From 18 January, tax credits recipients who start to live together, or who become single after being part of a couple, but are late reporting the change to HMRC, can reduce the overpayment on their old claim by whatever they would have been entitled to had they made a new claim promptly.
This is something which we and many of our colleagues in the welfare rights world have been urging the Government to do for a number of years.
Sometimes, tax credit claimants who form a couple or who become single, either because they separate or because one partner dies, are slow in reporting the change to HMRC. Yet in many cases, if they had acted promptly they would have continued to be entitled to tax credits, albeit in a different capacity.
Until 18 January, HMRC would recover the whole of any overpayment arising on the old claim, but give no credit for what the claimant would have received had they made a new claim at the right time.
This practice has given rise to considerable hardship where the claimant’s only fault is tardiness in dealing with paperwork. The claimant could of course backdate their new claim by up to three months, but that would be small comfort if the delay in reporting the change had been substantially longer.
What should the claimant do?
If you have recently entered a relationship, or you and your partner have split up or your partner has died, and you have delayed reporting this change in your circumstances, you should report the change straight away.
You might be entitled to make a new claim – if you have started living with someone, your new claim will be a joint one with your partner; and if you have recently become single, then you may be entitled to tax credits as a single person.
When reporting, you should tell HMRC that you want to make a new claim, and ask them to reduce your overpayment by the money you would have received if you had acted promptly at the time of the change. The technical term to use is ‘notional entitlement’.
In many cases, applying notional entitlement will make your overpayment go away altogether because you will now be entitled to as much as, or more than, you were before. But a minority will still have to pay something because their new entitlement is smaller than their previous one.
If you are already repaying an overpayment that arose in circumstances like these, and you want to claim notional entitlement, you can do so, but any money you have already paid over will not be repaid.
Note that the notional entitlement set-off will not cover the three months by which you will be able to backdate your new claim. Normally HMRC will grant the three months backdating automatically, but if that doesn’t happen, you will need to ask for it.
Penalties
On the whole HMRC policy is to be lenient and not charge a penalty where the failure to report has resulted from a mistake or misunderstanding. If HMRC think you have been negligent in not reporting, and you are left with a net overpayment even after notional entitlement has been applied you may be charged a penalty against which you can appeal.
If your failure to report is dishonest, the penalty may well be substantial and in extreme cases notional entitlement will not be given.
Contact Name: Robin Williamson (0844 579 6700 Fax 0844 579 6701)
