Tax credits claims last for a maximum of one tax year (6 April to following 5 April). 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. You can click the headings below to jump straight to the relevant section.
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.
HMRC has produced a factsheet about renewals aimed at advisers. It outlines the renewals process and some of the issues that advisers may come across.
The renewals 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 actual 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 2011/12 was based on circumstances current in 2011/12 and income for 2010/11. The renewal process for 2011/12 compares the actual income of 2011/12 with that for 2010/11 to fix the final entitlement for 2011/12, and uses the actual income figure for 2011/12 to fix the initial award for 2012/13.
The comparison works like this (concentrating only on income and leaving aside changes in entitlement which are due to changes in circumstances) for finalising 2012/12 claims:
- If 2011/12 income is less than or equal to 2010/11 income, the final award is based on 2011/12 income and there is likely to be an underpayment.
- If 2011/12 income is greater than 2010/11 income by £10,000 or less, the final award, like the initial award, is based on 2010/11 income and there is likely to be no change in the finalised award. Thus an increase in income of £10,000 or less is disregarded (hence the £10,000 is commonly known as 'the disregard').
- If 2011/12 income is greater than 2010/11 income by more than £10,000, the final award is based on 2011/12 income less £10,000 and there is likely to be an overpayment.
A new disregard for falls in income means that all 2012/13 awards will be calculated using the following rules:
- If 2012/13 income is less than 2011/12 income by £2,500 or less, the final award is based on 2011/12 income and there is likely to be no change in the finalised award.
- If 2012/13 income is less than 2011/12 income by more than £2,500, the final award will be based on 2012/13 income plus £2,500. There is likely to be an underpayment.
- If 2012/13 income greater than 2011/12 income by £10,000 or less, the final award, like the initial award, is based on 2011/12 income and there is likely to be no change in the finalised award. Thus an increase in income of £10,000 or less is disregarded (hence the £10,000 is commonly known as 'the disregard').
- If 2012/13 income is greater than 2011/12 income by more than £10,000 the final award is based on 2012/13 income less £10,000 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 2012/13 and the finally ascertained income figure for 2012/13 will be used as the figure on which to base initial awards for 2013/14.
It should be noted that in 2006/2007 and earlier years, the disregard for increases in income was only £2,500. It increased to £25,000 from 6 April 2007. The disregard for rises in income decreased to £10,000 from 6 April 2011 and it was announced in 2010 that it would further decrease to £5,000 from April 2013.
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Claimants receive renewal packs which consist of:
- Form 603R (annual review) plus, in many cases,
- Form 603D (annual declaration)
plus guidance notes.
Previously, if you were receiving the full CTC family element only, or if you had a nil award because your income was too high to receive any payments, HMRC sent you the TC603R only. If your personal circumstances had not changed and your income was within a prescribed range (calculated based on your circumstances and set out on the review form) so that your award would remain the same, nothing further needed to be done. You were one of what HMRC describe as auto-renewal cases and HMRC treated you as renewing your claim automatically.
Due to various changes announced during 2010 to the tax credit system, people who currently receive the family element of CTC may find that they receive a nil award from 6 April 2012. In an effort to reduce costs, HMRC introduced legislation in December 2010 which enables them not to automatically renew people on nil awards (or who will be on nil awards from 6 April 2012) unless the claimant tells HMRC that they wish to renew their claim.
HMRC sent letters to claimants who they believed would be nil award from April 2012. These letters were a ‘relevant notification’ that HMRC will no longer automatically renew the claim unless, by 31 March 2012, the claimant made a ‘relevant request’. If the claimant did not make a relevant request (ie write to or phone HMRC to say they wish to renew their claims for 2012/13), their claim would have lapsed at the end of the 2011/12 tax year.
