Tax Credits: Renewals
Each tax credit claim lasts for a maximum of one tax year. A new claim must be made each year, however it is not necessary to fill in a new TC600 claim each year.
HMRC will normally send a set of papers (normally between April and June each year), and so long as the information requested is given within the time limits requested, the legislation treats the claim as having being made for the new tax year in most cases.
The renewals process set out here will not apply where a tax credit claimant claims Universal Credit in the same tax year. See our section on Universal Credit - Finalising Tax Credit Claims for more information.
- An outline of the process
- The renewals process
- The renewal packs
- Auto-renewals - current
- Coronavirus related changes
- Auto-renewals - historic
- Reply required
- Online renewals
- HMRC App
- Provisional payments
- Missing the deadline
- Withdrawing from the system
- Renewals and Universal Credit
For the majority of claimants the process aims to do two things: to reconcile entitlement for the year just gone (the current year) with what has been paid; and to renew the tax credit claim for the coming year.
Although the process is often referred to as the ‘renewals process’, not everyone will want or need to renew their claim. Some people, for example where a joint claim ended in the tax year just ended, will need to finalise the old claim but will not be making a new claim. In this case they are not renewing merely finalising the old claim.
HMRC are also running an exercise, as they have in the past, to invite tax credit claimants not to renew where their tax credit entitlement has been awarded at £nil in the last few years. See our withdrawing from the system section below. Where claimants withdraw from the system under this exercise, they will still be included in the overall renewal exercise in order to finalise the (£nil) award entitlement for the 2019/20 year.
HMRC have information about the process on GOV.UK aimed at claimants.
The claim for the year just ended (current year) was based initially on the claimant’s circumstances for that year, and income for the year before (the previous year). One of the functions of the renewal process is to establish the claimant's income for the current year, and to review any changes of personal circumstances during it, so that their final entitlement for that year can be established.
Having established the claimant's income for the current year, it is used, together with their latest set of personal circumstances, to set the initial award for the coming year.
So we have a three-year rolling programme. The initial claim for 2019/20 was based on circumstances current in 2019/20 and income for 2018/19. The renewal process for 2019/20 compares the actual income of 2019/20 with that for 2018/19 to fix the final entitlement for 2019/20, and uses the income figure for 2019/20 to fix the initial award for 2020/21.
The comparison works like this for finalising 2019/20 claims (concentrating only on income and leaving aside changes in entitlement which are due to changes in circumstances):
- If 2019/20 income is less than 2018/19 income by £2,500 or less, the final award is based on 2018/19 income and there is likely to be no change in finalised award.
- If 2019/20 income is less than 2018/19 income by more than £2,500, the final award will be based on 2019/20 income plus £2,500. There is likely to be an underpayment.
- If 2019/20 income is greater than 2018/19 income by £2,500 or less, the final award, like the initial award, is based on 2018/19 income and there is likely to be no change in the finalised award. Thus an increase in income of £2,500 or less is disregarded (hence the £2,500 is commonly known as 'the disregard'. Note, this ‘disregard’ figure changed from £5,000 to £2,500 from 6 April 2016 affecting claims for 2016/17 onwards.)
- If 2019/20 income is greater than 2018/19 income by more than £2,500 the final award is based on 2019/20 income less £2,500 and there is likely to be an overpayment. (Note, this ‘disregard’ figure changed from £5,000to £2,500 from 6 April 2016 affecting claims for 2016/17 onwards).
So an initial tax credits award is made in the year of payment, then revised at the end of the year to produce in many cases an underpayment or overpayment.
It should be noted that in 2006/2007 and earlier years, the disregard for rises in income was only £2,500 instead of £25,000. See our ‘understanding the disregards’ section for a fuller analysis of the consequences of this change from £2,500 to £25,000. From 6 April 2011 the disregard decreased to £10,000, then further decreased to £5,000 from 6 April 2013, and was set at £2,500 from 6 April 2016.
The decrease from £10,000 to £5,000 did not impact on the renewals cycle which finalised 2012/13 claims, but it did have an impact when HMRC calculated initial claims for 2013/14 and the £5,000 disregard will apply when HMRC finalised claims from 2013/14 and later.
