Around 5 million people in the UK claim tax credits on an annual basis. Tax credits are based on household circumstances and can be claimed jointly or by singles. Entitlement is based on factors such as age, income, hours worked, number and age of children, childcare costs and disabilities.
For many tax credit claimants, the renewals process might look different this year, this is because HMRC decided to automatically renew the vast majority of tax credit claims due to the coronavirus pandemic.
Tax credit awards last for a maximum of one tax year (6 April to following 5 April). When you claim, your award is based on your circumstances for the year you claim and your income for the previous tax year. This is your initial award and the payments are provisional.
After the tax year ends, HMRC use a ‘renewals process’ to ask for your actual income and to confirm your circumstances for the tax year just ended. This allows them to finalise your entitlement for the year just ended and to set up your claim for the new tax year.
The renewal papers are usually sent out between end of April and June. The papers sent out recently are finalising entitlement for the 2019/20 tax year and setting up claims for the 2020/21 tax year.
If you receive any notice from HMRC that asks you to check details, you must check it carefully even if you are no longer receiving tax credits. Otherwise HMRC will finalise entitlement for 2019/20 on the information they hold which may be incorrect. This could lead to an over payment or underpayment.
Due to the coronavirus pandemic, HMRC decided to automatically renew the majority of tax credit claims this year. This means that people used to getting a normal reply-required renewal and complete a declaration, have received a different notice. Unless they contact HMRC by the 31 July, HMRC will use the figures they hold to finalise entitlement for 2019/20 and set the initial award for 2020/21.
You will know if you have received an auto-renewal form if you have received a TC603R form.
Auto-renewal notices should show two figures:
- The final amount/entitlement that will be awarded on 31 July for 2019/20
- The initial award amount for 2020/21
The circumstances and income figures used to calculate these two figures should also be shown on the notice. Unfortunately, around 1 million people received renewal notices which did not include the income used to calculate these two figures. If no income figure is shown on your notice, it does not mean HMRC did not take any income into account, it just means they have not shown the figure they used in the calculation on your notice.
The renewal form instructs claimants to check the income used and tell HMRC if it is incorrect – but as there is no income figure on the form it cannot be checked by claimants.
To correct this, HMRC are sending extra letters to people which show the total household income that HMRC will use to finalise the entitlement for 2019/20 on 31 July. This same figure will also be used to set the new tax credit award for 2020/21.
This error will not affect your tax credit provisional payments. They should continue in the usual way.
Because most people will have their claims auto-renewed this year, HMRC will treat the income figure as your actual income figure to finalise the claim by 31 July unless you contact them to tell them that your income is only an estimate at this point. Even if the income figure on the renewals notice or the letter you receive matches your own estimate, you must still contact them and ask them to mark it as an estimate. If you don’t, the claim will be finalised and you won’t be able to give HMRC your final income at a later date (this will be the case for many self-employed people).
The advice in this column is specific to the facts surrounding the questions posed. Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.