Universal Credit full (digital) service roll-out continues - 22 March

Carer’s Allowance - earnings limit increased

Changes to tax credits postal address for changes and complaints

New regulations - 2 child limit policy Universal Credit

2-child limit Tax Credit Regulations published

Wales introduce earnings thresholds in UC to passported help with health costs

Universal Credit full (digital) service roll-out continues - 15 March

New DWP guidance - Universal Credit benefit cap earnings threshold

Universal Credit full (digital) service roll-out continues - 8 March

Universal Credit - removal of housing costs element for some claimants aged 18-21

2017/2018 Social Security Benefits Uprating Order

Consent for advisers and MPs dealing with Universal Credit full service cases (Updated 13 March)

Removal of the limited capability for work element from 3 April 2017

DWP publish new Universal Credit guidance for claimants

CPAG briefing on the impact of UC on low income families

Want to find information easier?

New regulations delay introduction of Universal Credit surpluses and self-employed losses rules

Scottish Parliament Social Security Committee letter to Minister about Universal Credit

Changes announced to Benefit Cap earnings threshold for UC claimants

New blog posts

Universal Credit full (digital) service roll-out continues

Work and Pensions Committee launch two new inquiries

Update on requesting hardship in ongoing recovery cases

Introduction of Universal Credit in Scotland - research briefing published

Universal credit statistics

In this section you will find links to Universal Credit statistics

The UC statistics allow you to see how many people have claimed, started and are currently on UC.

To help understand the UC statistics, DWP have published two background guides:

DWP currently publish statistics each month about the UC caseload:

As well as the monthly figures, ad hoc statistics are also published:

DWP are interested in getting views on the type of UC statistics that you would like to see and you can email any thoughts to Stats-consultatoin@dwp.gsi.gov.uk

Alternatively you can visit the Welfare and Benefit Statistics Communityon the Royal Statistical Society Stats Usernet.

Universal credit consultations

Current consultations

The Committee has also launched an inquiry into the Benefit Cap and how it affects British Households. The deadline for written submissions is 7 April 2017.

The Committee are keen to have submissions that answer the following questions:

Submissions can be made via the Committee’s website

Previous consultations

Following compelling evidence of the problems in the roll-out of UC in its recent follow-up work, the Committee re-launched its inquiry and was accepting written submissions up to 20 March 2017. The Committee were interested in submissions that answer the following questions:

This consultation is sought views on two UC flexibilities – managed payments of rent to landlords and more frequent payments of UC. The closing date for responses was 13 March 2017.

Universal credit: Northern Ireland

This page explains the roll-out of Universal Credit (UC) in Northern Ireland.

Welfare Reform in Northern Ireland has faced a number of difficulties and due to the many delays in getting the primary legislation in place, UC is rolling out in Northern Ireland on a different timetable to that in Great Britain.  

You can find all of the legislation in our Northern Ireland legislation section.

Roll-out timetable
Existing tax credit claimants
Changes to UC in Northern Ireland
Additional support
Welfare changes helpline

Roll-out timetable

The latest announcement from the Department for Communities confirms that UC will start to roll out in Northern Ireland from September 2017 and that it is expected to be completed by September 2018.

Until then, claimants living in Northern Ireland will continue to claim legacy benefits, including tax credits.                                    

The current roll-out is planned as follows:

Week commencing Office
25 September 2017 Limavady
13 November 2017 Ballymoney
11 December 2017

Magherafelt and Coleraine

15 January 2018

Strabane and Lisnagelvin

5 February 2018

Foyle and Armagh

19 February 2018

Omagh and Enniskillen

5 March 2018

Dungannon and Portadown

16 April 2018

Banbridge and Lurgan

30 April 2018

Kilkeel, Downpatrick and Newry

14 May 2018

Bangor, Newtownards and Holywood Road

28 May 2018

Knockbreda, Newtownabbey and Shankill

11 June 2018

Corporation Street, Falls and Andersonstown

25 June 2018

Shaftesbury Square, Lisburn and Larne

2 July 2018

Carrickfergus, Antrim and Ballymena

July-September 2018

Cookstown, Ballynahinch and Newcastle

To support the roll-out of UC, a new service centre will open in Foyle Jobs and Benefits Office and a second service centre is expected in Newry in early 2018.

A new Department of Finance Rate Rebate Scheme will provide rates support for tenants or home owners who are entitled to UC in Northern Ireland.

Existing tax credit claimants

Claimants who live in Northern Ireland and who claim tax credits or any of the other legacy benefits will be transferred to UC between July 2019 and March 2022 in line with the national plans.

See our tax credits and UC section which explains what happens to existing tax credit claimants who have changes of circumstances once UC is live in Northern Ireland.

Changes to UC in Northern Ireland

During discussions on the implementation of UC in Northern Ireland, the then Minister for Social Development secured payment flexibilities under UC for NI claimants. It was agreed that:

Twice monthly payments would be available to all households as the default, with monthly payments available on request
Split payments (paid into separate bank accounts) would be possible between parties in a household. This would be possible on the basis of the main carer and children to be determined by the Department. It would also be possible for a split payment for a couple with no children.
Managed payment of the housing element of UC direct to the landlord would be available to all, with a direct payment to the household available on request to those who meet the criteria

In January 2017 a Department for Communities screening document was published setting out the arrangements for flexible payments.

Additional support

The Northern Ireland Executive has agreed support will be available for working families claiming Universal Credit. These families can apply for a supplementary payment to help with expenses because of employment.

The detail of this support is yet to be finalised and agreed by the Northern Ireland Assembly.  It is expected that payments will be available from autumn 2017. We will add further detail once it is available.

Welfare Changes Helpline

An independent helpline is available for anyone in Northern Ireland who wants help or advice about any of the changes to the welfare system. The helpline is operated by the Welfare Reform Advice Services Consortium (Citizen’s Advice, Advice NI and Law centre NI)

            Phone: 0808 802 0020 (9am to 5pm)

Additional independent advisers will also be available across all 11 council areas in Northern Ireland and located in local Citizens Advice and Advice NI offices to provide face-to-face help to anyone impacted by the changes to the welfare system.  In addition, specialist legal advice is available from the Law Centre and they can arrange access to specialist services when required.

These services are free for anyone who needs help or advice about any of the changes to the welfare system.

