I have client who a few years ago (they were dealing with their own tax credits then!) did not submit the annual renewal for tax credits by the 31st July deadline. As a result their claim was suspended and no further information considered. Tax credits are now threatening legal action to recover the overpaid tax credits, however based on actual income the client was actually underpaid.
Is there any point in pursuing this through the legal system, or does the client have to repay? According to the legislation they do have to repay, however logically they should not have to repay these tax credits as they were actually entitled to have received a higher level of tax credits if the deadline had not been missed.
Would be interested to find out if there are any similar cases and if it is worth defending the legal action.
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Proof
Have you tried just sending them photocopies of the relevant years' P60s with a covering letter noting that you understand that due to non-submission of the renewal form, outstanding tax credits cannot now be paid to you, but are happy to acknowledge this fact, and could the situation be rectified in the records. You could also submit the form that was not sent in before.
Another approach might be to put in a new claim for tax credits, then ask for the alleged 'overpayment' to be deducted from that ! Claims can be backdated for 3 months.
There is plenty of material with which to make a defence on the HMRC site, e.g. http://www.hmrc.gov.uk/taxcredits/things-go-wrong/overpayments/dispute.h... Just appeal through each of the available avenues in turn.
If it came to it, you might also ask them how one should deduct any Tax Credit repayments being made on the Self-Assessment tax return income.
Integrate with tax
All the more reason for the next incoming administration to properly integrate Tax Credits with the tax system so it gets assessed (say) on a monthly basis, from figures known from the yellow book submissions, and then the PAYE gets adjusted accordingly.