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Notional offsetting
Would really welcome an opinion here.
Client mistakenly claimed TC on single, rather than joint, claim (complicated circs). Following compliance audit single claim was terminated resulting in large overpayment. Penalty (on basis of negligence) was also applied. We appealed against the penalty decision and appeal succeeded (FTT agreed no negligence). During the process we had requested notional offsetting (based on partner’s income they would have qualified for exactly the same on joint claim as single claim so effectively no loss to the public purse) but TCO refused on basis client had been negligent.
Following successful appeal I again submitted notional offsetting request, pointing out that there was no negligence. However, request has again been refused- on basis that the issue was picked up as result of a compliance audit and therefore notional offsetting cannot be applied…
I’m about to lodge complaint but am I missing something here? Is there any reason why notional offsetting isn’t appropriate?
With thanks to my colleague in Scotland Mark Wills, who drafted the following on a similar enquiry we had on this issue.
When the change in policy re: notional offsetting was first introduced in the pre-Budget report 2009 it was a clear acknowledgement that punishing people for late notification of a change when there was no loss to the public purse was unreasonable.
“5.22 HMRC will also improve its service to people who start living together, or who separate. Where customers report these changes late, this results in an overpayment on their previous tax credits award. In January 2010, HMRC will reduce this overpayment by the amount customers would have been entitled to receive had they reported the change promptly.”
The policy has gradually shifted from a clear guarantee to a rare gift bestowed after an ever-increasing list of spurious conditions (will ‘consider’ it, must have made a new claim, can only be applied once, cannot be applied to previous years, cannot be done if compliance is/isn’t involved, must not be a deliberate or repeated error, and must request within 3 months – all not true). As far as I understand it, the only cases where it should not be applied is where a penalty has been imposed for fraudulently or negligently failing to disclose the change – and this is very unlikely where the claimant has not gained anything. The BCCG minutes at the time also refer to this being done proactively by HMRC
Although the practice keeps changing, the official guidance is still quite clear:
http://www.hmrc.gov.uk/manuals/ccmmanual/CCM15700.htm
Part of the problem may be that most of it refers to single to couple change, not the other way round as in these cases – but the whole point of the exercise is even clearer as there are less circumstances where someone would gain by failing to report a partner has left. Example 3 on this page includes such a case:
http://www.hmrc.gov.uk/manuals/ccmmanual/CCM15725.htm
Even COP26 is still quite clear (page 6):
The longer you delay telling us about this type of change, the bigger any overpayment may be. If you have started a new claim we may consider reducing the amount that you have to pay back. We will work out how much you would have been paid in your new claim if you had told us about the change on time and take that amount off your overpayment.
Note this does not come under the section on disputing recovery at all. Also, the way the TC846 form is designed pretty much rules it out.
It is probably worth threatening JR and/or taking to BCCG (the former might be a lot quicker), but yes as it is discretionary, cannot be raised at appeal. Hope this helps.
Paul- that’s absolutely fantastic. Thanks so much- what would we do without you?
I can only conclude that HMRC’s approach is “because we had to find out and you didn’t tell us, we’re not helping you out”. I can’t think of another justification.
Yes, that’s effectively it Edmund. Client concerned made single claim in good faith- as I say, the circs are not straightforward- and had no idea she should have made a joint claim until compliance audit alerted her to the fact that she had misunderstood the situation.
Hi I have a case at the moment where client failed to declare partner had moved out and I have tried to argue offsetting. I was told by the intermediaries line that he needed to have made a new claim before they would consider offsetting. Unfortunately a new claim was not made at the time as QYP left education and client retired around the same time.
1964 - in your post you said that being told you must have made a new claim was not correct but my reading of the guidance you posted CCCM15730 is that a new correct claim needs to be made.
The helpline later advised us to make a claim anyway (even though client is not entitled now) and to request offsetting. Not overly confident we will be successful.
Hi Maggie,
Misunderstanding I think. Client did make a new (joint) claim (as soon as she understood she had been incorrect to make a single claim originally). Joint claim has been in payment throughout the process.
Thanks to those lovely people at CPAG (Mike Spence- you’re a complete star!) who took case on and issued letter before claim, TCO has backed down, applied notional offsetting and overpayment has reduced from 4k to a big, fat zero.
Taken 18 months to resolve it all and I’m more than 100% certain it wouldn’t have happened without CPAG’s involvement.
Latest from HMRC Benefits & Credits Consultation Group:
Dear representative
Notional entitlement was introduced a number of years ago. It is clear that, since its introduction, HMRC has moved further away from the original policy intent of the notional entitlement measure in terms of:
• the classification of “deliberate error”;
• administering Notional Entitlement in a proactive environment with the intention to reduce Debt;
• inconsistencies in when Notional Entitlement is applied.
We have now revisited that intent and, with effect from Autumn 2016, HMRC will ensure that the application of Notional Entitlement is applied to any overpayment which has occurred due to a change in the adult composition of the household in the current year – regardless of why the customer had not told us. HMRC will also be pro-active in applying the Notional Entitlement criteria, as opposed to the current practice of relying on a request from the customer. In addition, we will explain about Notional Entitlement in the letter we send to the customers who are changing their household makeup when we close their previous claim to Tax Credits.
A scan is now in place which cross-checks all house-hold breakdowns with the National Insurance Numbers (NINos) on all new claims to ensure we capture and test all customers with potential eligibility.
Thank you very much for this latest info.
I have a case at the moment where there is a request in for notional entitlement which has not been decided yet and I have been given the line twice by the tax credit intermediaries help line that “9 times out of 10 where compliance have been involved, notional entitelment will not be agreed”
Having checked the tax credits manual I cannot agree with this as the guidance on situations where notional offsetting will not be allowed is quite specific; and now I have seen your post this seems to indicate that actually that pretty much everyone should be proactively offered notional entitlement.
I will be writing to the tax credits office to draw their attention to this.