Evaluation of universal credit

UC represents the biggest reform of the benefits system in many years. This page links to the evaluation plans for UC and interim evaluations that have been carried out. Research published by DWP can be found in the reports and research section.

UC evaluation framework
Pathfinder evaluations
Aspects of UC evaluations

UC evaluation framework

In December 2012, DWP published an evaluation framework for UC which set out high level plans for evaluation and research.

In 2016 an updated evaluation framework was published which reviewed what had been done between 2012 and 2016 and set out evaluation plans going forward.

Pathfinder evaluations

In 2014 DWP published findings from the evaluation of the UC pathfinder

Aspects of UC evaluations

Universal Support delivered locally (July 2016)

Between September 2014 and August 2015, 11 areas in Great Britain ran trials to test new ways of identifying, engaging and support claimants that may have transitional budgeting or digital support needs under UC. The trials also explored different ways of working between local authorities, Jobcentre Plus and other local organisations.

The findings will be used to develop and inform the Universal Support strategy.

Prepaid card evaluation (July 2016)

Kent County Council carried out a prepaid card test in Summer 2015. This test the possibility of paying benefits onto prepaid cards.

Changes to notional offsetting for tax credits

Minister announces DWP to recover outsanding tax credits debt

HMRC - annual tax credits report 2015-2016

Use of real time tax data to set provisional tax credit awards

SSAC write to Minister about two child limit policy in tax credits and UC

HMRC will review Concentrix cases from summer 2016

NHS exemption certificates and tax credits update

Child Benefit and Guardian's Allowance: Upper Tribunal decisions

In this section you will find decisions relating to child benefit and guardian’s allowance.

HMRC use voice ID on the tax credits helpline

Universal credit: Digital (full) service

This page explains the digital service and what this means for new tax credit claims as well as for existing tax credit claimants. For UC in Northern Ireland see our NI section.

What is a digital service area?

A digital service area is one where the UC digital service has been rolled out.

In February 2013, the Major Projects Authority expressed concerns about the UC programme. This led to a ‘reset’ of UC and new plans to be formulated. This included a proposal to operate a ‘twin-track’ approach by running a live service system alongside a new digital system.

When UC began in April 2013, it used IT assets developed by private contract suppliers. These areas are known as live service areas and will continue to be rolled out to April 2016 in order to test and learn about processes and policy.

Alongside the live service areas, DWP have built their own digital service system which started in a small number of areas in November 2014. Between November 2014 and April 2016 DWP introduced further digital test areas (see the table below for a list of digital areas). From May 2016, the digital full service will expand so that eventually all live service areas become digital areas. Existing live service claimants will eventually be transferred to the digital service.

Where are the current digital service areas?

The current digital service areas are shown below. To find out the history of each of the postcodes listed you can use our roll-out PDF table. 

The table below also includes the part postcodes that the DWP has confirmed the digital service will roll out to over the period to April 2017.

Postcode Go live date District Details

SM5 2

26 November 2014

28 January 2015
No.28 relevant district

The first digital area in Sutton was trialled between 26 November and 19 December 2014. It resumed taking claims under the digital service from 28 January 2015.

SM6 7, SM6 8 18 March 2015 No.50 relevant district  

CR0 4

SM6 9

10 June 2015 No.51 relevant district  

CR0 2

SE1 5

4 November 2015

No.52 relevant district  

SM5 1, SM5 3, SM5 9

SM6 0

2 December 2015

Further digital test roll-out

These postcodes were previously due to launch as part of the live service in April 2016.

TW3 1, TW3 4, TW4 6, TW4 7, TW5 0, TW7 4, TW7 5, TW7 6, TW7 9, TW8 0, TW8 1, TW8 8, TW8 9, TW13 4, TW13 5, TW13 7, TW13 9, TW14 0, TW14 9

SE1 0, SE1 1, SE1 2, SE1 3, SE1 4, SE1 6, SM1, SM2 6, SM4, TW3 2, TW3 3, TW4 5, TW5 9, TW7 7, TW13 6

27 January 2016 Further digital test roll-out The postcodes in bold were previously part of the live service. The other postcodes were due to launch as live service in April 2016.

CRO 1, CR0 3, SM2 5, SM2 7, SM3 8, SM5 4, SM7 3

CR0 0, CR0 5, CR0 6, CR0 7, CR0 8, CR0 9, CR9, SE1 7, SE1 8, SE1 9, SE16 2, SE16 4, SE16 5, SE16 6, SE16 7, SE25 4, SE25 5, TW14 8

EH21, EH31, EH32, EH33, EH34, EH35, EH36, EH39, EH40, EH41, EH42

23 March 2016. Further digital test roll-out

The postcodes in bold were previously due to launch as part of the live service in April 2016 but instead were changed to digital test areas from 23 March 2016.

The postcodes in italics were previously part of the live service in district 37.

 

CR2, CR3 0, CR3 5, CR5, CR6, CR7, CR8, NR13 3, NR29, NR 30, NR 31, SE25 6

27 April 2016 Further digital test roll-out These postcodes were originally due to be part of the live service but instead became digital areas on 27 April 2016.

CV21 1, CV21 2, CV21 3, CV21 4, CV21 9, CV22 5, CV22 6, CV22 7

BA1 0, BA1 1, BA1 2, BA1 3, BA1 4, BA1 5, BA1 6, BA1 7, BA2 0, BA2 1, BA2 2, BA2 3, BA2 4, BA2 5, BA2 6, BA2 9, BA3 2, BA3 3, BA3 9, BS31 1, BS31 3, BS31 9,

BS39 4, BS39 5, BS39 7

BA2 7, BA2 8, BA3 4, BS25 9, BS39 6, TA6, TA7 8, TA7 9, TA8, TA9

IP19 1, NR32, NR33, NR34 4

TA5, TA7 0

NE1, NE2, NE3 1, NE3 2, NE3 3, NE3 4, NE5 3, NE5 4, NE13 8, NE13 9

CV23 9

BA1 8, BA1 9, BS31 2, SN14 8

NE3 5, NE13 7, NE18

25 May 2016 Digital (full) service expansion These postcodes were previously part of the live service. Existing live service claimants will eventually be transferred to the digital full service.

