Tax Credits: Understanding couples

A claim for tax credits must either be made jointly by a couple (a joint claim) or by an individual (a single claim).

HMRC have a number of compliance initiatives to investigate claims and determine whether they have been made in the right capacity.

The definition of a couple is set out in legislation, but it is a very basic definition and many of the problems arise from the meaning of various phrases contained within it for which there is no further guidance in legislation. It is often not clear cut whether someone is part of a couple or not, however it can have serious implications for tax credits.

Given that this is not a straightforward area, HMRC may not have made the right decision particularly where they rely on third party evidence such as from credit reference agencies. This guide has been written to help advisers understand the legal position as well as how to effectively challenge a negative decision.

What is a couple?

Section 3(3) Tax Credit Act 2002 states that a claim for a tax credit may be made:

(a) jointly by the members of a couple both of whom are aged at least sixteen and are in the United Kingdom, or

(b) by a person who is aged at least sixteen and is in the United Kingdom but is not entitled to make a claim under paragraph (a) (jointly with another).

So there are two types of tax credits claims – Joint and Single.

The Act then goes on, in Section 3(5A) (as amended), to explain what a ‘couple’ is:

(a) two people who are married to, or civil partners of, each other and are neither -

  • separated under a court order, nor
  • separated in circumstances in which the separation is likely to be permanent, or

(b) two people who are not married to, or civil partners of, each other but are living together as if they were a married couple or civil partners.

It is important to understand that the test for married couples and civil partners is different to that of those living together as married couples and civil partners. The former test has its origins in tax law, whilst the later comes from the social security system. This difference is confirmed in the HMRC compliance manual which is often useful to quote and which states:

Where the claimant says they are separated from their husband or wife you might find it helpful to consider the criteria at CCM15040 but remember the starting point is different. They are to be treated as a married couple unless the evidence shows they are separated and it is likely to be permanent.

It is also worth noting that although the living together test has its origins in the social security system, it is slightly different in that there is no requirement in tax credits that the couple need be part of the same household.

HMRC staff sometimes confuse the two tests, but the legal requirements are very different (although some factors may be relevant to both as explained below).

The importance of making the correct claim

Tax credits claimants are often shocked to find just how dire the consequences can be where they have made a claim in the wrong capacity.

First, HMRC will stop the incorrect claim. This can be a big blow to a family who have childcare costs to pay or have more than one child. In most cases it is not possible to re-claim in the same capacity as the claim is likely to be picked up by the system and sent to a compliance officer again who is likely to disallow it on the same grounds.

Secondly, HMRC will seek to recover all payments made on the incorrect claim as overpayments and may in some cases choose to charge penalties. They may also decide to go back and revise claims from earlier years so far as within their powers to do so.

There are many reasons why people make incorrect claims. Obviously some do so fraudulently, but others are the result of claimants making a genuine mistake (e.g. if their partner is subject to immigration control) or their relationship is such that they genuinely think that they should claim as a single person.

Married couples and Civil Partners

Two people who are married or civil partners will always be classed as a couple for tax credits purposes unless:

(a) they are separated under a court order; or

(b) they are separated in circumstances in which the separation is likely to be permanent.

The HMRC compliance manual states:

From the date on which a couple marry they will be treated as a married couple for tax credit purposes even if they do not begin living in the same household. They might also have been living as an unmarried couple for tax credit purposes prior to this date.

The first of the two exceptions is fairly straightforward. The second is much more problematic and more frequently used by HMRC when investigating a claim.

The starting point if HMRC assert that a couple are separated in circumstances that are likely to be permanent is to ascertain from HMRC whether HMRC are suggesting that there is no separation at all (and therefore the question of whether it is likely to be permanent is irrelevant) or whether they agree there has been a separation but they believe it to be temporary in nature.

The following parts of the HMRC manuals may be useful:

HMRC suggest that their staff should consider the ‘living together’ criteria when determining whether a married couple/civil partners are separated in circumstances that are likely to be permanent. However, whilst this can be a useful aid, caution should be used as the living together test is different for married couples and civil partners to that for couples living together as if married to each other or civil partners of each other.

