Changes to tax credit recovery rates from April 2016

Historic overpayments may now be recovered more quickly

In the July 2015 Budget, the chancellor announced significant cuts to tax credits, to apply from April 2016. Two of the major changes were subsequently dropped – see Autumn Statement 2015: Chancellor acts to avoid big tax credit cuts from April 2016

However, other changes are going ahead, and there are some situations in which claimants will receive reduced payments from 6 April 2016. In particular this will be due to the new 50% recovery rate for tax credit overpayments.

HMRC can recover tax credit overpayments for previous years against current awards. The rates at which such recoveries are made are, from 6 April 2016, as follows:

 

Your tax credits award

The most we’ll take back

For those entitled to the maximum tax credits with no reduction due to income

10%

If you are getting Child Tax Credit or Working Tax Credit below the maximum and your household income is £20,000 or less

25%

If your total household income exceeds £20,000

50%

If you’re only getting the family element of Child Tax Credit

100%

 

The 50% recovery rate which applies where household income exceeds £20,000 is new, the other rates are unchanged. 

The new 50% recovery rate comes on top of other changes in 2015/16. HMRC can now recover WTC and CTC overpayments from either a WTC or CTC award whereas previously each element was dealt with separately for recovery purposes. HMRC now stops awards immediately where a change in circumstances results in a claimant having received all of their entitlement part way through the year – previously the award would have been allowed to run on to the end of the tax year.

These changes are likely to cause considerable hardship for some households.

The Tax Credits rates and thresholds for 2016/17 are unchanged except that the income rise disregard has been reduced from £5,000 to £2,500. 

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