W6 0, W6 6, W6 7, W6 8, W6 9

IV1 1, IV1 3, IV1 9, IV2 3, IV2 4, IV2 5, IV2 6, IV2 7, IV3 5, IV3 8, IV4 7, IV5 7, IV8 8, IV9 8, IV10 8, IV11 8, IV12 4, IV12 5, IV12 9, IV13 7, IV21 2, IV22 2, IV26 2, IV54 8, IV63 6, IV63 7, PH19 1, PH20 1, PH21 1, PH22 1, PH23 3, PH24 3, PH25 3, PH26 3, PH26 9, PH32 4

HG1 1, HG1 2, HG1 3, HG1 4, HG1 5, HG1 9, HG2 0, HG2 7, HG2 8, HG2 9, HG3 1, HG3 2, HG3 3, HG3 4, HG4 1, HG4 2, HG4 3, HG4 9, HG5 0, HG5 5, HG5 8, HG5 9 ,LS17 0, Y051 9

HG3 5, HG4 5, Y017, Y018, Y060, Y062

DL9, DL10, DL11 6, HG4 4

DL11 7

29 June 2016 Digital (full) service expansion These postcodes were previously part of the live service. Existing live service claimants will eventually be transferred to the digital full service.

W14 0, W14 4, W14 8, W14 9

WA7, WA8 0, WA8 2, WA8 3, WA8 6, WA8 7, WA8 8, WA8 9

LA1, LA2 0, LA2 6, LA2 9, LA3, LA4, LA5 8, LA5 9

BA3 5, BA4, BA5, BA6, BA11, BA16, BS27, BS28

27 July 2016 Digital (full) service expansion These postcodes were previously part of the live service. Existing live service claimants will eventually be transferred to the digital full service.

WA8 4, WA8 5

SE16 3, SE16 9, SE21, SE22
5 Oct 2016 Digital (full service expansion) These postcodes were previously part of the live service. Existing live service claimants will eventually be transferred to the digital full service.
BD23, BD24, DL6 1, DL6 3, DL6 2, DL7 0, DL7 7 to DL7 9, DL8 1, DL8 2, DL8 3 to DL8 5, DL8 9, LA2 7 and LA2 8, LA6 3, TS9 5, TS9 7, YO7, TA4 4, TA22, TA23, TA24, BD20 7 and BD20 8 12 October 2016 Digital (full service expansion) These postcodes are currently part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.
SE5 0, SE5 5, SE11 9 and SE17 19 October 2016 Digital (full service expansion) These postcodes are currently part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.
TA1, TA2, TA3 5 and TA3 6, TA3 7, TA4 1, TA4 2, TA4 3, TA10 0 and TA10 1, TA19, TA20 1 and TA20 2, TA20 3, TA20 4, TA20 9, TA21 0, TA21 1, TA21 8 and TA21 9 26 October 2016 Digital (full service expansion) These postcodes are currently part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.
CA18, CA19, CA20, CA21, CA22, CA23, CA24, CA25, CA26, CA27, CA28, NN6 6 to NN6 8, NN11 0 to NN11 2, NN11 4, NN11 7 to NN11 9, NN7 4, NN11 3, NN11 6, G64 4, G64 9 and G66 2 November 2016 Digital (full service expansion) These postcodes are currently part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.
CA7 1 to CA7 4, CA12, CA13, CA14, CA15, LE13, LE14 2, LE14 4, NG32 1, SE5 7 and SE5 8, SE15, LE14 3 and NG13 0 9 November 2016 Digital (full service expansion) These postcodes are currently part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.
W12 2, W12 6 to W12 9, NW10 6, W12 0, PA11, PA13, PA14, PA15 1 to PA15 4, PA15 9, PA16, PA18 and PA19 23 November 2016 Digital (full service expansion) These postcodes are currently part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.
SN1, SN2, SN3, SN5 1, SN5 6 and SN5 7, SN25 1, SN25 6, SN26, SN38, SN99, LE8 0, LE8 8 and LE8 9, LE17 6 and SN25 3 to SN25 5 30 November 2016 Digital (full service expansion) These postcodes are currently part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.
TS24, TS25 1 to TS25 4, TS26, B95 6, B95 8, CV35 0, CV36, CV37 0 and CV37 1, CV37 6 and CV37 7, CV37 9, TS27 3, B95 5, CV35 9. B50, CV37 8, SW6, SW7 1 to SW7 3, SW3, SW5, SW7 4 and SW10 7 December 2016 Digital (full service expansion) These postcodes are currently part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.
SN4, SN5 0, SN5 3 to SN5 5, SN5 8, SN6 7, SN25 2, TN31 6, TN31 9, TN32, TN33 0, TN34, TN35, TN36, TN37, TN38, SN6 6, TN33 3, TN33 9, TN5, TN19, TN31 7 and TN20 14 December 2016 Digital (full service expansion) These postcodes are currently part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.
LE16 7, LE16 9, NN17 1, NN17 2, NN17 4, NN18 0, NN18 9, SN6 8, NN18 8, NN6 9, LE16 8, NN17 3, NN17 5, SW7 5, TS25 5, PE8 4 and PE8 5 1 February 2017 Digital (full service expansion) These postcodes are currently part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.

NE6 1 and NE6 2, NE6 5, NE6 3 and NE7

8 February 2017

Digital (full service expansion)

These postcodes are currently part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.

WA1, WA2, WA3 4 to WA3 7, WA4, WA5, WA13 0, WA13 9, E3 4 and E3 5, E3 9, E14, SO14, SO15, SO16 2, SO16 4 to SO16 6, SO17, SO18 1, SO18 4, SO18 6, SO18 9, SO19 1 and SO19 2, SO19 4 and SO19 5, SO19 7 to SO19 9, SO18 2 and SO18 3, SO18 5, SO19 0, SO19 6, SO30 0, SO30 3 and SO30 4, SO30 9, SO16 0, SO16 3, SO16 7 to SO16 9, SO30 2, SO40 0, SO40 2 and SO40 3, SO40 8, SO43, E3 2 and E3 3, SO31 4 and SO31 5, and SO31 8

 

22 February 2017

Digital (full service expansion)

From this date these postcodes will become part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.

CV13 0, LE9 8, LE10, LE9 4 and LE9 7

 

8 March 2017

Digital (full service expansion)

From this date these postcodes will become part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.

