Tax Credits: Enquiries
This section of the website provides basic information about enquiries.
- The enquiry window
- The earliest time for starting an enquiry
- The latest time for starting an enquiry
- Closing the enquiry
- Links with self-assessment
- HMRC guidance on enquiries
The statute defines the period during which HMRC is allowed to open an enquiry, and any enquiry began before the start of that period, or after its end, is invalid. That period is known as the enquiry window.
An enquiry may not be started before the date of HMRC's formal decision on the claimant's final entitlement for the tax year. This is usually given after the claimant has returned all their renewal papers. Normally, renewal papers should be returned by 31 July in the following tax year (so the renewal papers which finalise 2022/23 and act as a claim for 2023/24 should be sent in by 31 July 2023). In a small minority of cases the renewal deadline may be different and will be shown as such on the Section 17 notice. It should be noted that the deadlines for replies is different where the person has claimed universal credit (UC) in the same tax year as they claimed tax credits such that the in-year finalisation rules apply.
Where the claimant is not, at that stage, ready to state what their actual income was for the year and shows an estimated income figure in their renewal papers, no enquiry may be started before the estimate has been confirmed, or the actual amount substituted. This should be done by 31 January in the following tax year. So an estimate for 2022/23 should be confirmed, or actual 2022/23 income notified, by 31st January 2024.
See our section on renewals for more information about the finalisation process.
The latest time for starting an enquiry depends on whether the claimant has also filed a self-assessment (SA) return for ordinary tax. Where they have, and the return is not subject to a SA enquiry, a tax credit enquiry may not be started later than the date on which the SA return becomes final. This is usually 12 months after the date of filing, if the return is filed on time (ie on or before 31 January following the end of the tax year to which the return relates), but there are important exceptions; see the LITRG website for the detailed rules.
In the case of a joint claim where both claimants are SA taxpayers, and there are different final dates for each partner, the later of the two dates is taken for the couple.
Where the return is subject to a SA enquiry, the latest date for starting a tax credit enquiry is the date on which the SA enquiry is brought to an end (or the later date in the case of joint claimants). This is of course much later than the normal SA enquiry window. Where the claimant has not filed a SA return, a tax credit enquiry must be begun within one year of the date shown on the end-of-year notice as the date by which income details must be returned. In practice this date is 31 July, or the following 31 January if an estimate is returned.
A tax credit enquiry ends when HMRC issues a 'closure notice'. But the claimant may apply to the Appeal Tribunal at any time for a direction that the Board must give a closure notice; in which case the Tribunal must do so unless the Board can show that they have reasonable grounds for continuing the enquiry.
We have already said quite a lot about the links between the time-limits for opening and closing self-assessment and tax credit enquiries. Where the claimant is also a self-assessment taxpayer, the one may give rise to the other and it is important for the adviser to bear in mind the implications of both when negotiating with HMRC.
When a self-assessment enquiry is opened and the taxpayer is also a tax credit claimant, a tax credit enquiry may also be opened and HMRC may work the two together. Needless to say, if a self-assessment enquiry results in an increased profit figure, the trading income figure for tax credits may similarly be increased. It follows that no self-assessment enquiry should be concluded without considering its effect on the tax credits claim, and seeking simultaneous closure of any related tax credit enquiry.
Similarly, where the self-assessment enquiry covers more than one year and it is sought to apportion the adjusted income figure between the years, care should be taken in agreeing any such apportionment to maximise the potential for the annual disregard for increases in tax credit income.
Income discrepancy enquiries: gift aid and pension contributions
One of the grounds for starting an enquiry is that the income details supplied for tax credits do not match those held for income tax purposes. This can affect both self-assessment (SA) and PAYE taxpayers.
Gross gift aid payments and gross pension contributions are deducted from tax credits income. Because such deductions are not separately identified in the tax credit income figure it is not unknown for HMRC to start a tax credit discrepancy enquiry when the income declared for income tax and for tax credit purposes differs by the amount of the gross deduction.
Advisers should look out for such risk assessment-based enquiries which ought to be subject to a 'sanity check' by a human before being started, but have in the past appeared not to be.
Potential conflict of interest where a SA enquiry gives rise to a tax credit enquiry and the tax credit claim is a joint one
Where a tax adviser is acting for a taxpayer facing a SA enquiry, the result of which is likely to impact on the tax credit claim which the taxpayer has made jointly with his or her partner, a conflict of interest may well arise. There is an obvious conflict between the demands of taxpayer confidentiality, in respect of the SA enquiry, and joint and several responsibility of both members of the couple for the accuracy of the tax credit claim. In some cases it may be necessary for the practitioner not to act, or to cease acting, for both parties, and to arrange for the non-SA client to be independently advised on the tax credits enquiry.
- WTC/FS1 Tax credits enquiry
- WTC/FS3 Tax credits formal request for information
- Claimant Compliance Manual CCM12000ff
Last reviewed/updated 5 May 2023