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22 June 2016

Renewing tax credits

Question.

How do I renew my tax credits claim?

Answer.

Tax credits claims last for a maximum of one tax year from 6 April to following 5 April. Once you have made your claim you do not have to keep filling in new claim forms each year.

HMRC will automatically send you a set of ‘renewal’ papers, and so long as you do what you are asked within the time limits requested, the legislation treats you as having claimed again for the new tax year. Although called the ‘renewals process’ not everyone wants to or needs to renew their claim. However, you still need to complete any forms sent to you as the process is also used to finalise the claim for the tax year that has just finished.

The Government is gradually introducing universal credit, a new benefit which will eventually replace tax credits, and some social security benefits. Universal credit is being introduced geographically and in areas where the full service is available, HMRC will not accept brand new claims for tax credits except where the claimant has reached state pension credit age. Existing tax credit claimants are expected to move across to universal credit between 2018 and 2021.

The renewal process aims to finalise your entitlement for the year just gone (the current year) with what you have been paid, and to renew your tax credit claim for the coming year.

Your claim for the current year was based initially on your circumstances for that year, and your income for the year before (the previous year). One of the functions of the renewal process is to establish your actual income for the current year, and to review any changes of personal circumstances during it, so that your final entitlement for that year can be worked out.

After giving your income for the current year to HMRC, it is used, together with your latest set of personal circumstances, to set your new initial award for the coming year. So we have a three-year rolling programme. The initial claim for 2015/16 was based on circumstances current in 2015/16 and income for 2014/15. The renewal process carried out in Summer 2016 finalises the award for 2015/16 by comparing the actual income of 2015/16 with that for 2014/15 to fix the final entitlement for 2015/16, and uses the actual income figure for 2015/16 to set the initial award for 2016/17. The 2016/17 claim will then be finalised in the Summer of 2017.

The rolling programme will be repeated in the renewal process after the end of 2016/17 and the finally ascertained income figure for 2016/17 will be used as the figure on which to base initial awards for 2017/18, which, in turn, will then be finalised after the end of that 2017/18 tax year.

So long as renewal papers are returned by the deadlines, claims are treated as made for the new tax year and are backdated to 6 April. While the renewal process is going on, you will continue to be paid on the basis of your last known income and circumstances in the current year (that is, the tax year just gone).

So provisional payments for 2016/17 reflect the income and circumstances last reported in 2015/16. It is important to complete the renewal forms quickly so as to re-establish the award for 2016/17 on the basis of the latest information and to get the rates and thresholds for that year. When the renewal process is complete, provisional payments are replaced by payments under an initial award for the new tax year.

The deadline for return of renewal papers that finalise the 2015/16 tax year is the 31 July 2016. If you cannot supply complete details of your 2015/16 income by the deadline, for example if you are self-employed and are still waiting for your accounts to be finalised, an estimate is acceptable. The important thing is to return an estimate by that date. If you give an estimate, you should confirm it, or supply actual figures, by 31 January 2017.

If you do not renew by July 2016 then your award may be terminated. Failure to renew means that no new claim is made for 2016/17. Consequently, any provisional payments received from April 2016 will become overpaid and HMRC will seek to recover them via direct recovery.

The advice above 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.
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