NE4, NE5 1 and NE5 2, NE5 5, NE5 9, NE15 6 and NE15 7, NE15 8 and NE15 9, and NE15 0

 

15 March 2017

Digital (full service expansion)

From this date these postcodes will become part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.

EH18, EH19, EH20, EH22, EH23, EH24, EH25, EH26 and EH37

 

22 March 2017

Digital (full service expansion)

From this date these postcodes will become part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.

E1 0 to E1 5, E1 7 and E1 8, EC2N 2, EC2V 8, EC2Y 5, EC3A 1, EC3A 4 and EC3A 5, EC3M 2 and EC3M 3, EC3M 8, EC3N 4, EC3R 6, EC3V 0 and EC3V 1, EC3V 4, EC4M 5 and EC4M 6, EC4M 9, EC4R 2, EC4V 2, E1W, EC2A 1, EC2M 3 to EC2M 7, EC2N 1, EC2N 3 and EC2N 4, EC2R, EC2V 5 to EC2V 7, EC2Y 8 and EC2Y 9, EC3A 2 and EC3A 3, EC3A 6 to EC3A 8, EC3M 1, EC3M 4 to EC3M 7, EC3N 1 to EC3N 3, EC3R 5, EC3R 7 and EC3R 8, EC3V 3, EC3V 9, EC4A, EC4M 7 and EC4M 8, EC4N, EC4R 0 and EC4R 1, EC4R 3, EC4R 9, EC4V 3 to EC4V 6, EC4Y, E1 6, EC2A 2 to EC2A 4, EC2M 1 and EC2M 2

 

29 March 2017

Digital (full service expansion)

From this date these postcodes will become part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.

CH5 1 to CH5 4, and CH5 9

 

5 April 2017

Digital (full service expansion)

From this date these postcodes will become part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.

CH6, CH7 1 to CH7 3, CH7 6, CH7 9, CH7 4 and CH8 8

 

12 April 2017

Digital (full service expansion)

From this date these postcodes will become part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.

BA9, BA10, BA20, BA21 3 and BA21 4, BA22 7 and BA22 8, TA10 9, TA11, TA12, TA13, TA14, TA15, TA16, TA17, TA18 7, TA18 9, BA7, BA8, SP7 0, SP7 7 to SP7 9, SP8 4 and SP8 5, SP8 9, BA21 5, BA22 9, DT9 and TA18 8

 

19 April 2017

Digital (full service expansion)

From this date these postcodes will become part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.

M35 0, M35 9, OL1 1 to OL1 4, OL1 9, OL2 5 to OL2 8, OL3 5 to OL3 7, OL4 1 to OL4 5, OL8, OL9 and M35 5

 

26 April 2017

Digital (full service expansion)

From this date these postcodes will become part of the live service. Existing live service claimants will eventually be transferred to the digital full service at some point after the digital go live date.

What are the current plans for further digital roll-out?

Eventually, all live service areas will be replaced by digital (full) service and existing live service UC claimants will be transferred to the digital (full service) service. This has already started in some areas (see table above) and the digital service will continue to roll-out across Great Britain from May 2016 with a completion date of September 2018. Once that process is complete, from mid 2019, DWP will begin migrating all remaining existing benefit claimants to the full UC digital service with a view to completion in 2022. A separate process will be designed for those over state pension age who will move from tax credits to pension credit. However, until that happens, the two systems will run side by side. To further complicate matters, the UC rules are slightly different for digital claimants than for those who are in live service claimants.

UC is planned to roll-out in Northern Ireland from September 2017, you can find more detail in our NI section.

DWP have published details of the Jobcentre areas that will become digital between April 2017 and September 2018 covering Phases 4 to 6.

What happens to live service claimants who live in areas that become digital?

According to the latest publication from DWP, when a current live service area becomes a digital (full) service area, anyone currently claiming UC through the live service will eventually be migrated over into the digital full service. Originally, DWP announced that this would take place within the first 3 months of the area becoming digital, but our current understanding is that they are only testing the process in a small number of areas.

We will update this page when further information is known about the process that will be used to transfer claimants from live to digital service.

Digital service area legislation and guidance

The conditions for claiming UC in digital areas were introduced by the Welfare Reform Act 2012 (Commencement No.20 and Transitory provisions and commencement No.9 and transitional and transitory provisions) (Amendment) Order 2014. This covered the first phase of digital claims in SM5 2 between 26 November 2014 and 20 December 2014.

The Welfare Reform Act 2012 (Commencement No.21 and Transitional and Transitory Provisions) Order 2015 took effect for claims in SM5 2 from 28 January 2015.

The Welfare Reform Act 2012 (Commencement No.23 and Transitional and Transitory Provisions) Order 2015 extended the number of digital areas starting from 18 March 2015 (See table above).

The Welfare Reform Act 2012 (Commencement No.25 and Transitional and Transitory Provisions) Order 2015 extended the digital areas once again from 2 December 2015 (See table above).

The Welfare Reform Act 2012 (Commencement No.26 and Transitional and Transitory Provisions and Commencement No.22, 23 and 24 and Transitional and Transitory Provisions (Modification)) Order 2016 extended the digital areas once again from 27 January 2016 and 24 February 2016.

The Welfare Reform Act 2012 (Commencement No.27 and Transitional and Transitory Provisions and Commencement No.22, 23 and 24 and Transitional and Transitory Provisions (Modification)) Order 2016 extended the digital areas from 23 March 2016 and 27 April 2016

The Welfare Reform Act 2012 (Commencement No.13,14,16,19,22,23 and 24 and Transitional and Transitory Provisions (Modification)) Order 2016 starts the digital full expansion for 25 May 2016, 29 June and 27 July 2016

The Welfare Reform Act 2012 (Commencement No.19,22,23 and 24 and Transitional and Transitory Provisions (Modification)) Order 2016 sets out the digital full expansion for 5, 12, 19 and 26 October 2016, 2, 9 and 23 November 2016 and 7 and 14 December 2016.

The Welfare Reform Act 2012 (Commencement No. 11, 13, 16, 22, 23 and 24 and Transitional and Transitory Provisions (Modification)) Order 2017 (SI.No.57/2017) sets out the digital full expansion for February, March and April 2017.

