CPAG in Scotland Tax Credits Project: Factsheet 3
Tax Credits Annual Review IntroductionThere are two types of tax credit; child tax credit and working tax credit. You claim them together and may get either or both. Tax credits are administered by Her Majesty’s Revenue and Customs (referred to as the Revenue in this factsheet). Tax credit awards are given for tax years. The tax year runs from 6 April in one calendar year to 5 April in the next. The amount you receive during the year is an estimate of your likely entitlement. Awards are only finalised after the end of the tax year. This leaflet looks at how awards are finalised and how claims are renewed. Initial awardsWhen you make a tax credit claim, the Revenue's Tax Credit Office makes an award if you are eligible. The award is usually based initially on the income of the previous tax year and the current circumstances as set out in the claim form. If you are eligible but your income in the previous tax year was too high for you to qualify for payments, the Tax Credit Office makes a ‘nil award’. The amount received during the tax year is an initial award of how much you are likely to be entitled to. It does not represent the final entitlement. When the final entitlement is calculated, it is possible for there to be an underpayment or an overpayment. This may happen because income in the year of the award was higher or lower than in the previous year, or because your circumstances changed during the period of the award. It is important not to wait till the end of the tax year to tell the Tax Credit Office of a change to personal or household circumstances but to notify the change immediately. If you wait more than one month, in some cases, there may be a financial penalty as well as an overpayment or, in other cases, it may not be possible to backdate any increased entitlement beyond three months. It is also important to report income changes. There is more information below about how income changes affect tax credit awards. Finalising tax credit awardsThe process of finalising awards begins soon after the end of the tax year. In May or June, the Tax Credit Office sends out annual review packs. If you are on a moderate or low income, and entitled to more than just the family element of child tax credit, you will receive two forms: Tax Credits
Annual Review (TC603R) If you are receiving only the family element of child tax credit or have a nil award you may receive only an annual review form (TC603R). When to expect more than one set of forms If you have claimed as part of a couple and as an individual in the same tax year, you may receive two or more sets of annual review and declaration forms. If this happens, you must reply to each set of forms, even if both ask for the same information.
The annual review form The annual review form sets out your circumstances for the tax year just ended. If the claim is a joint one, information for you and your partner is included. The form includes details such as:
The form shows the latest information known to the Tax Credit Office. You need to check that these details are correct but also that any changes of circumstances during the period of the award have been taken into account. Whenever you report a change of circumstances, the Tax Credit Office sends out a new award notice, form TC602. It is best to check through any award notices as well as the annual review form to make sure all changes have been notified and acted on. The notes that go with the annual review form (TC603RD) give details about which circumstances are relevant to the award. You are asked to confirm the details or agree to notify any necessary changes to the Tax Credit Office. There is a box to tick on the annual declaration form to show that this has been done. The annual declaration form The annual declaration form asks you to supply details of your income for the tax year just ended and confirm that the details on the annual review form are correct. The income figures are grouped under the following headings:
The notes that go with the annual review form explain what income counts and where to find a record of taxable income. You should calculate your income figures and put the totals in the appropriate boxes on the form. Figures in each group are rounded down to the nearest pound. If you have more than one set of forms because you have claimed as a single person and as part of a couple during the same tax year, you still need to give details of the full year’s income in each set of forms even though each award covers just part of the year.
You can supply estimates for income if the final figures are not available, but final figures must be supplied by 31 January of the following year at the latest. This might be the case if you are self-employed and there has been a delay in preparing accounts. The annual declaration then asks you to confirm that your personal circumstances for the tax year just ended are correctly shown on the annual review form. If the details are incorrect, you should contact the Tax Credit Office with the correct information right away. The final part of the form is a declaration to be signed by you and your partner, if you are claiming jointly. Signing and returning the form enables the tax credit award for the tax year just ended to be finalised. It also acts as a claim for tax credits for the current tax year, unless you state that you want to withdraw your claim. A declaration made by one member of a couple in a joint claim may be treated as made by both. Households on incomes of more than £40,000 From April 2011, if your income for tax credits purposes is more than £40,000 and the amount of child tax credit you were getting has been reduced to nil, the Revenue may write to you to give notice that your claim will be withdrawn. This may apply to you if your income was more than £41,329 and you were getting the family element of child tax credit only (£545 a year or up to £1090 if there was a baby under the age of one in 2010-11). A change in the rules from 6 April 2011 means that the amount you receive may be reduced to nil so your payments will stop. However, you can still renew a nil award if you contact the Tax Credits Helpline within 30 days to request that it continues. It is advisable to renew a nil award if there is a possibility that your income in 2011/12 will go down. This may lead to an initial ‘nil award’ decision for 2011/12, but this can be revised later to make payments for the whole tax year. Waiting until circumstances change before making a new claim can mean that you lose out on a substantial amount. Some families on more than £40,000 may still be entitled to a substantial amount of tax credits, especially if you have a large family, disabilities or childcare costs. In these cases, the Revenue should not withdraw your claim and it should be renewed as normal. How changes in income affect an awardThe annual declaration asks for details of income for the tax year just passed. For example, for an award made in 2010/11, you must give income details for the tax year 2010/11 in the annual review that takes place in the summer of 2011. The Tax Credit Office, in the initial decision at the beginning of the year, usually bases the award on income in the previous tax year (the exception to this is where you are on income support, income-based jobseekers allowance, income-related employment and support allowance or pension credit, when your income is treated as nil). For example, for an award made in 2011/12, the initial award is based on income in 2010/11. Following the annual review, the final award may either continue to be based on income in the previous tax year or switch to income in the year of the award. The rules say that you use the previous year’s income as the basis for a tax credit award unless:
For the final decision on the 2010/11 award, the disregarded amount was £25,000, so this is the amount used when comparing 2010/11 income with 2009/10 income.
