
  
  
  • If 2009/10 income is greater than 2008/09 income by more than £25,000 the final award is based on 2009/10 income less £25,000 and there is likely to be an overpayment.
  
  
  
• So an initial tax credit award is made in the year of payment, then revised at the end of the year to produce in many cases an underpayment or overpayment.



• To see how an underpayment is made good, or an overpayment collected, see Overpayments and Underpayments.



• The rolling programme will be repeated in the renewal process after the end of 2010/11 and the finally ascertained income figure for 20010/11 will be used as the figure on which to base initial awards for 2011/12.



• It should be noted that in 2006/2007 and earlier years, the disregard was only £2,500 instead of £25,000. See doing the sums for a fuller analysis of the consequences of this change from £2,500 to £25,000.

The renewal packs

Claimants receive renewal packs which consist of:

1. Form 603R (annual review) plus, in many cases,



2. Form 603D (annual declaration)

plus guidance notes.

• Auto-renewals

  If you are receiving the full CTC family element only, or if you have a nil award because your income is too high, HMRC will send you TC603R only. If your personal circumstances have not changed and your income is within a prescribed range so that your award will remain the same, you need do nothing further. You are one of what HMRC describe as auto-renewal cases.

  Of course if your income or circumstances have changed so as to bring you outside the prescribed range, or to change your entitlement, you must respond.




• Reply required

  If the above does not apply to you - ie if you are on maximum credits, or on the 39% fast taper, or the 6.67% slow taper - you will receive both forms. You must reply to the TC603R and complete and return TC603D with details of your income for the 'current year'.

  If you have made more than one claim during the current year, eg because you started the year as a single claimant then became a joint claimant with a new partner, you must complete a set of forms for each claim, even if they each show the same information.

  Prior to 6th April 2010, if a couple separated during the renewals period, and one member of the couple did not complete their forms an overpayment would occur of payments between 6th April and the date they separated. This was the case even if one partner completed their renewal forms. From 6th April 2010, HMRC have introduced new legislation which allows one member of a couple to finalise the previous year's claim and renew the claim for the period following 6th April - separation. If only one member responds, the award will be based on the information provided which may not be accurate. HMRC have advised that, where possible, it is still recommended that both members send back their forms, although failure to do so will no longer result in an overpayment providing one partner has done so.

  It is vital to complete and return renewal papers when required to do so. Dissatisfaction with the system has led some people to deliberately refrain from renewing, with the result that payments made to them from the start of the new tax year are treated as overpayments. See further below (payments following the end of the current year). It is important to check the personal circumstances listed and inform HMRC if any of them have changed.




• Payments following the end of the 'current year'

  So long as renewal papers are returned by the deadlines shown below, claims are treated as made for the new tax year and are backdated to 6 April.

  While the renewal process is going on, you will continue to be paid on the basis of your last known income and circumstances in the current year (ie the tax year just gone). These run-on payments are known technically as provisional payments.

  So provisional payments for 2010/11 reflect the income and circumstances last reported in 2009/10. It is important to complete the renewal forms quickly so as to re-establish the award for 2010/11 on the basis of the latest information and to get the rates and thresholds for that year.

  When the renewal process is complete, provisional payments are replaced by payments under an initial award for the new tax year.

  The deadline for return of renewal papers for 2009/10 is 31 July 2010. In 2004/05 the deadline was 30 September following the end of the year; in 2005/06 it was brought forward to 31 August 2006; it was then brought forward a further month in 2006/07 to 31 July. The bringing forward of the renewal deadline was part of a series of measures intended to reduce the volume of overpayment in the system.

  If you cannot supply firm details of your 2009/10 income by 31 July 2010, for example if you are self-employed and are still waiting for your accounts to be finalised, an estimate is acceptable.

  The important thing is to return an estimate by that date. If you give an estimate, you should confirm it, or supply actual figures, by 31 January 2011 (which is also the online filing deadline for self-assessment).

• Missing the deadline

  If you do not renew (either by sending the papers to HMRC or renewing via the telephone) by 31st July 2010 then your award may be terminated.

  Failure to renew means that no new claim is made for 2010/11, consequently any provisional payments received from April 2010 will become overpaid and HMRC will seek to recover them via direct recovery.

  In addition any other overpayments that were being recovered from your ongoing award will switch to direct recovery when your award is terminated for non-renewal.

  If HMRC terminate your award for failing to renew (and consequently stop all payments) regulations allow the claim to be restored providing you do renew within 30 days from the date on the notice telling you your payments are to be stopped (technically called the Statement of Account).

  Outside of this 30 day period, the claim can only be restored if you had 'good cause' for failing to renew, so long as you do return your renewal papers by the later deadline of 31 January 2011.

  In both cases, restoration means that HMRC treat your claim as being made from 06 April 2010.

  If your claim cannot be restored, all provisional payments paid to you from 06 April 2010 will be treated as overpaid, and you will have to make a fresh claim which can only be backdated by three months.

  As mentioned above, it is vital to return renewal papers when required to do so. You should particularly beware of using non-renewal as a tool to pull out of the tax credits system. The consequence of doing so is that your entitlement will cease as from the start of the tax year 2010/11, and therefore any payments received in that year to date will become overpaid. In addition you will no longer be able to repay any overpayment by reduction of your ongoing award, as there will be no ongoing award to reduce. Instead recovery will be commenced directly.

  To summarise:

  • Provisional payments are made at the start of 2010/11 while renewal papers are being sent out and dealt with. These are based on last known income and circumstances.
  • When papers are returned, claimants get an initial award and payments are brought up to date.
  • Papers must be returned by 31 July 2010 with either a statement of actual income for 2009/10 or an estimate.
  • If an estimate is given, this must be confirmed - or actual figures returned - by 31 January 2011.

Withdrawing from the system

As noted above, dissatisfaction with the system has led some claimants to refrain from completing their renewal papers. This has also happened where people have had a change in circumstances and thought they were no longer entitled to tax credits. The consequence of not returning the forms is set out above, and generally means that all payments between April and the date HMRC terminate the claim (for failure to complete the renewals process) become overpaid.

From April 2010, HMRC introduced rules to allow claimants to withdraw from the system by only finalising their previous year claim and not renewing their claim for the current tax year. Claimants will be able to respond to declaration papers to this effect.

The details of how this will work are not yet clear, and will be posted in the news section once available. However, we would urge caution to claimants who have receive any payments in the new tax year (since April 2010) as it is likely by not renewing these payments will become overpaid.

Penalties

In addition to the claw back of all provisional payments made to date, there may be financial penalties for not responding to a renewal notice, or for giving the wrong information in response to it. These are described here.

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