Two other key pieces of legislation amended the existing UC rules for digital areas:

DWP guidance – Memo ADM 26/14 sets out the changes made by the Digital Service Amendment Regulations.

See also ADM’s 2/15, 8/15, 22/15 1/16, 10/16, 14/16, 23/16 and 1/17 available on GOV.UK.

Who can make a claim for UC in digital service areas?

Any person who resides in a digital service area postcode is eligible to make a claim for UC (however they may not necessarily be entitled to UC). If UC is then awarded they become known as a ‘digital service claimant’.

There is an exception to this where a person has provided incorrect information about their postcode. Broadly this means that if the UC claim has been decided and a payment made, the claimant stays in UC even if their postcode is not actually a digital postcode.

Note that on 20 July 2016, DWP announced that in order to help the implementation of the new two child policy for tax credits and universal credit, all direct new claims from families with more than two children would be to tax credits rather than UC until November 2018. No further detail is available, but we expect that the rules for digital service areas will be amended to accommodate this change. We will update as soon as further information is available.

Between 26 November 2014 and 9 June 2015, there was also a requirement to meet the ‘specified condition’ in digital service areas. The specified condition was that the claimant was a British Citizen who:

Claims for UC based on incorrect information

Where a claimant gives incorrect information about living in a digital postcode and this is not discovered until after a decision has been made about their UC claim and at least one payment is made then they will remain entitled to UC.

If this incorrect information is discovered before the award of UC is made, the claimant will be informed they are not entitled to UC. If they then make a claim for WTC or CTC within one month of being told they are not entitled to UC, their tax credit claim will be treated as made on the date that the claim for UC was made. Similar rules apply where an award of UC is made but no payment is made. In that case the UC claim ceases to have effect immediately.

What UC rules are different in digital service areas?

As well as having different conditions about who is eligible to claim, the main UC rules are also slightly different to those in live service areas.

The differences outlined here apply to anyone who is designated a ‘digital service claimant’. This is defined by DWP as a person who has become entitled to an award of UC

(a) By reference to residence in a digital area postcode (see table above)

(b) By forming a couple with a claimant who was previously awarded UC when they lived in a relevant district

(c) By forming a couple with a claimant who was awarded UC as in paragraph (b) or

(d) By forming a couple with a claimant who was awarded UC as in paragraph (c)

The differences also apply to any Live Service awards of UC made to:

DWP guidance (ADM 26/14) gives the following example of how this works in practice:

Moira lives in relevant district No.28 (a digital area). She is awarded UC as a single claimant when she becomes unemployed. Moira joins her partner Alex, who is also unemployed and entitled to UC, and lives in relevant district No.20 (a live service area). They are awarded UC as joint claimants. Later, Moira leaves the household and is entitled to UC as a single claimant. Alex is joined by a new partner, Laura, and they are entitled to UC as joint claimants. Moira, Alex and Laura are all digital service claimants.

This means that Alex and Laura become digital service claimants even though they live in a live service area. Alex becomes a digital claimant because of his relationship with Moira (under (b) above). Laura becomes a digital claimant because of her relationship with Alex (under (c). This is likely to cause a great deal of confusion.

There are differences in relation to childcare costs, assessment periods, re-claims and calculation of unearned income. ADM 26/14 explains these differences in more detail. From April 2018 (postponed from April 2016), new rules in relation to surplus earnings and self-employed losses will also apply to digital service claimants as outlined above.

For claimants who move from or to a digital service area see our moving area section.

Claims for tax credits in digital service areas

The general rule is that a person may not make a claim for tax credits (whether or not as part of a couple for tax credits purposes) on any date if, had they made a claim for UC on the same date, they would have been eligible to claim UC. This means that people living in a digital area postcode will no longer be able to make a claim for tax credits (unless one of the exceptions below applies).

In this context, a claim for tax credits is made on the date on which the claimant takes action under specified legislation which results in a claim being required. It is irrelevant that under TC legislation the claim is made or treated as made on an earlier date.

This means it is the date that HMRC receive the tax credit claim form that is relevant when considering whether the person would have been entitled to UC on that same date. It takes no account of potential backdating which means the normal one month backdating as well as longer backdating for refugees and those who qualify for the disability element (in some cases).

Exceptions to the general rule

There are some exceptions to the general rule:

1. For those who have reached state pension credit age and who live in a digital area, tax credit claims can still be made by:

(a) A person who has reached the qualifying age for state pension credit

(b) A tax credits act couple where both members or one member has reach state pension credit age

(c) Where (a) does not apply, a person who is a member of a State Pension Credit Act couple where the other member of the couple has reached state pension credit age

2. Where a person (or couple) makes a claim for CTC or WTC and on the date that they claim he or she (or they) is or are already entitled to WTC or CTC respectively. This protects existing tax credit claimants, for example a couple who are claiming CTC and want to start work can add WTC to their claim. (See our section on treating people as entitled to tax credits to find out the meaning of the term ‘entitled’ for this purpose.

3. Where a person (or couple) was entitled to tax credits in respect of a tax year and that person (or couple) makes or is treated as making a claim for tax credits for the next tax year. Tax credit claims only last a maximum of one tax year. This exception protects people who renew their claims, which in effect is the same as making a brand new tax credit claim. See our section on treating people as entitled to tax credits to find out the meaning of the term ‘entitled’ for this purpose.

4. From 18 March 2015, the general rule does not apply where the person is prevented from making a claim for Universal Credit. See ADM M3 (M3003). This is where the Secretary of State may determine not to accept any particular claims for UC temporarily in order to safeguard the efficient administration of UC or to ensure the effective testing of systems for the administration of UC. This power was introduced by SI 1626/2014.

The claim process

If a claimant in a digital area makes a claim for tax credits (by sending in a TC600 claim form), HMRC will consider their claim and if they think the person should claim UC instead they will issue a letter TC601U. They will do this where the person lives in a digital area postcode and they (or their partner) have not reached state pension credit age. This letter states that the person does not qualify for tax credits because they live in a postcode where UC must be claimed, however as it is a decision under Section 14 Tax Credits Act 2002, it does carry normal tax credit appeal rights.

Existing tax credit claimants in digital service areas

Existing tax credit claimants are currently unaffected by the roll-out of UC. Their awards of tax credits will continue at present until DWP introduce rules to migrate those people across to UC. DWP current plans are to migrate remaining tax credit claimants to UC from July 2019 to March 2022.