Similarly, the decrease from £5,000 to £2,500 did not impact on the renewals cycle which finalises 2015/16 claims but it does impact claims from 2016/17 onwards
Claimants will either receive -
- A TC603R auto-renewal form; or
- A TC603RR plus TC603D (reply required)
- plus guidance notes (TC603R or TC603RD).
Usually, the following people should receive auto-renewal notices:
- People whose awards are exactly equal to the full family element of CTC
- People who are nil awards (entitlement but not receiving payments due to income)
- People who received income support, income-based jobseeker’s allowance, income related employment and support allowance or pension credit for the whole 2018/19 tax year.
- People who, according to HMRC data, only have employment or occupational pension income and do not fall into one of the RTI exception groups.
All other claimants should usually be reply-required cases. Even though some auto-renewal forms will show income figures provided by an employer or occupational pension provider, it is important that claimants still check to see whether they have other income or can make any deductions from the figure provided by their employer as income for tax credits purposes is not the same as income for tax purposes. See our RTI and tax credits section for more detailed information on what should be checked.
Due to the coronavirus situation, HMRC announced that they would automatically renew all tax credit claims for 2019/20 apart from those identified as high risk. This means that auto-renewal was used to finalise 2019/20 and renew the claim for 2020/21. No further details were released about how a claim was identified as high risk, but HMRC have said that around 150,000 people were required to reply to their notice – this means around 3.9 million claimants had their claims auto-renewed.
During the renewals exercise, in June 2020, HMRC discovered an error on 1 million auto-renewal notices. The error meant that the income HMRC had used in the calculation of the tax credit award for 2019/20 (final award) and 2020/21 (initial award) was not shown on the auto-renewal notice. A detailed Q&A about the error is available on the LITRG website.
One issue that remains is for claimants who usually report estimated incomes. Sometimes people do not know their actual income figure for the tax year that has just ended by the time they receive their renewal papers. This is often the case for self-employed tax credit claimants. Usually, such claimants will declare an estimated income to HMRC by 31 July and then confirm their actual income by the following 31 January.
Because most people will have had their claims auto-renewed this year, HMRC will treat the income figure shown on the auto-renewal notice (or detailed in the additional letter sent to claimants) as the actual income figure to finalise the claim by 31 July unless the claimant contacted them to tell them that the income was only an estimate at that point. Even if the income figure on the renewals notice or the letter matched the claimant’s own estimate, they still needed to contact HMRC and ask them to mark it as an estimate. If the claimant did not contact HMRC, the claim was finalised. Normally this would mean the claimant wouldn’t be able to give HMRC their actual final income by 31 January – however we understand that HMRC will allow self-employed claimants to provide a final figure where they intended the figure on their auto-renewal notice to be an estimate.
In January 2021, HMRC also confirmed a further concession due to the impacts of the coronavirus pandemic. They realise that in some exceptional circumstances people may not be able to give their actual income figure by the 31 January 2021 deadline and, for this year, they have adopted an additional process to accept late declarations of actual income for tax credits in certain situations.
Claimants (or their agents) who miss the 31 January 2021 deadline to provide their 2019-2020 actual income (after giving an estimate by 31 July 2020) for tax credits should still make every effort to confirm their figures as soon as they can. Once they have the actual figure, they need to ring HMRC’s tax credits helpline and explain why they missed the deadline. HMRC say that if the reason is COVID related, they will use their tax credit enquiry powers to accept the actual income figure and issue an updated final award. You can read more about this in our blog.
In December 2010, in an effort to reduce costs, HMRC introduced legislation which enables them not to automatically renew people on nil awards (or who will be on nil awards from the following 6 April) unless the claimant tells HMRC that they wish to renew their claim.
Under the process, HMRC send a letter (TC1015) to anyone who has had a nil award for a long period of time.
These letters are a ‘relevant notification’ that HMRC will no longer automatically renew their claim unless, by the date specified in the letter, the claimant makes a ‘relevant request’. If the claimant does not make a relevant request (ie write to or phone HMRC to say they wished to renew their claims), their claim lapses on 5 April.
