Tax credits are a form of financial support the U.K. government, through HM Revenue & Customs, provides to people with low income, children, or disabilities. They are designed to help citizens meet living costs and reduce poverty.
Tax credits are a form of financial support the U.K. government, through HM Revenue & Customs, provides to people with low income, children, or disabilities. They are designed to help citizens meet living costs and reduce poverty.
Basically, tax credits are of two types; working tax credit and child tax credit. While the working tax credit is meant for people working a certain number of hours per week and earning a low income, the child tax credit is given to individuals responsible for one or more children under 16 (or under 20 if they are in approved education).
But what if you fit all these definitions but couldn’t claim the tax credit in a particular tax year for some reason? Can you claim them retroactively? If so, how do you go about it? This post provides answers.
Can you claim tax credit retroactively?
The short answer is yes. However, there are some conditions and limitations that you need to familiarise yourself with. Let’s get to it.
How to claim tax credits retroactively
- Check to confirm your eligibility: Using the tax credit calculator on the gov.uk website to calculate your returns and tax band deductions, you can find out how much you’re eligible for and for which period. In preparation, you will need to provide some information about your income, work hours, childcare costs, and the number and age of children.
- Fill out an application form for tax credits: You can do this online or by phone. Details you’ll be required to provide include your national insurance number, bank account details, business and personal income details, and proof of identity.
- Await a decision from HMRC: His Majesty’s Revenue and Customs is the national department responsible for administering tax credits. You’ll have to wait for them to send you an award notice that tells you how much you’re eligible for and for how long.
- Receive your payment: Typically, HMRC pays your tax credits directly into your bank account every four weeks. Afterwards, you may receive a yearly renewal pack that asks you to confirm or update your familial and financial details.
What are the rules and deadlines for claiming tax credits retroactively?
If you’re intent on claiming a long-due tax credit, there are two immutable rules/deadlines you must adhere to.
- You’re only allowed to claim tax credit for up to one year before the date of your application. For example, if you apply on 1 August 2023, you can only claim for the period from 1 August 2022 to 31 July 2023.
- The deadline for retroactively claiming tax credits is 31 January of the following tax year. Say you want to claim credits for the tax year 2022-23; you have until 31 January 2024 to do so. However, applying as soon as possible is advisable, as it may take some time for HMRC to process your claim.
What are the benefits and risks of claiming tax credits retroactively?
The main benefit of claiming tax credits retroactively is that you can get a lump sum payment that can help you offset your present financial situation. Depending on your circumstances and backdate range, you could get hundreds or thousands of pounds in back payments.
Yet, there are certain risks involved in claiming tax credits retroactively. There’s an off possibility the HMRC may make a mistake in calculating your entitlement. If you’ve been paid over what you’re due, you’ll be required to repay the overpayment, dragging your steps back in your financial journey. On the other hand, If the HMRC pays you too little, you might have to wait a long while before being reimbursed again.
Another risk is that your circumstances might have deviated substantially from the period you claim credits. For example, your income may have increased or decreased, or your relationship status may have changed. These changes may affect your eligibility or entitlement for tax credits as you have a legal obligation to report any changes in your circumstances to HMRC within one month of them happening. Failure to do so might result in you facing penalties or prosecution.
Therefore, before claiming tax credits retroactively, you should weigh the pros and cons carefully and ensure you have all the relevant information and evidence to support your claim.
The Take Home
Retroactive tax credit claims offer a potential lifeline to individuals who meet the eligibility criteria but were unable to claim their entitlements in a particular tax year. While it is possible to claim tax credits retroactively, adhering to stringent rules and deadlines is crucial. Suppose you need an accountant to help you navigate the process. In that case, Sloane Winckless accounting firm are chartered accountants Epsom & Ewell townships have relied on for professional tax advice since the inception of the working tax credit in 2003.