At present, existing tax credit claimants will only be affected if they either choose to move to UC, they have a change that ends their tax credit award or they need to make a claim for another legacy benefit:

Choosing to move to UC

There appears to be nothing stopping an existing tax credits claimant from choosing to claim UC in a digital area. If an existing tax credit claimant makes a claim for UC and DWP believe they meet the basic conditions for UC (except for the claimant commitment), their tax credits award will end automatically. It is therefore important that claimants do not make a mistake and try and claim UC – if they do then our understanding is that their tax credits award will be terminated automatically and they will not be able to re-claim tax credits because they live in a digital area. See our tax credits and UC section for more information.

Although the legislation works in such a way as to bring a tax credits award to an end when a UC claim is made, and the process between DWP and HMRC is such that there should be notification to HMRC to end the tax credits claim, we would advise that claimants report the situation to HMRC in case the process breaks down.

Tax credit claimants will need to seek advice from a welfare rights specialist before deciding to make a claim to UC. Some people will be better off under UC than existing legacy benefits, but many people will be worse off financially and UC claimants are subject to conditionality rules that tax credits claimants are not.

As a general rule you cannot be entitled to tax credits and UC at the same time. The only exception to this is during the first assessment period for UC after two people become a couple and the tax credit award of the ‘new claimant partner’ terminates after the first date of entitlement to UC. This is because in such a case UC rules may treat the claim as made at an earlier date than the TC termination date.

In this situation, if a claim for UC is made (or is treated as having been made) and the person (or persons) meet the basic conditions for UC (except for the claimant commitment requirement) then all awards of tax credits for which there is entitlement (on the date of the UC claim) will terminate on:

This will be the case even if under Tax Credits legislation the award would terminate on a later day. See our section on treating people as making a tax credits claim for situations where someone would treated as entitled to tax credits under UC legislation.

Moving to UC due to a change of circumstances ending a tax credit claim

Where a tax credit claim ends because of a change of circumstances – for example a couple separating or a single person forming a couple or a WTC only claimant who loses their job, then in order to continue receiving support, they will need to claim UC unless one of the exceptions above applies.

Where a single tax credit claimant (the new claimant partner for UC purposes) forms a couple with an existing UC claimant, the new claimant partner will have their tax credit award terminated for the current tax year on:

Moving to UC due to claiming another legacy benefit

If an existing tax credit claimant in a digital postcode has a change of circumstances that means they need to make a claim for income-based jobseeker’s allowance, income-related employment and support allowance, income support or housing benefit then they will need to claim UC instead because those benefits are no longer available in digital postcode areas. This means that their tax credits award will come to end automatically once they have submitted a claim UC and DWP are satisfied they meet the basic conditions for UC.

Examples of situations where this may happen include:

Withdrawal of cash cheques in tax credits and child benefit from 31 March 2017

Tax credits - HMRC digital services

Tax Credits: Contacting HMRC about tax credits

This section of the site gives you information about the different ways of contacting HMRC about tax credits. It also gives information about security procedures in place when contacting the tax credits helpline. 

Contacting HMRC

Telephone

The main telephone number is the tax credit helpline: 0345 300 3900 (textphone 0345 300 3909). From abroad, you can ring +44 2890 538 192. The helpline is open 8am-8pm, Mondays to Fridays, 8am-4pm on Saturdays and 9am -5pm on Sundays  (closed Christmas Day, Boxing Day and New Year’s Day).

The telephone line is very busy and HMRC say the best times to call are between 8.30 am and 10.30 am and 2pm to 4pm, Tuesdays to Thursdays.

HMRC use an automated response system to direct callers to the helpline (sometimes referred to as ITA). This is designed to help direct callers to relevant information on the GOV.UK website, provide basic generic messages which may help answer some queries and direct the call to an adviser who can help with the call query. The system relies on speech recognition and LITRG have produced a helpful guide to offer some useful hints and tips on using this system (please note the e-mail options to notify changes of name/address are not currently relevant for tax credits).

From January 2017, some callers to the helpline will be able to sign-up for Voice ID. The claimant will be required to say a phrase five times to register for the service and when they call in future, they can be verified based on their voice. See our blog post for further information.

This number can be used to: 

Advisers who are from registered organisations can use the intermediaries helpline as an alternative to the helpline for a similar range of issues. More information can be found in our intermediaries section.

Tax credit digital services

HMRC are gradually introducing changes which are line with the Government’s drive for increased digital services.

HMRC are developing an on-line service called the Personal Tax Account for all individuals to be able to transact with them digitally. The personal tax account covers a variety of services provided right across HMRC lines of business, covering income tax, tax payments, self-assessment returns and it also includes the tax credit on-line service. The tax credit on-line service is called ‘Manage your tax credits’ and can be accessed either directly from Manage your tax credits, or via the personal tax account by following the links to the tax credit part of the personal tax account.

Claimants can manage their tax credits online through GOV.UK www.gov.uk/manage-your-tax-credits. Here they can report most changes of circumstances, find out how much their next payment will be and when it's due, and complete their renewal after they receive their renewal pack.

To use this service, tax credit claimants need to register with the Government Gateway service. Claimants can use their existing account if they already use Government Gateway for self-assessment, others will need to set up a Government Gateway account. Each time a person uses their Government Gateway account, they will need to have a mobile phone or landline telephone nearby to receive a unique 6-digit code which will be sent automatically to them as they ‘log-in’. The service is accessed via GOV.UK.

This service is available via the GOV.UK website. It offers people the chance to chat to an HMRC adviser via the website, either on general matters or specific to a tax credit award.

Webchat can be accessed via the GOV.UK contact page. Also where a person is using the ‘Manage your tax credits’ service, and so has been through security steps, webchat is also available to deal with matters specific to their claim. An option to use the webchat service will automatically appear after a short while.

Webchat is generally available, although not 24 hours a day and is reliant on HMRC advisers being available.

The HMRC App is available for people who have a compatible smart phone (android and I-phone). It is free to download from the ‘app store’ and provides a variety of digital services across HMRC lines of business. Tax credit claimants can check the amount and due date of their next payment using the App, and they can notify most changes of circumstances and complete their tax credit renewals.

