Tax credits – listen to HMRC and lose thousands of pounds

Published on 9 March 2012

A misleading statement in an HMRC letter sent to over a million tax credits claimants may persuade people to leave the tax credits system. This could mean they miss out on future payments. Some people, such as those who are pregnant, or in danger of losing their jobs, or who want to take a new job and incur childcare costs, or may be disabled, could lose out on thousands of pounds as a result of misleading information from HMRC

From April, the tax credits system becomes less generous and many people who are now entitled to be paid tax credits will not receive tax credits cash any more.

HMRC want to see such people taken out of the tax credits system and indeed, if you are going to have to fill in paperwork and receive a notice from HMRC saying your award is “Nil”, why wouldn’t you want to come out of it?

The answer is that staying in the tax credits system is like an insurance policy: if something changes in your life, it can ensure that you do not lose out. And it is perfectly possible to remain in tax credits on that basis, even if, for the time being, your income is high enough for you to be paid a nil award.


These are very uncertain times and, if change is possible, then the safe option is to remain in the system and put up with a bit of extra paperwork. Also, letting yourself be taken out of the tax credits system without understanding how it all works is dangerous and you could lose thousands of pounds if your circumstances alter. Even if you claim again in the future, backdating is only allowed for one month from 6 April.

The HMRC letter

HMRC have written to some 1.3 million customers saying that if HMRC do not hear from them by 31 March then claimants will be removed from the tax credits system as from April.

Do HMRC explain the tax credits rules clearly and accurately in their letter? Far from it – the guidance varies from inadequate to plain wrong. Therefore, it is likely that thousands of HMRC customers will make incorrect decisions and lose out in the future on substantial help to which they are entitled.

You can download a copy of the letter at the end of this article.

How the letter misleads

Our main criticism of the HMRC letter is that it quotes income levels in order to help customers “understand” whether they will be entitled to tax credits in the future.

So for people receiving Working Tax Credit it refers to income ceilings of £13,000 and £18,000 for single people and couples respectively. They say that ‘this can vary’ without explaining why and in what kinds of circumstance. The main group of people likely to lose out by focusing on these figures are those with disabilities who have much higher cut-off points for being able to claim.

For Child Tax Credit claimants no qualification is given; the letter merely states ‘For CTC, the income limit is £26,000 for single and joint households’. This leaves no room for doubt. However it is wrong for the majority of CTC claimants.

For example, for those who:

  • have more than one child
  • pay childcare costs
  • qualify for the disability elements, or
  • have children who qualify for either of the child disability elements

the cut-off will be higher than £26,000, in some cases it could be as high as £50,000. On the other hand, for people with one child who work less than 30 hours a week the limit is much lower.

The safer option

It is impossible in a short article like this to say who should stay in the system. It is probable that if a claimant has received the letter they won’t receive anything from April 2012 if their circumstances and income stay the same, but they might if their circumstances change or have already changed.

Our advice to claimants who don’t mind a small amount of paperwork is to stay in the system, especially if they fall into one of two groups:

  1. You might have a change of circumstances in 2012-2013. For instance, your income may fall due to a reduction in hours, or a job loss, or you might start to use paid childcare or have another child or illness or disability might intervene.
  2. You know that your circumstances have already changed and HMRC do not know about it (even if you think they do, you should check). For example, you think your income this current tax year might be lower than last year.

If you are in either of these groups you should contact HMRC by 31 March and ask them to renew your claim for 2012-2013.

We have been discussing this situation with HMRC for the last week and steps are being taken to try and ensure that people do not lose out through ignorance. Doing nothing is often most people’s reaction on getting a letter from HMRC, especially a letter that they do not fully understand.

This is not the first time this sort of thing has happened and once again we urge HMRC to consult before issuing such letters in future.

HMRC letter (PDF)


Contact: Victoria Todd (please use form at