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Tax Credits (Payment by the Commissioners) Regulations 2002 Regulation 12A

Where the Commissioners for HM Revenue & Customs intends to recover an overpayment of tax credits from other payments of tax credits the following maximum rates of recovery apply:

• where the only amount of tax credits to which the person is, or, in the case of a joint claim, the persons are, entitled, is the family element of Child Tax Credit, 100% of that tax credit
• where the total amount of tax credits to which the person is, or, in the case of a joint claim, the persons are, entitled is not subject to reduction â€�

• because they are in receipt of a Social Security benefit (section 7(2) of the Tax Credits Act 2002); or
• because their income for the relevant year does not exceed the relevant income threshold prescribed in his or their case in regulation 3 of the Tax Credits (Income Thresholds and Determination of Rates) Regulations 2002;

10% of that tax credit; and

• in any other case, the income related percentage of the tax credits to which the person is, or in the case of a joint claim, the persons are, entitled.

The income related percentage means:

• 50% if annual income exceeds £20,000; and
• 25% in any other case.

Note: “Annual income� in this respect refers to actual income as opposed to “relevant income� as defined under section 7(3) of the Tax Credit Act 2002 (see TCTM07042)

An example of 50% recovery rate of overpayments

The claimant declared £19500 income for PY as part of their s17 annual declaration. The £19500 was used to calculate their tax credit award for CY. The claimant then notified HMRC that his CY estimate of income had increased to £20500. Whilst this meant that his ‘relevant income� used to calculate his CY tax credits award remained at £19500 (as the estimate was within the £2500 income increase disregard), his annual income is actually £20500. Therefore this would result in the 50% recovery rate being applied.