There were two groups of people who lost out by not renewing under this exercise:
- If their circumstances change for the worse, or their income falls, during the following tax year, they will have to make a new claim which in most cases they can backdate by only 31 days, whereas if they had made a relevant request and renewed their claim they may have been able to secure an increased award for the entire tax year (the ‘protective claim’ principle);
A disabled claimant whose entitlement to the disability element of working tax credit rests on Case G in the WTC regulations (entitlement to the disability element for at least one day in the preceding 56 days) will no longer be so entitled if they allow their claim to lapse and do not make a new claim within 56 days.
HMRC did not run this exercise for the 2013/14, 2014/15 or 2015/16 tax years but a small scale exercise was run in early 2018, again in 2019 and a similar exercise was carried out in early 2020 with a response deadline of 31 March 2020.
If the claimant is not an auto-renewal case, they must reply to the TC603RR and complete and return the TC603D declaration form with details of their income for the 'current year' (the tax year just ended). This can be done by any of the following (see our contacting HMRC section for more details):
- Renewing online (see the next section for more information)
- Using the HMRC App (free app)
- Posting the form back to the Tax Credit Office
- Phoning the helpline and speaking to an adviser
- Phoning the helpline and using the ITA automated system.
Since April 2014, HMRC have had access to real time information income data from employers and occupational pension providers. They will replay this information on the TC603RR form. It is important that claimants still check to see whether they have other income or can make any deductions from the figure provided by their employer as income for tax credits purposes is not the same as income for tax purposes. See our RTI and tax credits section for more detailed information on what should be checked.
If they have made more than one claim during the current year, eg because they started the year as a single claimant then became a joint claimant with a new partner, they must complete a set of forms for each claim, even if they each show the same information.
Prior to 6 April 2010, if a couple separated during the renewals period, and one member of the couple did not complete their forms an overpayment would occur of payments between 6 April and the date they separated. This was the case even if one partner completed their renewal forms.
But legislation, effective from 6 April 2010, allows one member of a couple to finalise the previous year’s claim and renew the claim for the period following 6 April – separation. If only one member responds, the award will be based on the information provided which may not be accurate. HMRC have advised that, where possible, it is still recommended that both members send back their forms, although failure to do so will no longer result in an overpayment providing one partner has done so.
It is vital to complete and return renewal papers when required to do so. Dissatisfaction with the system has led some people to deliberately refrain from renewing, with the result that payments made to them from the start of the new tax year are treated as overpayments. It is important that the claimant checks the personal circumstances listed and inform HMRC if any of them have changed.
For the 2019/20 renewals exercise, claimants will have the option of renewing online. To do this claimants must go via the GOV.UK website, and either use the tax credit section in their personal tax account or go directly to: https://www.gov.uk/manage-your-tax-credits
Claimants will need to have a Government Gateway ID to use the service. Anyone who does not have a gateway ID can get one as part of the process. The number will appear immediately and claimants should keep a note of this number somewhere safe. To use the system they will also need:
- Their renewals pack (claimants no-longer have to quote the barcode number from their renewal pack when renewing)
- Their National Insurance number
- A mobile or landline phone (a security code will be sent to your phone which you need to use as you ‘log-in’ to the on-line service)
Claimants will need to answer some additional security questions and will be given some options to help confirm their identity. For example they may be asked about information on their P60, tax credit payments, bank accounts and so on.
During the on-line renewal process, HMRC’s live webchat facility will be available on some screens to help and there is additional help ‘pop-up’ information available. There is a save and return function so that claimants no longer have to complete their on-line renewal in one go. The save and return function lasts for 28 days but the on-line renewal service will ‘time-out’ after 30 minutes of inactivity and no information will be saved automatically unless the claimant saves or fully completes their renewal. Claimants should see a summary screen at the end of the process and will receive an email from HMRC within 24 hours of submitting their renewal to confirm that their information and declaration has been received. Claimants cannot reply to this confirmation email and the email address cannot accept incoming emails.
