I've been having some problems with the way HMRC deal with underpayments of tax credits.

Some claimants are getting lumpsum payments after the final decision notice, but for others HMRC are adding the underpayment onto the new years entitlement.

CPAG says that underpayments should be paid as a lump sum - but gives no legal reference for this. HMRC says that the computer decides how they will be paid (though can't say what criteria are used).

Are there any regulations or caselaw that lays out how underpayments should be paid?

Thanks

Have a look at Reg 30 of the Tax Credits Act 2002. Whether you think it is innocently or purposefully vague, the crucial bit says underpayments... 'must be paid to him or to whichever of them is prescribed.' I reckon that allows HMRC to delay payments for offset purposes (against overpayments) until the end of the tax year, as well as allowing them to pay them another way.

Steve

Thanks Steve - I saw how vague that Reg was.

One of my main concerns is how this impacts on HB and CTB. Although arrears of TCs should be ignored, the LAs tend to look for 'unusual' payments of irregular amounts to decide whether a payment is arrears or not. So we're getting cases where the arrears are treated as income because they are added to the current years entitlement - although this can be sorted out its a lot of hassle, and of course those claimants that don't seek help don't know to challenge the HB and CTB decisions.

JK

Points taken - will ponder.

Have you found anything in common on the cases where HMRC are paying it with the next year entitlement as opposed to a lump sum?

I always thought that HMRC paid underpayments as a lump sum if any was due after the award is finalised.

If they are adding the underpayments to a new years entitlement, is this showing in the payment schedule for the new award?

Victoria