CCM8235 - Closing the Examination: Adjustment needed to the Claim and Penalties appropriate - What to include in the Letter of Offer

Pre-award settlement

Where your examination has been worked pre-award there will be no overpayment but, if the original claim was incorrect, there could be a penalty. Where the intention is to charge a penalty you will need to obtain a penalty-only letter of offer.

Post-award Settlement before 5 April and no adjustments for earlier years

Where the examination is settled in-year an adjustment with a penalty will lead to one of the following outcomes:

• On-going entitlement but in a different amount - see a. below
• No entitlement for the period of claim - see b. below
• Entitlement ceased during the year - see c. below
• Claim made in the wrong capacity - see c. below
• No entitlement to one of the elements of tax credits but ongoing entitlement to the other element - see d. below

1. On-going entitlement. This situation could arise where part of the original claim was incorrect or where the claimant fails to tell us about a notifiable change of circumstance. In these cases there will be no overpayment as a result of the examination. Any adjustment will be dealt with by adjusting the tax credits due for the remainder of the year. Any balance will be collected from future awards. Once you have amended the award there is no need to take any further action regarding the overpayment up to the date of the amendment and there will be no interest charge. You will need to obtain a penalty-only letter of offer to recover the penalty.
2. No entitlement. In these cases there will be an overpayment which is recoverable in-year under S28(6). You will seek a letter of offer to include the overpayment, the penalty and any interest.
3. Entitlement ceased during the year or claim made in the wrong capacity. In these cases there is no ongoing award but the overpayment is not legally recoverable until after the end of the year. The overpayment will be recovered by direct payment and there is no further action for you to take regarding the overpayment once you have amended the award. Any interest will be chargeable 30 days after the first specified date (CCM11040) and you should ensure your closure includes the formal interest decision and you complete an interest stencil as detailed in CCM8127. You will need to obtain a penalty-only offer to recover the penalty.
4. No entitlement to one of the elements. Where the claim was for both WTC and CTC but there is no entitlement to one of the elements the NTC system will try to recover the amount overpaid from the element still payable. Where there is an excess of the overpayment this can be recovered in-year under S28(6).- see CCM8125. You will seek a letter of offer to include the excess of the overpayment, the penalty and any interest.

Post-award Settlement after 5 April and no adjustments for earlier years

Where it is not possible to settle the examination before 5 April a S16 decision cannot be made. It must be settled following guidance in CCM11000. Where an overpayment is established the method of recovery will depend on whether or not there is a continuing award.

If there is on-going entitlement the overpayment will be recovered from the future award and you do not need to take any further action regarding the overpayment. Any interest will be chargeable 30 days after the first specified date (CCM11040) and you should ensure your closure letter includes the formal interest decision and you complete an interest stencil as detailed in CCM8127. You will need to obtain a penalty-only offer to recover the penalty.

If there is no on-going entitlement you will seek a letter of offer to include the overpayment, the penalty and any interest. Any interest will run from 30 days after the first specified date (CCM11040).

Settlement with adjustments for earlier years

Where an adjustment is needed for an earlier year(s) you will have followed CCM8232. The adjustment will have produced an overpayment for the earlier year(s). In addition to following the guidance above regarding the examination year, the earlier year(s) will be handled as follows:

• Where there is a continuing award - the overpayment will be recovered from future payments but any penalty for the earlier year(s) will be included in the penalty-only offer covering the examination year.
• Where there is no continuing award - the overpayment plus any interest and penalty will be included in your letter of offer covering the examination year. If there is already an outstanding overpayment arising out of a S18 decision for one of the earlier years this should be included in your settlement - see CCM14268.