Sometimes, HMRC will contact claimants who have been sent reply-required renewal packs but have not yet completed their renewal to remind them to complete their renewal. These reminders will be in the form of SMS text messages but will not include any personal information about the tax credit claim.
Once claimants have completed their renewal declaration, they can check progress of their renewal using the ‘Manage your tax credits' HMRC App.
Claimants can renew using the HMRC App, which is free to download. See our contacting HMRC page for more information.
So long as renewal papers are returned by the deadlines shown below, claims are treated as made for the new tax year and are backdated to 6 April.
While the renewal process is going on, HMRC will continue pay on the basis of the last known income and circumstances for the tax year just ended. These run-on payments are known technically as provisional payments.
Previously, provisional payments for the new award period, (ie 2020/21) reflected the income and circumstances last reported in the previous tax year (2019/20). Others may see their payments change in April as HMRC use the RTI data they hold from your employer or pension provider. It is important to complete the renewal forms quickly so as to re-establish the award for 2019/20 on the basis of the latest information and to get the rates and thresholds for that year.
When the renewal process is complete, provisional payments are replaced by payments under an initial award for the new tax year. See the information in the claims starting section.
The deadline for return of renewal papers for 2019/20 is the date specified on the renewal papers (in most cases this will be 31 July 2020). This is referred to by HMRC as the ‘first specified date’.
In 2004/05 the deadline was 30 September following the end of the year; in 2005/06 it was brought forward to 31 August 2006; it was then brought forward a further month in 2006/07 to 31 July. The bringing forward of the renewal deadline was part of a series of measures intended to reduce the volume of overpayment in the system.
If the claimant cannot supply firm details of their 2019/20 income by the deadline stated on the renewal papers (in most cases 31 July 2020), for example if they are self-employed and are still waiting for their accounts to be finalised, an estimate is acceptable.
The important thing is to return an estimate by that date. If an estimate is given, it must be confirmed, or actual figures supplied, by 31 January 2021 (which is also the online filing deadline for self-assessment).
If the claimant does not renew (either by sending the papers to HMRC or renewing via the telephone or on-line) by 31 July 2020 (or the date on their renewal papers if different) then the award may be terminated.
Failure to renew means that no new claim is made for 2020/21, consequently any provisional payments received from April 2020 will become overpaid and HMRC will seek to recover them via direct recovery.
In addition any other overpayments that were being recovered from their ongoing award will switch to direct recovery when their award is terminated for non-renewal.
If HMRC terminate the award for failing to renew (and consequently stop all payments) regulations allow the claim to be restored providing the claimant renews within 30 days from the date on the notice telling them that their payments are to be stopped (technically called the Statement of Account). Note that for the renewals cycle relating to 2009/10, 2010/11, 2011/12, 2012/13 and 2013/14, HMRC extended the 30 days to 60 days due to problems that claimants had using the tax credits helpline to renew. HMRC have not allowed this extension in more recent years and we are not aware that they plan to allow it for 2019/20.
Outside of this 30 day period, the claim can only be restored if the claimant can show that there was 'good cause' for failing to renew, so long as the renewal papers are returned by the later deadline of 31 January 2021.
In both cases, restoration means that HMRC treat the claim as being made from 6 April 2020.
Missing the deadline can also mean the award for the previous year is finalised only using information HMRC already hold and not include any additional or updated information from the claimant. Where this happens and claimants disagree with the decision about their tax credits, they will normally need to rely on their appeal rights on the finalised decision and request a mandatory reconsideration to start the appeals process. Claimants need to be aware of the timeframes for appeals.
This also applies where claimants do not have their actual income figure available by 31 July and instead need HMRC to use an estimate of their income for the renewal (and finalisation) process. Where awards are finalised using estimated income, HMRC then make another final decision following the 31 January (2SD) deadline. If claimants do not provide their actual income figure by the 2SD deadline, HMRC will make that final decision using the estimated figure they already hold. Again, claimants who disagree with this decision must rely on their appeal rights to challenge the decision.
