Manually Adjusting Payments To Avoid Hardship - Enquiry Centre Only - For Cases Automatically Restricted After 29/06/07 (Info)

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A tax credit claimant may inform you that a reduction in their tax credits payments is causing them hardship.

This reduction could have been caused by

• An in year adjustment to the claimant’s payments to prevent an overpayment occurring or to reduce the amount of overpayment that will occur at the end of the year
   
• Cross year recovery from the claimant’s payments to recover an overpayment that occurred in a previous award period
   
• A combination of both an in year adjustment and a cross year recovery

Note: For more information about in year adjustments and cross year recovery, follow the guidance in How Payments Are Profiled

Payments will not be adjusted in the following circumstances

• The claimant is only entitled to the Family or Baby elements of Child Tax Credit (CTC)
   
• Payments have been reduced following an investigation that has established deliberate error or fraud

The Tax Credit Office (TCO) will consider every request for a payment adjustment that is referred to them.

• If there is cross year or in year recovery, manually adjusting payments to avoid hardship is not appropriate. The rates of recovery are

• 10% if the maximum entitlement is in payment

• 25% if entitlement has been tapered

• 100% if Family or Family and Baby elements only are payable

The rates are designed not to cause hardship and any reduction in these rates can only be made in exceptional circumstances.

Note: Where a claimant has been in receipt of additional payments to reduce cross year recovery in a previous tax year as part of the secondary hardship process. These payments will not automatically carry over into the next tax year. In these circumstances, if a claimant re-submits their hardship claim in the new tax year, forward this claim straight to DMB for consideration without first explaining the cross year recovery rates

If there is cross year or in year recovery involved, the TCO will refer the request on to Debt Management and Banking (DMB) for investigation. The rates of recovery (10% if the maximum entitlement is in payment, or 25% if entitlement has been tapered) are designed not to cause hardship, and any reduction in these rates is only to be made in exceptional circumstances. DMB will

• Examine the claimant’s income and expenditure, as outlined in leaflet COP 26 ‘What happens if we have paid you too much tax credit?’, to determine whether a relaxation of these recovery rates is appropriate

And they will then

• Advise the TCO, who will subsequently calculate and make any payment adjustment

Adjusting payments does not return the claimant’s payment to the previous level. This is to ensure that some recovery of the overpayment is made during the current year. To determine how much is to be recovered, the claimant’s award is put into one of the following three categories

Category A

The claimant is entitled to the maximum award for WTC and / or CTC

The TCO will adjust payments to take the level of payment up to 90% of what would have been received by the claimant if they had not been overpaid earlier

Category B

The claimant is entitled to CTC above the family element and / or WTC below the maximum limit

The TCO will adjust payments to take the level of payment up to 75% of what would have been received by the claimant if they had not been overpaid earlier

The payment adjustments will be set at a level which collects some of the tax credits amount that we believe will be overpaid at the end of the year.

When Function ADJUST IN YEAR PAYMENTS has been applied, the claimant will have an overpayment of tax credits at the end of the tax year. These overpayments will be recovered from the claimants in one of the following ways

• By reducing the payments made to them in awards of tax credits made for future tax years

• By recovering the overpayment from them direct

Note: Once payment adjustments have been applied, the claimant's regular computer generated payments will be increased until the award ends or the payment adjustment is removed. Therefore, there will be no need to issue any manual payments to the claimant(s) if they have had a payment adjustment