Tax Credits: Payments
This section 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 claimants to have a bank account in all but very exceptional cases.
Normally tax credits are paid into a bank or building society account (including basic bank accounts) 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.
Since April 2010, the rules have allowed HMRC to suspend payments where bank account details have not been supplied.
When a claim is received without any bank details, HMRC 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).
HMRC have advised that the wider banking community have signed up to the principle that benefit payments cannot be used to offset a debt and claimants should alert their bank if this happens so money can be refunded.
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.
In order to continue to get payments claimants need to provide bank account details. For new claimants who do not provide bank account details, HMRC write to them requesting details.
Where no account is notified HMRC can pay by any method they consider appropriate. Also, occasionally, technical problems with the computer system mean that there may be a delay in HMRC making payment into a specific bank account.
In the past, HMRC issued payments in such cases by cashcheque (giro cheque) until the situation could be resolved. However, cachcheques are no longer supported by the commercial banking supplier and Post Office and the final date that a cashcheque can be encashed at a Post Office was 30 September 2017.
From 7 August 2017 HMRC no longer issue system-generated cashcheques for tax credits and child benefit..
Instead of cashcheques, HMRC issue Payable Orders in these cases. A Payable Order is a cheque that must be paid into an account belonging to the person named as the payee.
Where a Payable Order is not appropriate (eg where the payee does not have a bank account) , HMRC will issue emergency manual payments via a Payment Voucher. A Payment Voucher is a letter containing a unique barcode on the bottom right of the first page, in some cases the Payment Voucher can be issued by SMS text and the claimant should then use their text message as the Payment Voucher. The payee (claimants) will need to take the voucher to the Post Office with their ID, where the barcode will be scanned and ID checked, before the Post Office cashier then pays the claimant the cash value of the Payment Voucher. Each Payment Voucher expires after 1 month of the date of issue.
The types of acceptable ID which claimants should take with them to the Post Office are:
- Valid UK/EU driving licence card (photo)
- Valid UK Passport
- Government Department letter (anything from any of the government departments that has the customer’s name and address on it. This could be from DWP, HMRC, Home Office etc)
- National identity card (photo) (including items such as the biometric ID issued to refugees)
- Utility Bill/Statement (issued within the last 6 months)
- Rent Statement
- Rent Book
- Bus Pass (issued by local council)
- Freedom Pass (London)
It is possible for someone else to cash the Payment Voucher on behalf of the claimant and instructions on how to do with will be included with the Payment Voucher.
HMRC will only issue Payment Vouchers in the following circumstances:
- People who arrive in the UK as refugees who do not immediately have a UK bank account. This will be a temporary method of payment until a bank account is acquired.
- People prohibited from opening a UK bank account
- People not able to provide account details for another reason
- People who need to receive emergency payments due to hardship who do not have a bank account.
HMRC contacted existing claimants who had been receiving payments via cashcheque, alerting them about the change and asking for bank account details. HMRC also checked their own systems to see if they already have details of bank accounts which other benefits are paid into and where that is the case, HMRC automatically updated tax credit and child benefit to pay into that account.
HMRC have also been 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.
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.
Last reviewed/updated 20 April 2020