We do occasionally speak to claimants who want to withdraw from the tax credit system (see further the section below on withdrawing from the system) and from that point of view this initiative may seem welcome. However, it is very important that people are fully aware of the consequences of leaving the system and what they could lose by doing so as once the 30-day ‘relevant request’ window (31 March 2012 in the HMRC letter) passes HMRC cannot renew the claim. Instead a fresh claim would need to be made.
In particular there are two groups of people who may lose out by not renewing:
- If their circumstances change for the worse, or their income falls, during 2012/13, they will have to make a new claim which in most cases they can backdate by only 31 days, whereas if they had made a relevant request and renewed their claim they may have been able to secure an increased award for the entire tax year (the ‘protective claim’ principle);
- A disabled claimant whose entitlement to the disability element of working tax credit rests on Case G in the WTC regulations (entitlement to the disability element for at least one day in the preceding 56 days) will no longer be so entitled if they allow their claim to lapse and do not make a new claim within 56 days.
Failure to respond will mean that HMRC will not (and cannot after the 30 day period has expired) renew the claim automatically and a fresh claim will need to be submitted in the future.
Such claimants will still receive the TC603R and will still need to finalise the 2010/11 tax year regardless of whether they are renewing or not.
The letter sent in March 2012 to these claimants contained some misleading information about the income limits for tax credits. See our news article for further details. If you decided to let your claim lapse based on the incorrect information in the letter, you should seek advice from a local CAB or other similar advice organisation.
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If the above does not apply to you - ie if you are on maximum credits, or on the 41% taper (which means your maximum credits are reduced based on your income) you will receive both forms. You must reply (either by returning the form or phoning the tax credit helpline) 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 6 April 2010, if a couple separated during the renewals period, and one member of the couple did not complete their forms, any payments made between 6 April and the date they separated would be overpaid. This was the case even if one partner completed their renewal forms.
But new legislation effective from 6 April 2010 allows one member of a couple to finalise the previous year’s claim and renew the claim for the period between 6 April and the date of 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.
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 2012/13 reflect the income and circumstances last reported in 2011/12. It is important to complete the renewal forms quickly so as to re-establish the award for 2012/13 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 2011/12 is the date specified on the renewal papers (in most cases this will be 31 July 2012). 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 overpayments in the system.
If you cannot supply firm details of your 2011/12 income by the deadline stated on the renewal papers (in most cases 31 July 2012), 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 2013 (which is also the online filing deadline for self-assessment).
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If you do not renew (either by sending the papers to HMRC or renewing via the telephone) by July 2012 (or the date on your renewal papers if different) then your award may be terminated.
Failure to renew means that no new claim is made for 2012/13, consequently any provisional payments received from April 2012 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).
In the summer of 2010, when claims for 2009/10 were being finalised, claimants found it exceedingly difficult to get through to the tax credit helpline to renew their claims. As an acknowledgement of this, HMRC extended the 30 day restore period to 60 days. At the time of writing, it is not clear whether HMRC will extend the 30 days to 60 days for the 2011/12 renewals cycle (due to take place in the summer of 2012).
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 2013.
In both cases, restoration means that HMRC treat your claim as being made from 6 April 2012.
If your claim cannot be restored, all provisional payments paid to you from 6 April 2012 will be treated as overpaid, and you will have to make a fresh claim which can only be backdated by 31 days.
To summarise:
- Provisional payments are made at the start of 2012/13 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 2012 with either a statement of actual income for 2011/12 or an estimate.
- If an estimate is given, this must be confirmed - or actual figures returned - by 31 January 2013.
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, generally means that all payments between April and the date HMRC terminate the claim (for failure to complete the renewals process) become overpaid.
In 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 can respond to declaration papers to this effect.
However, we would urge caution to claimants who have received any payments in the new tax year (since April 2012) as it is likely by not renewing these payments will become overpaid.
HMRC have confirmed, in leaflet WTC2, that if claimants inform them after the 31 July that they wish to leave the system, their claim will continue to the end of that tax year but they will not receive provisional payments in the next tax year, nor will their claim be renewed.
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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