Client received award notice & in Part 3 (Amount to be paid) there is a deduction for "Potential payment". The note against this says "this may change because we cannot work out the exact amount until your actual income & circumstances for the whole of the tax year 2007-08 are known. We will then make a final decision on the amount of your award and pay any amount we may owe you."

I've not come across this before & two enquiries to the Intermediaries Helpline elicited information that the operatives hadn't either. I was eventually told that they are holding back a part of the award following notification of a c of c. The reason for doing this was to reduce the possibility of an overpayment. The computer works out the amount to be deducted and I could not get an explanation of what rules the computer follows to calculate the amount of this deduction. If any extra payment is due it will be made after the annual reconcilation next summer.

Does anyone have any knowledge of this please? Is it being done generally when a c of c is notified? If not, how do they decide which cases to do it for? How do they work out the amount (which is not all that large - about 6 or 7% of payments due)? Will we end up with them holding back a part of every award until the annual reconcilation has been done - after all, this would undoubtedly reduce the o/p problem!

Derek

Could this be the holding back of an underpayment that has accrued when the change of circs was reported?

This was one of the measures that was introduced to try and stop overpayments.

If so...the amount would be the underpayment from the start of the year to the date the award was revised. If so then the change reported must have been an income one?

Victoria

Victoria

Thanks for that. There was an income change of circs in May, & another change (baby becoming 1 yr old) in Oct. The amount withheld on May award was more than double amount withheld on Oct. award.

I don't have the file with me but I think the income change was an increase which would not (I think) have given rise to an underpayment. I will check.

Would it be possible for you to point me in the direction of the regs. on this measure please?

I think it may be S.I. 2007 no. 824 which says:

Regulation 15 amends regulation 12(3) of the Tax Credits (Payments by the Commissioners) Regulations 2002 to give the Commissioners for Her Majesty's Revenue and Customs discretion in determining the amount of any further payments of tax credit where an award of tax credit is amended.

You can actually view this on the tax credit section of Rightsnet

The announcement that this would happen from april 2007 was actually made way back in 2005, for example you can view the following through the search facilit of the news pages:

06 December, 2005

Government announces series of measures to further improve tax credit administration

Hope this is helpful

Derek

If it was an increase in income, then I cannot see why the practice of holding back an underpayment would apply.

It seems to me that an increase in income would only have changed the award if (a) the award was based on PYI and the rise in income was more than £25k disregard or (b) the award was already based on an estimated current year income (which was below PYI) and there is a subsequent rise in income.

It would be interesting to know whether the change was an increase/decrease and whether the award actually changed as a result.

Victoria

Victoria

I was wrong - it was not an income increase, but a decrease as the mother had been working in 06-07 before the child was born & then stopped. The change was notified to put them onto CYI for 07-08. So it does tie up with your first post. Many thanks.

Derek

That does sound like the holding back of an underpayment. If her circumstances remain the same throughout the year and her CYI estimate is accurate she will be paid this amount at the end of the year.

We are a bit concerned about those who get the estimate wrong - obviously she wouldn't be protected by any disregard should her income rise again during 07/08 and she didn't notify them. We have seen a couple of examples where people thought they were protected by the disregard when their income rose, obviously not appreciating it did not apply when their award was based on an estimated CYI (which was lower than PYI).

If her income rises, the underpayment will of course reduce or disappear.

Victoria