Notification of changes of circumstances and renewals. This article by Liz Lathwood, technical officer for personal taxes at the CIOT, also appeared in the October 2003 issue of Tax Adviser. Tax Credit Overpayments – recovery through PAYE codes
After 5 April 2004, the Inland Revenue will be renewing tax credit awards for 2004/05 and finalising New Tax Credit (NTC) awards for 2003/04. Some claimants will be in the position of having received too much credit during 2003/04.
The Tax Credit Act 2002 (s29) provides for these “overpayments” to be recovered in three ways, one of which is recovery through PAYE. (The other two are direct recovery and recovery from a future award.)
The Revenue have notified us that, for 2003/04 overpayments, PAYE recovery will not be possible but they have made the following statement:
“The IT system for NTC will not be enhanced to collect NTC overpayments via the PAYE code until April 2005. This means that the first NTC overpayments to be referred in bulk for coding out will relate to 2004/05. Where direct recovery is initiated for a 2003/04 overpayment, the Revenue will allow time to pay over a 12-month period to those claimants who could normally have expected their overpayment to have been collected via their PAYE code, had the IT system been able to accommodate this ie they meet the criteria for coding out."
Direct recovery of an overpayment (s29(3), Tax Credit Act 2002) is likely where recovery is not possible from a future award (s29(4)). A Code of Practice on overpayments is expected to be published shortly.
Notifying changes of circumstances
An inherent feature of the tax credits system is the notification of changes in circumstances:
- Some are compulsory (larger changes in childcare costs, changes in the adults making up the tax credit claiming unit) and carry a penalty for failure to notify within three months;
- Some are necessary to notify within three months to ensure no loss of credits (where they increase the rate of award eg birth of a child, starting to work 30 hours etc); and
- Some are advisable to ensure that tax credit overpayments are not too large by the year-end (eg child leaving full time education, changes in hours or work patterns).
Up until now the notifications have had to be by phone or by writing to the Revenue.
We are advised that the tax credits online service now allows tax credits changes in circumstances to be notified online. Members’ clients will need to go to Inland Revenue and click on Login to begin the enrolment process for this service.
At present agents are unable to notify changes for their clients electronically but the Institute would be interested to hear from any members experiencing difficulties helping their clients use this service. Please contact Liz Lathwood at the Institute using Liz Lathwood.
The Institute is continuing to press for this service to be accessible to agents.
Renewals and finalising 2003/04 awards
In Taxation 11 September 2003 page 648, a reader has supplied a quote from the Paymaster General indicating that claimants will have until 31 January 2005 to give details of their 2003/04 income in order to finalise their 2003/04 awards. This date has not been in the legislation to date. Regulation 33(1)(b) of SI 2002/2014 says that the date shall not be later than 6 July 2005.
The quote also indicates that claimants must still supply an estimate of their 2003/04 income by 5 July 2004 to make them eligible for a 2004/05 initial award (Reg 33(1)(a) says that this date must be no later than 6 July 2004). The Institute continues to press for this date to be changed, as it is part and parcel of the three-month rule which brings about the need for protective claims for new claimants. It is also an unrealistic time limit for those waiting for P11Ds to know their real 2003/04 income.
For more information on protective claims go to:
020 7235 9381