There has been little case law on the issues relevant to married couples and civil partners. In CTC/1487/2013 involves a married couple who have separated and raises the importance of considering whether the separation is likely to become permanent and another leading case R(TC) 02/06 (CTC 1630/2005) which contained the following important passage:

‘Before concluding that a separation is unlikely to be permanent, the tribunal must consider why the separation has occurred and what indications there are that the couple may be reconciled and must conclude that there is at least a 50 per cent chance of a reconciliation. It is unlikely that such a reconciliation will occur before the parties have taken steps to deal with the problems that led to the separation in the first place, and have actually begun the process of arranging to live together again. A tribunal should be slow to differ from the claimant’s own genuine assessment of the likelihood of a reconciliation, although that is a subjective assessment and the tribunal is not bound by it.’

Living together as a married couple or civil partners

Unfortunately the tax credits legislation contains no additional guidance on what living together as a married couple or civil partners means.

HMRC leaflets and guidance often vary the way they describe a 'couple' for tax credit purposes, for example they describe someone as a partner if they 'sometimes stay at your house'. Of course, each case must be considered on its own merits because not everyone who sometimes stays at a person's house will be their partner and care must be taken to follow more detailed guidance in cases of doubt or confusion.

The HMRC compliance manual contains several sections that contain information which may be useful for advisers:

This test is based on social security law, and HMRC state in their manuals that they will use the criteria adopted by DWP for this purpose which include the following:

  1. Living in the same household (see also absences from the home and partners with no other address)
  2. Stability of relationship
  3. Financial support 
  4. Dependent children
  5. Public acknowledgement
  6. Sexual relationship

Undisclosed partner investigations

HMRC have several different powers that allow them to carry out investigations into claims. Two of the most common are those under Section 16 Tax Credits Act (checks) and Section 19 Tax Credit Acts (enquiries). The former is used during the tax year being investigated, the latter used after the tax year has ended according to strict time limits. Pre-claim checks, also called examinations, may be carried out under Section 14. You can find out more detail about each of these checks in our mistake and fraud section.

Advisers are most likely to get involved when claimants receive a letter from HMRC which may be asking for evidence in order to make a decision or could be the actual decision letter itself.

HMRC have previously contracted with a private company to carry out investigations on their behalf. From November 2014 to November 2016 HMRC used a company called Concentrix to undertake some tax credits checks. Concentrix contacted claimants by letter, showing both the HMRC and Concentrix logo, or by telephone.

Due to poor service standards in Summer 2016, HMRC terminated the Concentrix contract early.

Information, responsibilities and the burden of proof

HMRC have wide legal powers to ask for information in respect of tax credit claims but they also have responsibility to ensure they apply those powers in a balanced and fair practice for achieve legitimate reasons. In practical terms, they can ask to see items such as employment contract, receipts, bank statements, utility bills, passports, driving licenses, birth certificates and other items relevant to the particular claim they are checking. This can sometimes present delays and difficulties for claimants where for instance, their passports are with the UK Visas and Immigration Department for some reason or where utility bills, banks statements are all issued digitally and there is no physical paper evidence to send to HMRC. In such cases, it is recommended to contact HMRC as soon as possible to explain the difficulty providing the documents they have asked for to see if there are acceptable alternatives.

HMRC also use data from independent sources, such as credit reference agencies, to help them check that the information they hold is correct and that claimants are receiving the correct tax credit payments. This means that HMRC may hold information that the claimant is unaware of or is unaware that they hold.

When making a decision about tax credit awards, HMRC should take account of all the information before them which is relevant to the claim, applying the correct weight of importance to each.

At different stages of the tax credit cycle, the obligation to provide evidence in support of a decision, to show that it is properly made, shifts between the claimant and HMRC.

Pre-award: before an initial decision is made (s14 decision) it is for the claimant to provide sufficient information for a decision whether or not to award tax credits (and if so, how much) to be made by HMRC.