Claimants can use fingerprint identification available on certain devices to enable them to access the App. HMRC does not receive or have access to any fingerprint data, the app makes use of features that are built into the user’s handset.

By post

New claims should be sent to:

HMRC - Tax Credit Office
Liverpool
L75 1AZ

Renewal forms should be sent to:

HMRC - Tax Credit Office
Comben House
Farriers Way
Netherton
L75 1AX

Claimants can report changes via the tax credit helpline (details above). Changes can also be reported in writing to:

Change of circumstances
HMRC - Tax Credit Office
BX9 1ER

More information about reporting changes can be found in our how to notify changes section.

Disputes can be sent in writing to the following address marked for the attention of the ‘dispute team’ or ‘complaints team’.

Tax Credit Office
Preston
PR1 4AT

Complaints
HMRC - Tax Credit Office
BX9 1ER

Once a dispute or complaint is received by HMRC, a letter should be sent acknowledging receipt and giving the claimant a named caseworker and direct dial number.

(Including disputes, mandatory reconsiderations, appeals etc)

HMRC – Tax Credit Office
Preston
PR1 4AT

Face to face advice

Historically, HMRC had enquiry centres that claimants were able to visit, albeit they were advised to arrange an appointment first.

In March 2012, HMRC announced that they would replace their Enquiry Centre network with a new system of support for taxpayers and tax credits claimants who need extra help with their tax affairs. Following a pilot in the North East of England to test the new approach, which included closing several Enquiry Centres, HMRC decided that the benefits of the new service offered a better system of support for customers. The new service was rolled out across the UK at the end of May 2014, with a programme of closure seeing the remaining Enquiry Centres all closed by 30 June 2014. You can read HMRC’s briefing note on the GOV.UK website.

The service means that the telephone helplines are the initial way that customers can speak to HMRC. Customers who are identified as needing extra help (according to criteria HMRC have developed) will then be offered support best suited to them, this might still be by phone, but with a specialist telephone adviser who can deal with the queries in-depth or by arranging a set time to call or perhaps a face to face meeting with someone from HMRC at a place convenient to the customer, calling on a team of HMRC specialist mobile advisers. More information can be found here.

Claimants with disabilities may need face to face advice by way of home visit. Following the closure of HMRC enquiry centres, claimants who are deaf, hard of hearing or have a speech impairment and are unable to use the telephone can use an online form to request a face to face appointment.

Claimants with disabilities

For those who have disabilities, effectively communicating with HMRC can be difficult. At present, no central computer system records special needs that a claimant might have, therefore reference should be made in all communications of any specific needs that HMRC should be aware of.

HMRC do provide special services for those with particular needs. A full list of all services is published on GOV.UK.

HMRC’s improved digital services, which are also optimised for people who use screen readers, may offer a more suitable alternative for some.

Claimants with disabilities may need face to face advice by way of home visit. Following the closure of HMRC enquiry centres, claimants who are deaf, hard of hearing or have a speech impairment and are unable to use the telephone can use an online form to request a face to face appointment.

Translation services

HMRC offer translation services to those whose first language isn’t English.

According to their information:

'HMRC will allow a friend or family member to interpret for customers who don't speak English as a first language. When you contact one of HMRC's helplines they will ask you if you have a friend or family member who is willing to interpret for you and if you are happy for them to do so. This friend or family member needs to be over 16 years of age and should be with you when you call HMRC.

If you do not have or do not wish to use a friend or family member, HMRC offers a free language interpretation service. You can use this service when you telephone HMRC or when you come in to an HMRC Enquiry Centre. You can contact one of our helplines or your Tax Office and they will arrange this service, but please give them as much notice as possible.'

Useful tips when contacting HMRC

When dealing with overpayments, issues often arise about whether a claimant has reported a particular change or whether they have been given incorrect advice by HMRC. It is much easier to dispute an overpayment if the claimant has evidence of their contacts with the department. We recommend that claimants:

Security arrangements

In late 2009, HMRC introduced a new security process on the tax credit helpline called IDAS (ID Authentication Service). All claimants who contact the tax credit helpline will be asked to go through the new security. This includes people contacting the helpline to request claim forms.

How does IDAS work?

IDAS uses information held by credit reference agency Experian, combined with HMRC’s own data to verify the callers identity.

The first time a claimant calls, they will be asked whether they consent to HMRC using Experian data. HMRC will need the claimants NINO, DOB and name at this point. If the claimant agrees to this, they will be asked questions based on the Experian data. The helpline advisers cannot see a full credit report, they will be prompted by the system with only certain questions based on that credit report. Questions will be things like ‘Who is your mobile phone contract with?’.

If the claimant does not consent, or there is not enough data from Experian to generate these questions, the claimant will be asked questions based on HMRC information drawn from various sources.

Once this process has been successfully passed, the claimant will be asked to set up some shared secrets which will be used to identify them on subsequent calls. If the claimant declines to set up shared secrets they will need to go through the whole process again on their next call.

What if a claimant fails IDAS or the process cannot be completed?

Representatives from the Benefits and Credits Consultation Group (BCCG) have reported instances of claimants being told that the process cannot be completed where there is not enough data to generate the questions.

In other cases, claimants have been asked difficult questions that they have not been able to answer.

In both circumstances, the helpline will advise the claimant that they must have a face to face meeting and provide documentation to prove their identity. Only once this process has been completed will HMRC allow the claimant to transact over the phone.

The helpline should make arrangements with the Needs Enhanced Support (NES) team and the claimant should receive a call from that team within 48 hours to make an appointment and advise what documentary evidence is needed. Claimants who are requesting claim forms should get an appointment within 5 days.

If the claimant provides this documentary evidence, the NES adviser should set up the shared secrets in the same way as the helpline.

How does IDAS affect intermediaries?

Intermediaries should not be asked to go through the IDAS process. It is for claimants only. The normal security questions for intermediaries (based on the TC689) and agents (64-8) should continue to be used.

If an intermediary does not have an authority in place, but has the claimant with them, the helpline will ask the claimant to go through the IDAS process. Once the security check is passed, the claimant can ask the helpline adviser to speak directly to the intermediary.

Tax credit helpline now open on Sundays

Alert - Child Trust Fund

Tax-free childcare: Statutory instruments

In this section you will find statutory instruments relating to tax-free childcare in their original form.  

