Tax credit renewals - the danger of delay

Published on 13 October 2005

According to a recent report in the Guardian (Thursday 6 October), more than one million families have not renewed their tax credits claim by the deadline of 30 September. There is also anecdotal evidence of many claimants deciding not to renew because they no longer wish to receive tax credits after being badly treated by the system. But delaying can be dangerous.

If HMRC has continued to pay you tax credits since April 2005, not renewing your claim by the deadline will put an end to your entitlement and can result in all those credits becoming repayable. This is because the payments you have been receiving since April are dependant on you making a claim for 2005/06 which you do not legally do until you complete the renewal papers.

In any case, even if you do not wish to renew your tax credits claim for 2005-06, you must complete and return your annual declaration with details of your income for 2004-05. This is so that HMRC can compare your income for that year with the income for the previous year, 2003-04, on which your 2004-05 award was initially based, and thus work out your final entitlement for 2004-05.

By not sending in that information, you risk having received the wrong amount of tax credits - either too much or too little. You also risk being charged a penalty for delay in returning your income for 2004/05.

The irony is that nowhere on the renewal papers is there a clear facility for stopping a claim. Once in the 'tax credits club', there is no easy way to leave.

What is the legal position?

The legal position is that there is no entitlement to tax credits without a claim. At the start of a new tax year, HMRC make 'run on' payments based on last year's income and circumstances. These payments are provisional, and are so referred to by HMRC. Then, if the claimant returns all the renewal papers on time, HMRC treat a valid claim as having been made retrospectively.

If the renewal papers are not returned timeously, however, that 'deemed' claim is not made, so entitlement for the new tax year is never established. All the provisional payments thus become an overpayment, recoverable at HMRC's discretion.

Arguably, if a claimant does not return their papers on time, but would have been entitled to tax credits during the time covered by the provisional payments if they had done, HMRC should write off overpayments so generated.

If you have missed the deadline

In the worst case, where the 30 September deadline for returning renewal papers is missed, HMRC will stop your entitlement, treat all tax credits paid so far this tax year as a recoverable overpayment, and may charge a penalty for non-compliance in that your claim for the previous year cannot be properly finalised. If you then decide to submit a new claim for tax credits, it will only be backdated by three months.

It is therefore imperative, if you have not yet sent back your renewal papers, that you do so without any further delay.

If you can show 'good cause' why you did not renew on time, HMRC have discretion to renew your claim and backdate it to 6 April 2005.

If you do not yet know what your income was in 2004-05, you should return an estimate as soon as possible (ideally this should have been done by 30 September). You then have until 31 January 2006 either to confirm the estimate or to give the actual income figure.

Finally, in 2003-04, the first year of tax credits, HMRC operated a 'light touch' for a few weeks after 30 September if the deadline had been missed. They have not announced that they will repeat the policy this year. But if the problem of non-renewal is of such a scale as the reports suggest, it will be difficult for them to resist calls for leniency.

Contact Name: Robin Williamson (Tel: 0844 579 6700; Fax: 0844 579 6701)

(13-10-2005)