For decisions on the 2011/12 award, the disregarded amount is £10,000 so this is the amount used when comparing 2011/12 income with 2010/11 income.
After 6 April but before the award is finalised, you continue to receive provisional payments of tax credits based on the assumption that your income has increased in line with average earnings. During this period you should tell the Tax Credit Office without delay of any other change in income or circumstances. If you notified the Tax Credit Office of an increase in income in one year, the disregard does not apply from the start of the following tax year.
Sending in the annual declarationThe annual declaration form must be returned to the Tax Credit Office by the date shown on the form, which is usually 31st July. As an alternative to posting the form, you can phone in the information to the Tax Credit Office. Keep a note of the date and time of the call, and the information you gave, in case there are problems later. The annual declaration finalises the claim for the last year. It also acts as a renewal claim for the following year. If the form is not returned by 31st July, tax credit payments stop. You should receive a notice informing you that your claim is being terminated. If you return the annual declaration within 30 days of this notice, your claim should be restored. Otherwise;
If you have not returned the annual declaration within 30 days of the notice informing you that your claim is being terminated, you can still send it in up to 31 January of the following year but you must show you have ‘good cause’ for the delay. If the Tax Credit Office accepts that you have good cause for the delay, the renewal claim is backdated to 6 April. The law does not define what might amount to good cause. Guidance suggests that having a serious, unexpected illness or close relative dying would count, but other reasons should also be considered. Even with good cause, you are expected to act as soon as possible to sort the tax credit position out. You may also be expected to make arrangements to submit the form on time if there is a foreseeable difficulty. For example, if you know in advance that you will be in hospital at the time when the form should be completed, you might be expected to make arrangements to submit the form on time. When returning a form late, it is best to give a full explanation for the delay.
If you return the form after 31 January, it is treated as a new claim which cannot be backdated for more than 93 days, no matter how good the reason for the delay.
The final award noticeOnce the annual declaration has been returned, the Tax Credit Office finalises your award for the previous year. It aims to do this within 30 days of receiving the information by sending out a final award notice. This notice sets out your final entitlement for the previous year. If you have been underpaid or overpaid, this will be shown on the notice. Underpayments are normally paid to you as a lump sum. Overpayments are normally deducted from a continuing award. There is official guidance in leaflet What happens if we have paid you too much tax credit (COP26) about when and how the Tax Credit Office can recover an overpayment. It explains when you can ask for it to be written off. If you were not sent an annual declaration to complete (if your award is no more than the family element of child tax credit), the final notice is set out in the annual review form. Only if the figures are incorrect, and you were required to report a change to the Tax Credit Office, will a separate final award notice be sent out. The Tax Credit Office also sends out an award notice for the current year. If you disagree with the decisionYou can appeal against the decision on the final award within 30 days from the date given on the decision letter, although late appeals (up to one year after the end of the 30 day period) may be accepted in special circumstances. If you just have the family element of child tax credit you may not get a separate final decision notice. In this situation the annual review notice should state what the final decision will be and the date on which it will be made, usually 31 July. The deadline for appealing is 30 days after this date. If the dispute is about the recovery of an overpayment, there is no right of appeal about this. Instead you can ask the Tax Credit Office to use its discretion not to recover the overpayment and complain if you are not happy with the result. For more information see official guidance, COP26, and CPAG in Scotland’s factsheet Tax credits – overpayments.
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