Compliance issues for tax credits

Produced by Tolley

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Compliance issues for tax credits
  • Migration of tax credits to Universal Credit
  • Complexity of tax credits and risk of fraud
  • Tax credits compliance
  • Compliance examinations
  • Enquiries into tax credit awards
  • Penalties in respect of tax credits
  • Interest in respect of tax credits
  • Reconsiderations and appeals
  • Making a complaint

Compliance issues for tax credits

Migration of tax credits to Universal Credit

New claims for tax credits are no longer possible as they have been replaced by the Universal Credit for all claimants. Existing claimants will continue to receive tax credits until they are migrated to the universal credit system. Migration will take place when a change in circumstances is reported.

See the Universal credit guidance note.

Complexity of tax credits and risk of fraud

This guidance note explains the compliance issues you should be aware of in relation to an individual’s tax credit affairs.

You should read the Recovery of overpaid tax credits guidance note in conjunction with this note.

Tax credits are extremely complex, and claimants often make mistakes in their claims. This can present problems when claimants have overlooked an important deadline. They can be left with significant debt as a result of their own mistakes.

There is also the issue of fraud. Unfortunately, the tax credit system has been subjected to concerted attack by fraudsters.

The complexity of the tax credits system and the risk of fraud is part of the reasoning behind the Government’s initiative to replace tax credits by the universal credit.

Generally speaking, although overpayments are sought from claimants, the likelihood of penalties arising in relation to tax credit claims is very slight. However, you should bear in mind that if a client who is a tax credit claimant undergoes an income tax enquiry and as a result, his income is increased, this will significantly affect the financial outcome, as tax credits may be a major component of the financial settlement.

Tax credits compliance

Tax credits compliance covers a number of areas and some of those have been addressed in the Making and renewing a tax credits claim, Changes in circumstances for tax credits and Notional income and anti-avoidance for tax credits guidance notes.

The remaining areas that need to be considered include:

  1. compliance examinations

  2. decisions

  3. enquiries

  4. penalties and interest

  5. appeals

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