14 February 2017
Use of real time tax data to set provisional tax credit awards
At the start of each tax year, until the renewals process is complete, HMRC make provisional payments of tax credits to claimants who are expected to have continuing entitlement. These provisional payments are calculated in advance and are based on information HMRC holds about a claimant’s circumstances and income. Award notices issued throughout the year will normally show what a customer’s provisional payments are expected to be at the start of the new tax year. For example, award notices issued in 2016/17 will show provisional payments from April 2017.
Most employers are now required to report their employees’ pay details in ‘real time’ for PAYE tax purposes.
HMRC now use this RTI data in a number of ways to change tax credits awards and we have updated our RTI tax credits page to explain when awards might be changed using RTI data.
From April 2017, HMRC are planning a trial where they will use RTI data for claimants who have started a new job in 2016/17, to calculate a ‘more realistic’ income for the 2017/18 current year payments. HMRC say that this is to put their award on a more accurate footing to help prevent an overpayment further down the line. Where HMRC change the award in this way, claimants should receive a notification telling them about the changes.
However, it is important that claimants and advisers carefully check income figures that are taken from the RTI system. Firstly, it is possible that the employer has sent incorrect figures. Secondly, it is possible that the figures are not the correct ones for tax credits as RTI data will not pick up allowable deductions such as the £100 deduction for periods of maternity, paternity, adoption and parental leave, pension contributions, trading losses and other deductions that are allowable when calculating tax credits income.
See our RTI page for more information.
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