Now that UC is available across the UK, HMRC state that most people can no longer make a brand new claim for tax credits and will be expected to claim UC (or pension credit) instead for ongoing support. See our making a claim section for more information about this. The legislation (Regulation 6 of SI.No.65/2018) covers the situation where a late tax credit renewal claim is accepted where there was good cause for missing both the 31 July deadline and the 30-day grace period meaning that if a person has good cause for missing the deadline and contacts HMRC to renew by 31 January following the renewal deadline, HMRC will reinstate the tax credit claim from the previous 6 April. This will be for the full tax year if the person has not claimed UC, or up until the day before the UC award starts if they have already claimed. If the tax credit claimant cannot show they had good cause for their late renewal, they will not be able to make a brand new claim for tax credits unless they fall into one of the very narrow exceptions. See our Tax Credits - Who Can Claim section for more information.
You can read more about UC in the UC section.
If the claim cannot be restored (because there was no good cause or if good cause was present the renewal was not done before the 31st January), all provisional payments paid from 6 April 2020 will be treated as overpaid.
As mentioned above, it is vital to return renewal papers when required to do so. Claimants should particularly beware of using non-renewal as a tool to pull out of the tax credits system unless they have been invited to do so by letter from HMRC. The consequence of doing so is that their entitlement will cease as from the start of the tax year 2020/21, and therefore if they have received any tax credit payments in that year to the date of termination will become overpaid. In addition they will no longer be able to repay any overpayment by reduction of an ongoing award, as there will be no ongoing award to reduce. Instead direct recovery will be commenced. Most people will no longer be able to make a subsequent brand new claim for tax credits and will be expected to claim UC or pension credit instead.
- Provisional payments are made at the start of 2020/21 while renewal papers are being sent out and dealt with. These are based on last known income and circumstances or RTI data sent to HMRC by the claimant’s employer or pension provider.
- When papers are returned, claimants get an initial award and payments are brought up to date.
- Papers must be returned by 31 July 2020 (or the date as specified by HMRC on the renewals form if different) with either a statement of actual income for 2019/20 or an estimate.
- If an estimate is given, this must be confirmed - or actual figures returned - to HMRC by 31 January 2021.
As noted above, dissatisfaction with the system has led some claimants to refrain from completing their renewal papers. This has also happened where people have had a change in circumstances and thought they were no longer entitled to tax credits. The consequence of not returning the forms is set out above, and generally means that all payments between April and the date HMRC terminate the claim (for failure to complete the renewals process) become overpaid. Additionally, in areas where the UC full service is available, most people cannot make a fresh claim for tax credits (there are some exceptions) because they have been replaced by UC. See our tax credits and UC section for more information.
In April 2010, HMRC introduced rules to allow claimants to withdraw from the system by only finalising their previous year claim and not renewing their claim for the current tax year. In effect this means that you must let HMRC know before 6 April that you wish to withdraw your claim for the next year, otherwise you may be overpaid. After the renewals process has been completed, you will not be able to withdraw until the next tax year. During the renewals process, withdrawal may mean you have to pay back anything received from 6 April.
NB - please not however that the above link has been archived by HMRC and has not been updated since May 2014.
In addition to the claw back of all provisional payments made to date, there may be financial penalties for not responding to a renewal notice, or for giving the wrong information in response to it. More information about penalties can be found in our 'penalties and interest' section.
Universal Credit, when fully implemented, will replace working tax credit and child tax credit. Existing claimants will be moved over (manage-migrated) from tax credits to UC over the next few years. The finalisation process for claimants who are moving to UC is different to the process for people while they remain in tax credits.
In the first few years of UC, and while claimant numbers were very low, HMRC paused issuing In-year finalisation paperwork for tax credit claimants who had moved to UC during the tax year. From April 2017 onwards, there is no pause and so in-year finalisation and standard renewal exercises both run at the same time. In cases where a tax credit claimant has both in-year finalisation and standard renewal paperwork and declarations to complete, they can both be done at the same time, although claimants cannot complete their in-year finalisation paperwork on-line. HMRC expect most people who receive in-year finalisation paperwork during the renewal period to have their in-year finalisation auto-finalised to reduce confusion. See the information in the Universal Credit - Finalising Tax Credits section.
Last reviewed/updated 29 January 2021