Examination, in-year: in-year examinations rely on the power provided under s16 to revise or terminate an award. Once HMRC have made their initial decision on a tax credits claim, it can only be revised in-year under s16 where HMRC have reasonable grounds for believing that the award is incorrect and therefore the burden of proof is on HMRC to show that the award is wrong, not for the claimant to prove that it is correct. Our case law section holds relevant judgements supporting this position, CTC/1824/2014, CTC/1055/2014.

Enquiry: once an award has been finalised, HMRC can amend the conclusive decision on entitlement under s19 or s20. HMRC do not need to have reasonable grounds to believe the award is wrong under s19 and can operate a random enquiry under this power. According to case law, the burden of proof in s.19 enquiries once again falls onto HMRC to show that the final s.18 decision was wrong. If HMRC are relying on s20 to change a decision, they can only do that either where the income tax liability has been changed or where they believe the tax credit decision is wrong because of either fraud or neglect on the part of the claimant, so again the burden of proof lies with HMRC at this point.

There is more information in HMRC’s tax credits compliance manual, and tax credits technical manual.

Notional entitlement (Offsetting)

Sometimes, tax credit claimants who form a couple or who become single, either because they separate or because one partner dies, are slow in reporting the change to HMRC or have been mistaken about the need to report such a change. Yet in many cases, if they had acted promptly they would have continued to be entitled to tax credits, albeit in a different capacity.

Until 18 January 2010, HMRC would recover the whole of any overpayment arising on the old claim, but give no credit for what the claimant would have received had they made a new claim at the right time.

From 18 January 2010, HMRC introduced a policy whereby tax credits recipients who start to live together, or who become single after being part of a couple, but are late reporting the change to HMRC (or don't report the change and have their award changed as a result of a compliance investigation by HMRC), can ask HMRC to reduce the overpayment on their old claim by whatever they would have been entitled to had they made a new claim promptly. A new claim must be made for this policy to apply.

From Autumn 2016, HMRC have revised their offsetting policy so that:

If this doesn’t happen automatically, claimants should contact the tax credit helpline to ask for their case to be referred to the ‘notional entitlement (or notional offsetting)’ team in the Tax Credits. If no action is taken, a letter should be sent to: Dispute, HMRC Tax Credit Office BX9 1ER.

Note that the notional offsetting will not cover the one month (previously three months) by which the claimant will be able to backdate their new claim.

To request notional offsetting, the claimant should contact HMRC's tax credit helpline to ask for their case to be referred to the tax credits 'notional offsetting (or notional entitlement)' team in HMRC. From Autumn 2016, HMRC have been actively applying notional offsetting and should be identifying cases where it might apply. Originally, in order to access notional offsetting HMRC said that you needed to have made a new tax credit claim (either a joint claim if your previous claim was single or a single claim if the previous claim was joint). Now that HMRC states it is no longer possible to make a brand new claim for tax credits, our understanding is that notional offsetting is available even if the new claim for tax credits is not possible, HMRC will ask for information in order to help to calculate what the tax credit entitlement would have been if a claim was possible. Anyone who thinks notional offsetting should apply should contact HMRC.

What is 'fraudulent' behaviour?

As noted above, HMRC have confirmed they will not apply notional offsetting where the claimant's behaviour was fraudulent. Prior to Autumn 2016, a similar rule existed that prevented notional offsetting from being applied where the claimant made a 'deliberate error'. The term 'deliberate error' is no longer used.

The Claimant Compliance Manual contains some information about the term 'fraudulent' but this seems only to replicate the previous guidance on deliberate error and therefore we continue to seek clarification from the HMRC particularly about cases where there was no financial gain at all from the failure to report a change.

Where can I find more information?

More information about notional entitlement can be found in the HMRC compliance manual. The manual covers three distinct periods, prior to 17 May 2007, between 17 May 2007 and 18 January 2010 and after 18 January 2010. This is because notional entitlement applied until May 2007 when it was withdrawn. It was reinstated in January 2010 following representations from LITRG and other organisations.

You can find information about couples and repayment of overpayments in our dealing with debt section.

Last reviewed/updated 1 July 2022