Tax Credits: Payments
This section of the site explains how payments of tax credits are made, how tax credits interact with national insurance contributions and the rules around bank accounts.
CTC and WTC payments
Ceased payment after change of circumstances
Frequency of payments
Weekly or four weekly
Changing the frequency of payments
Small payments of tax credits
Method of payment
In relation to payments of tax credits, TCA 2002, Section 24(1) states that:
‘Where the Board have made an award of a tax credit, the amount of the tax credit awarded must be paid to the person to whom the award is made, subject to subsections (2) and (3)’
For single claims, payments of both WTC and CTC are made to the claimant unless the claimant has an appointee. HMRC will normally pay tax credits to the appointee unless they consider it appropriate to pay them directly to the claimant.
Joint claims - CTC
The position for joint claims is slightly more complicated. Section 24(2) states that:
‘Where an award of a tax credit is made to the members of a couple, payments of the tax credit, or of any element of the tax credit, are to be made to whichever of them is prescribed’.
The Tax Credits (Payments by the Commissioners) Regulations 2002 (SI 2002/2173) set out who should receive payments in various circumstances.
For CTC and the childcare element of WTC, where the couple are resident at the same address, payment will be made to the main carer of the children (or qualifying young persons) for whom either partner is responsible. If no-one is identified as such, HMRC will pay to the person who appears to them to be the main carer. Where a couple do not live at the same address, or one member is temporarily absent, payment will be made to the person who appears to HMRC to be the main carer.
In this respect, ‘main carer’ means the person who is the main carer for the children and qualifying young persons for whom either or both of the members are responsible.
Where one partner in a couple is being paid as the main carer, the couple can jointly give notice to HMRC that, as a result of a change of circumstances, payment should be made to the other partner as the main carer. HMRC will allow this unless they believe such a decision would be unreasonable.
Joint claims - WTC
WTC (other than the childcare element) is paid to the member of the couple who is engaged in qualifying remunerative work.
If both members of a couple are in qualifying remunerative work they can choose who should receive payment (this choice can be made on the claim form). If the couple do not choose, HMRC will decide who is the most appropriate person in their view. The couple can elect for the other member to receive payment at any time by giving notice to HMRC that, as a result of a change of circumstances, they would like payment to go to the other partner.
Death of a claimant in a joint claim
Where one member of a couple dies, payment of the tax credits may continue to be made to the surviving partner.
Where both members of the couple die and it is not clear which of them died first, their deaths are taken to have occurred in order of seniority i.e. the older partner shall be treated as having died before the younger.
There was a change announced in the Chancellor’s Autumn Statement 2014, which affects the way payments are adjusted following a chance of circumstances which reduces the award amount. HMRC applied this process from October 2015.
Where there is a change of circumstances which reduces the amount of the award and, by that point, HMRC consider that the claimant has received their full entitlement for the year, they will stop any further payments. The principle is aimed at reducing overpayments by the end of the tax year but the sudden stopping of tax credit payments can come as a shock to claimants who are not fully aware this can happen. If a claimant finds themselves in difficulty as a result of this process they should contact HMRC and ask them to consider hardship.
As with most parts of the tax credits system, there are rules that govern frequency of payments.
Where payment is made to a bank account, payments can be made weekly or four weekly. Claimants can choose the frequency when they apply for tax credits. The default position where no choice is made is four weekly. Normally payments are made in arrears; however, due to the IT system some claimants who are on four-weekly payments may receive part of their payment in advance and part in arrears depending on where in the payment cycle they fall.
TCTM08102 confirms that in a joint claim where one partner receives the WTC and the other CTC and the childcare element of WTC, the two payments can be made at different frequencies. For example WTC could be paid weekly and CTC (including the childcare element of WTC) four weekly. However, CTC and the childcare element of WTC must be paid together and cannot be paid at different frequencies.
Where payment is made manually, HMRC can pay it at any frequency they believe is appropriate.
When paying an award of tax credits, HMRC have a duty to ensure that ‘it shall be paid so far as possible in such amounts as will result in the person to whom payment is to be made receiving regular payments of similar amounts over the entire period of the award’.
Prior to December 2010, claimants could choose whether they received payments weekly or four-weekly and could change between the two. In December 2010, HMRC introduced legislation to allow them to override the claimant’s choice where they deemed such a step necessary. It is likely HMRC will allow a change where there is a genuine reason and the claimant does not have a history of changing frequency.
If the total amount of tax credits for an award period is less than £26.00, no payment will be made.
For small sums (above £26.00), tax credits can be paid by way of a single payment at any time and in any manner HMRC consider appropriate. Small sums are where the total award equates to less than £2 a week.
In recent years, HMRC have tightened up the rules on payments of tax credits and now require most claimants to have a bank account.
Normally tax credits are paid into a bank, building society account or credit union nominated by the claimant on the claim form. HMRC, however, do have the power to choose a different method of payment if they do not think the bank or other account they have been given is appropriate.
