How Payments Are Profiled (Info)
Initial award
Revised award
Cross year recovery
Provisional payments
Other forms of overpayment recovery
The total award amount is determined. This is divided by the number of days in the award period to establish a daily rate, rounded down to 2 decimal places.
The household pay-day (Mon to Fri) and the required payment frequency are established.
Arrears are due for the period from and including the start date of the award period up to the day before the processing date. Arrears are calculated as the number of days multiplied by the daily rate, and are issued immediately as a one off payment.
The balance of the award amount (total minus arrears) is then apportioned over the number of pay-days in the rest of the award period, rounded down to two decimal places. This is the amount of the regular payment that will be paid every week or every four weeks.
The amounts of the scheduled payments are then added together and compared to the total award amount for the period. If there is a shortfall, due to rounding differences, this is added to the first regular payment and becomes a one off payment.
Note: If there is more than one entitlement period within the award period, the award amount for the appropriate entitlement period is apportioned as described above. This is repeated for each entitlement period. Any rounding difference for the whole of the award period is calculated and paid with the first payment in the first entitlement period.
To view a worked payment profile, see Worked Example-Payment Profile For A Revised Award
The revised award amount is determined and then divided by the number of days in the award period to establish a daily rate, rounded down to two decimal places.
The household pay day remains the same as the initial award.
The total amount of tax credits already paid is determined.
The total amount of tax credits due for the period from and including the award start date and the day before the processing date is determined (revised daily rate multiplied by the number of days)
- If the amount due to date is greater than the amount paid to date, the difference (arrears) is issued as an immediate one off payment. The balance of the award amount to be paid (total minus amount due) is then apportioned over the number of pay days in the remainder of the award period. If there are two or more entitlement periods within the remainder of the award period, payments are profiled by the entitlement period
- If the amount paid to date is greater than the amount due to date, the difference is recovered from future payments of that tax credit, reducing them to nil if necessary. This is known as an in-year adjustment. The balance of the award to be paid (total award minus amount already paid), if any, is apportioned over the remainder of the award period. If there are two or more entitlement periods within the remainder of the award period, payments are profiled by entitlement period
- In year adjustments are recovered dependent on the type of award the claimant has. The rates of recovery are as follows
- For a claimant(s) who is in receipt of an un-tapered award, 10% of their regular payments will be recovered until the overpayment is cleared
- For a claimant(s) who is in receipt of a tapered award, 25% of their regular payments will be recovered until the overpayment is cleared
- For a claimant(s) who is in receipt of the Family element and / or the Baby element only, 100% of their regular payments will be recovered until the overpayment is cleared
- Adjustment is applied to the tax credit that has been overpaid first. If the overpayment is more than the balance of that tax credit to be paid, then the balance of the overpayment is deducted from another tax credit payable to the same person, then to any other tax credit paid to the household until the whole overpayment amount is ‘recovered’
- If the overpayment is greater than the total outstanding award amount, the balance will be recovered from the next award
If an overpayment cannot be fully recovered by in year adjustment, or an overpayment from an earlier period has not been fully recovered at the end of the previous award period, the balance is recovered from future awards of that tax credit. This is known as cross year recovery.
The rate at which the overpayment is recovered is dependent on the type of award the claimant has. The rates of recovery are as follows
- For a claimant(s) who is in receipt of an un-tapered award, 10% of their regular payments will be recovered until the overpayment is cleared
- For a claimant(s) who is in receipt of a tapered award, 25% of their regular payments will be recovered until the overpayment is cleared
- For a claimant(s) who is in receipt of the Family element and / or the Baby element only, 100% of their regular payments will be recovered until the overpayment is cleared
Recovery is applied to each payment issued and is not accounted as having been made until the payment has been issued.
Recovery is only made against the tax credits that were overpaid. It is applied to another tax credit only when entitlement to the originally overpaid tax credit ends.
The amount of overpayment recovered from an award period is shown in the Amount recovered from this award field on the View Award Period Summary screen in Function VIEW HOUSEHOLD ACCOUNT. The amount of recovery made from other award periods that is allocated to an overpayment in another award period is shown in the Amount recovered from other awards field
For example, £100 is recovered in the 05/06 award period to repay an overpayment in the 04/05 award period. The 05/06 View Award Period Summary screen shows £100 in the Amount recovered from this award field. The 04/05 View Award Period Summary screen shows £100 in the Amount recovered from other awards field
At the end of the tax year provisional payments are set up for all households currently in receipt of tax credits. Provisional payments are based on projected household entitlement calculated from known household circumstances.
Each household keeps the same payment method, pay frequency and pay day.
Other forms of overpayment
recovery
Any re-profiling that takes place at the end of the year, either as part of the finalisation process or for any other reason, can trigger lump sum recovery overpayments. These can vary from very small amounts to very large amounts, and are known as reallocation and set off.
Reallocation takes place where there is an overpayment of one tax credit in a particular award period, and an underpayment of another tax credit in the same period
An amount of the overpaid tax credit is deemed to have been paid as the underpaid tax credit, up to the amount of the underpayment. Any balance of the overpayment is recovered from future awards by cross year recovery, or by set off. Any balance of the underpayment is issued to the claimant as arrears, or is set off against overpayment from earlier award periods
For example, WTC is overpaid by £100. CTC is underpaid by £150. Instead of paying the claimant £150 underpayment for CTC and leaving them with an overpayment of £100 for WTC, the £100 owed on the WTC is paid off using £100 from the CTC and the claimant is left with £50 underpayment, which is sent to them as arrears
Note: Reallocation changes the amounts in the Direct payments made to date field on the View Award Period Summary screen in Function VIEW HOUSEHOLD ACCOUNT. The amount of reallocation can be seen in the View Award Period Postings screen
Set off takes place when there is an underpayment in one award period and an overpayment for the same household in another award period. The principal is the same as for reallocation, except that it crosses award periods.
The amount set off from an award period is shown in the Amount recovered from this award field on the View Award Period Summary screen in Function VIEW HOUSEHOLD ACCOUNT. The amount set off to an award period is shown in the Amount recovered from other awards field
For example, a £100 underpayment in the 05/06 award period is set off to repay an overpayment in the 04/05 award period. The 05/06 View Award Period Summary screen shows £100 in the Amount recovered from this award field. The 04/05 View Award Period Summary screen shows £100 in the Amount recovered from other awards field
From June 2005 set off can also occur when there is an underpayment in an earlier award period and a notional overpayment for the same household in the current award period. The notional overpayment is reduced or cleared before issuing any arrears to the claimant. The net effect of this is to cancel any in year adjustment, thus increasing the regular payments made to the claimant. This can be incorrectly perceived to be spreading the underpayment over the remainder of the award period.
For example, an overpayment in the 03/04 award period is disputed and remitted in full, though some cross year recovery has been made. Re-profiling of the 03/04 award period takes place, creating an underpayment of £500. Of this, £200 is set off against a notional overpayment in the 04/05 award period, leaving £300 to be issued to the claimant. Because the notional overpayment is cleared, the reduction in regular payments because of in year adjustment is stopped, leading to an increase in regular payments.
Note: The amount of any set off or cross year recovery is included in the total amounts in the Amount recovered from this award field and the Amount recovered from other awards field. The amounts set off can be seen in the View Award Period Postings screen in Function VIEW HOUSEHOLD ACCOUNT
