Compliance issues for tax credits

By Tolley

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

  • Compliance issues for tax credits
  • Compliance
  • Compliance examinations
  • Decisions
  • Enquiries
  • Penalties
  • Interest
  • Reconsiderations and appeals
  • Making a complaint

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, coupled with an inflexible framework reminiscent of the state benefit structure, 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 lends itself well to fraud, and the original online claim procedure was suspended early in the life of the tax credit system due to concerted attack.

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 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:

  • compliance examinations
  • decisions
  • enquiries
  • penalties and interest
  • appeals
Compliance examinations

The Tax Credit Office will carry out a number of compliance examinations both pre-award and post-award. These examinations are not formal enquiries, as an enquiry can only

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