Due to the rising costs of paying claimants via cashcheque, HMRC introduced rules from April 2010 allowing them to suspend payments where bank account details have not been supplied.
When a claim form is received without any bank details, HMRC will send a written notice to the claimant stating that they must tell HMRC of a bank or other account to which tax credits payments can be made. HMRC will give people four weeks to comply with this notice (for notices issued prior to 6 April 2012, this period was 8 weeks). HMRC should also give assistance to claimants to open a basic bank account or post office account. See section on Manual Payments below.
If no response is received within four weeks of the date on which notice was given, HMRC can postpone payments of tax credits. Postponement lasts until the claimant notifies their bank details or, if earlier, their entitlement to tax credits ends because they have failed to give account details (see below).
Entitlement to tax credits ends
The Tax Credits (Payments by Commissioners) Regulations 2002, SI 2002/2173 Regulation 14 sets out the circumstances in which HMRC will end entitlement due to a failure by a claimant to provide bank or other account details.
HMRC will end a person’s entitlement for the remainder of the period of the award, beginning on the day from which HMRC decided to postpone payment, where no account details are provided within a certain time limit. They cannot do this where there are exceptional circumstances resulting in someone not being able to obtain account details during the award period.
In most cases, the time limit is three months from the day on which HMRC decided to postpone payments or, if earlier, immediately after the end of the relevant tax year.
However in certain circumstances the time limit may be extended:
Authority to open an account
Where a person needs authority from HMRC to open an account and provides sufficient information for that authority to be given, the time limit will be extended by three weeks from the day on which the authority is given.
Where a person who has received a notice requesting account details has a reasonable excuse for not taking all necessary steps to obtain an account or for failing to notify HMRC of the account details, the time limit will be the latest of the following:
- three months from the date HMRC decided to postpone payment, or if earlier, immediately after the end of the tax year (as above);
- three weeks from the date when HMRC give authority for opening a bank account, if needed; or
- the date by which the account can reasonably be expected to be notified to HMRC.
Examples of reasonable excuse include the claimant being ill or overseas, or their account has been opened but not yet activated.
Other postponement powers
HMRC can also postpone payments:
- pending confirmation of account details or the address of a person to whom payment is to be made where it appears to HMRC that such details are incorrect;
- pending the outcome of an appeal lodged against a Tribunal decision; or
- where a notice has been issued to the claimant(s) under TCA 2002, section 16(3) and the information requested has not been received by the date specified in the notice.
Where no account is notified HMRC can pay by any method they consider appropriate. This will normally be by cashcheque (previously called a giro cheque) and only in exceptional circumstances.
In some cases, technical problems with the computer system mean that HMRC cannot make payment into a bank account. In this situation, HMRC will make payment via cashcheque until the system issue can be resolved. Cashcheque payments are dealt with a specialist team in TCO.
From March 2017 HMRC will no longer be able to issue cash cheques for tax credits and child benefit. Cash cheques will no longer be cashable at the post office from 30 June 2017.
In order to continue to get payments claimants will need to provide bank account details. For new claimants who do not provide bank account details, HMRC will write to them requesting details. HMRC are also contacting all existing claimants who currently receive payments via cash cheque, alerting them about the change and asking for bank account details. HMRC are also checking their systems to see if they already have details of bank accounts which other benefits are paid into and where that is the case, HMRC will automatically update tax credit and child benefit to pay into that account.
HMRC are also making claimants who do not want payments made into an overdrawn account aware that the wider banking community have signed up to the principle that benefit payments cannot be used to offset a debt, advising them to alert their bank if this happens so money can be refunded.
There will be an emergency payment solution for claimants who genuinely cannot open or operate an account or who are unable to provide HMRC with a trusted third party account. Whilst this is not replacing cash cheques, it will allow payments to be made to a small number of claimants who meet strict criteria. HMRC are currently sourcing a supplier for this product, which is anticipated to be paperless and expected to be accessed via a personal teller service or ATM cash machine.
Emergency payments, sometimes called hardship payments, are those which claimants receive when there is a disruption to their normal payments. For example, there may be a technical problem with the HMRC computer system which means bank payments cannot be paid.
It is important to note that there must be a claim on the HMRC system upon which to make any emergency payments. If there is a delay in processing a claim, HMRC will not make emergency payments because no decision has been taken on the claim.
HMRC do not have a clear, published policy on requesting emergency payments. However, in a consultation document on the future of enquiry centres published in March 2010, HMRC set out the following process for requesting emergency payments:
Immediate Payment Process-National Payment Team
When a customer contacts the HMRC Tax Credit helpline needing an emergency payment, they will be referred through to the HMRC National Payment Team. The HMRC National Payments Team will make decisions, contact the customer by phone and arrange a next day payment to be issued by mail where payment is appropriate.
In 2017, HMRC are expected to introduce faster payments to administer immediate hardship payments directly into a claimant’s nominated bank account. We will provide more details as they are released by HMRC.
Updated 20 February 2017