TCM0228220 - Payment - overpayments (F-P): overpayments - notional entitlement

This guidance gives you information about Notional Entitlement including when it may or may not be applied.

Background

If a customer lives with their partner, they should claim tax credits jointly. If they start or stop living with their partner their existing claim must end on the date of the change. This is known as a household breakdown.

Where an overpayment occurs because of this change, it must be repaid. This may have happened if they:

  • made a new claim but did not include their partners details
  • did not make a new claim after their partner moved in
  • told HMRC late that they had started or stopped living with their partner

Notional Entitlement may be considered where a household breakdown is reported late, or a claim was made in the incorrect capacity (single or joint), and this has resulted in an overpayment. Notional Entitlement is calculated by offsetting the amount a customer would have been entitled to, had they claimed in the correct capacity at the right time.

Notional Entitlement will not be considered where the overpayment was due to fraudulent activity.

Before considering Notional Entitlement whether requested by the customer or after an overpayment dispute, HMRC will review the overpayment using the Code of Practice 26 (COP26).

Notional Entitlement is intended to apply once for each customer. However, where Notional Entitlement has been applied previously the customer is offered the option to challenge the overpayment, or provide further information to evidence exceptional circumstances. The letter to the customer directs them to Code of Practice 26 “What happens if we’ve paid you too much in tax credits?”.


From 6 April 2025 customers will no longer be able to claim Notional Entitlement if out of time for a disputed overpayment, unless exceptional circumstances apply. The time limit for a disputed overpayment and further information on the exceptional circumstances can be found in Code of Practice 26 “What happens if we’ve paid you too much in tax credits?”.

Example 

Peter has written to HMRC in 2023 asking for Notional Entitlement to be considered against his overpayment of £2,500 from the tax year 2005 to 2006.

He was overpaid because he had claimed tax credits as a single person from 20 May 2005 to 31August 2005 when he should have claimed with Mary as a couple. He states he claimed as a single person because Mary was a student, and he didn’t think she should be included on the claim.

Peter and Mary have been receiving tax credits as a couple from 20 August 2005.

The overpayment is firstly reviewed by a Disputed Overpayment caseworker. However, HMRC cannot consider a disputed overpayment because Peter has written to HMRC more than 3 months after the date on the decision notice from 2006. He has also not provided any reason as to why he has disputed the overpayment late.

As Peter has not benefitted from Notional Entitlement before and he claimed as a single person by mistake, Notional Entitlement can be considered for the period 20 May 2005 to 19 August 2005. This is from the start date of his incorrect single claim to the day before the joint award started.

HMRC will use the information from the joint claim to calculate how much Peter and Mary would have been entitled to as a couple if they had claimed in the correct capacity at the right time.

Note: If Peter writes to HMRC on or after 6 April 2025 asking for Notional Entitlement to be considered against his overpayment of £2,500 from the tax year 2005 to 2006, Notional Entitlement will not be considered as he will be out of time unless exceptional circumstances apply.