16 December 2011

HMRC announce the use of a credit reference agency to find undisclosed partners

We set out in our tax credits policy section details of a pilot carried out by HMRC in January 2011 involving the use of data from credit reference agencies to find undisclosed partners. Following publication of the joint HMRC and DWP fraud and error strategy, there has been an increase in compliance activity across all areas of tax credits. HMRC's attention is particularly focused on 'undisclosed partners' . This refers to people who have claimed tax credits as a single person where HMRC believe they should have claimed as part of a couple.

Under the oversight of the cross-Government Counter Fraud Taskforce, HMRC piloted the use of data from credit reference agencies to try and identify these undisclosed partners. According to figures from the Cabinet Office, over half of the people contacted in the pilot had their tax credits stopped or amended.

HMRC recently announced that they plan to roll out this pilot and have awarded a contract to Experian to work with them over the next 12 months. Tax Credit claimants who are identified as a result of data from Experian will shortly start to receive letters from HMRC. Where HMRC have enough evidence, these letters will explain that the current award will be terminated and earlier years may be amended unless the claimant contacts HMRC with evidence to the contrary. Where HMRC do not have enough evidence to terminate the claim immediately, claimants will be issued with a formal request for information about their status. Failure to comply with this will result in a temporary suspension of payments, potentially followed by termination of the current claim and possible amendments to earlier claims. This may lead to large overpayments in addition to possible penalties. 

If advisers see claimants who have received these letters, the decision by HMRC to terminate the claim can be appealed. In particular, a credit report showing someone else using a claimant’s address does not necessarily mean that the claimant is part of a couple for tax credit purposes. More information can be found in our guidance section ‘Understanding Couples’