HMRC tax credit checks

Overview

When HMRC check awards, they often ask for extra information or proof of information to make sure the details they have are correct. There are some rules about the checks HMRC can make and the obligations on you to comply with HMRC’s instructions.

Checks on tax credit awards

HMRC can check tax credit awards either at the beginning, that is, when they receive a new claim before they decide whether to make an award, during the tax year or after the end of the tax year, that is, before they make a final decision on entitlement. Outside those main rules, they can check old awards up to five years from the final decision. This is called ‘discovery’ and can only be done if your income tax position has been investigated and changed or if they think your tax credit award is wrong and it is because there has been fraud or neglect by you (or someone you have authorised to act for you).

Examinations are checks on tax credit claims where a final decision has not been made.Examinations normally take place during the tax year or following the end of the tax year before you complete your finalisation.

Enquiries are checks on tax credit claims after a final decision has been made.

Enquiries

An enquiry is a more formal process than an examination. When HMRC start an enquiry, they must send you a letter telling you this. Only one enquiry can be made on a particular tax year’s tax credit claim. However, if a you have made more than one claim in a tax year (for example, a single claim and a joint claim in the same tax year) an enquiry can be made on each claim.

Time limits

There are strict time limits for HMRC to start an enquiry. The usual time limit for starting an enquiry is 12 months from the deadline you had to reply to your annual review or your in-year finalisation review (if you have moved from tax credits to universal credit).. The time limit could be longer if you are self-employed and have been waiting for a self assessment tax return to be finalised. If HMRC miss the deadline, they cannot start an enquiry on that tax year’s claim but they may still be able to change the award up to five years later if your income tax liability is changed or if they can show the award was wrong and it was due to your own neglect or fraud.

There is no time limit for HMRC to complete an enquiry; it comes to an end when they send you a new decision for that tax year. You can, however, appeal to a tribunal asking them to instruct HMRC to stop the enquiry. They can do this if they decide that it is unreasonable for HMRC to continue. You should get advice about doing this.

Reasons for starting an enquiry

HMRC do not have to have a reason for starting an enquiry and do not normally do so, although they may explain in their opening letter if they are checking a particular part of the claim to make it easier to understand what information they need. Some enquiry cases are picked at random.

Steps in the enquiry

At the end of the enquiry, HMRC may have found mistakes in the claim. They must write to you (both claimants in a joint claim) to notify the outcome of the enquiry. You can appeal this new decision. You may also have an overpayment to repay, as well as being charged a penalty.

Sometimes HMRC may do a short version of an enquiry, for example where you provide some information that affects how much you should be entitled to after HMRC have made the standard final decision about their entitlement. The same principles of an enquiry must still be followed but HMRC sometimes call this process a ‘s19 lite’ because they will often send the opening and closing enquiry letters at the same time.

Disagreeing with the decision

If HMRC change the award, they will also send you a new decision on your claim – a penalty may also be charged. You can appeal the new entitlement decision and the penalty decision if you think they are wrong. There is more information about how to appeal in the appeals section.

More information

HMRC produces some leaflets about tax credit examinations and enquiries. These are available on the GOV.UK website.

WTC/FS2 Tax credits examinations

WTC/FS9 Tax credits: suspension of payments

WTC7 Tax credit penalties: what happens at the end of a check

WTC/FS1 Tax credit enquiry