Main tax-free childcare regulations

Childcare Payments (Eligibility) Regulations 2015 (SI.No.448/2015)

Childcare Payments Regulations 2015 (SI.No.522/2015)

Childcare Payments (Appeals) Regulations 2016 (SI.No.1078/2016)

Up-rating and amending regulations

Childcare Payments Act 2014 (Commencement No. 2) Regulations 2016 (SI.No.1083/2016)

Childcare Payments (Eligibility) (Amendment No. 2) Regulations 2016 (SI.No.1021/2016)

Childcare Payments (Amendment No. 2) Regulations 2016 (SI.No.1017/2016)

Childcare Payments (Amendment) Regulations 2016 (SI.No.796/2016)

Childcare Payments (Eligibility) (Amendment) Regulations 2016 (SI.No.793/2016)

Childcare Payments Act 2014 (Commencement No. 1) Regulations 2016 (SI.No.763/2016)

Tax Credits (Claims and Notifications) (Amendment) Regulations 2015 (SI.No.669/2015)

Childcare Payments Act 2014 (Amendment) Regulations 2015 (SI.No.537/2015)

Tax Credits: Statutes - Consolidated

With thanks to LexisNexis and Tolley Tax Intelligence for sharing their consolidated tax credit legislation with us.

Tax Credits Act 2002 -

Welfare Reform Act 2012 -

Tax Credits: Statutory instruments – Consolidated – Alphabetical

The consolidated legislation includes footnotes indicating amendments to legislation; cross-references; definitions; and additional helpful material including HMRC briefs and cross-references to HMRC’s internal guidance manuals.

They are displayed here alphabetically, but you can also view them chronologically.

Tax Credits: Statutory instruments – Consolidated – Chronological

The consolidated legislation includes footnotes indicating amendments to legislation; cross-references; definitions; and additional helpful material including HMRC briefs and cross-references to HMRC’s internal guidance manuals.

They are displayed here in chronological order, but you can also view the regulations alphabetically.

Tax credit and child benefit appeals – HMRC change their letterhead and contact details

Child Tax Credit – backdating the disability and severe disability rates to April 2016

Tax Credits: Rates and tables

Stop press: the 2017/2018 tax credit rates were issued on 23 November 2016 alongside the 2016 Autumn Statement.

Tax credits annual and daily rates

DWP benefit rates

Child Benefit and Guardian’s Allowance: Rates and tables

Stop press: the 2017/2018 child benefit and guardian's allowance rates were issued on 23 November 2016 alongside the 2016 Autumn Statement.

Child benefit

Child benefit rates are usually updated yearly in April. The rates are weekly amounts.

 

Only / eldest child or
qualifying young person

Any subsequent child
or qualifying young person

2016/2017 £20.70 £13.70

2015/2016

£20.70

£13.70

2014/2015

£20.50

£13.55

2013/2014

£20.30

£13.40

2012/2013

£20.30

£13.40

2011/2012

£20.30

£13.40

2010/2011

£20.30

£13.40

2009/2010

£20.00

£13.20

2008/2009

£18.80/£20.00*

£12.55/£13.20*

2007/2008

£18.10

£12.10

2006/2007

£17.45

£11.70

2005/2006

£17.00

£11.40

2004/2005

£16.50

£11.05

* - from 5 January 2009.

Guardian's allowance

The weekly rate of guardian's allowance is per child and in addition to child benefit.

 

 Weekly rate

2016/2017 £16.55

2015/2016

£16.55

2014/2015

£16.35

2013/2014

£15.90

2012/2013

£15.55*

2011/2012

£14.75*

2010/2011

£14.30

2009/2010

£14.10

2008/2009

£13.45

2007/2008

£12.95

2006/2007

£12.50

2005/2006

£12.20

2004/2005

£11.85

*- the increase in the 2011/12 and 2012/2013 rate of guardian's allowance does not apply to payments being made to a person living abroad. See SI.No.1039/2011 and SI.No.845/2012 for details.
 

Changes to HMRC intermediaries line

Tax Credits: Calculating tax credits income

This section of the site explains about how to calculate income for tax credit claims. It's important to note that where a claimant has their tax credits terminated because they are moving to universal credit, there are new rules on how to calculate income in those cases. Please see our universal credit section for more information.

Unlike most social security benefits, for tax credits the gross income is used (i.e. before tax and national insurance contributions are deducted).

This will sometimes necessitate a calculation to add the tax back to income which is received, or deductions from income which are paid, net. This is shown in the example below.

Example

James and Jemima have the following sources of income for 2015/16.

 

£

James’s salary

16,000

Profits from Jemima’s business

18,000

Army disability pension*

2,300

Net bank savings interest (joint)

760

ISA dividend (joint)*

140

Rental income/profit (joint) **

 3,500

Total

40,700


James paid a net amount of £2,305 into a stakeholder pension, and he and Jemima jointly made gift aid donations of £702 net.

Their initial 2016/17 tax credits award will be based on their joint income for 2015/16 (as above) and is calculated as follows.

Step 1

Investment income (bank savings)

£

£760 x 100/80***

950

Property income

3,500

Sub-total

4,450

Less disregard

-  (300)

Total

4,150


Step 2

Employment income (James)

16,000


Step 3

Total of steps 1 and 2

20,150


Step 4

Add trading income (Jemima)

18,000

Total

38,150


Less deductions

Pension contributions (James) grossed up****:

£2,305
x 100/80

2,881

Gift aid donations grossed up****:

£702
x 100/80

878

Total deductions

 

- (3,759)

Total joint tax credits income

 

34,391


*Both Jemima’s army disability pension and the joint ISA dividend are disregarded for tax credits purposes.

**This is rental income from a property James and Jemima do not live in and is, therefore, not eligible for rent-a-room relief.

*** A gross income figure is used for tax credits, i.e. before tax and national insurance contributions are deducted. Income from savings is paid net, after deduction of basic rate tax at 20%. To arrive at the gross amount, apply the fraction 100/80 to the net payment.

****Similarly, pension contributions and gift aid payments are made net by the contributor or donor and the amount needs to be ‘grossed up’ at the basic rate of 20%.

Pension contributions and Gift Aid Payments

The gross amount of pension contributions to an approved pension scheme and of authorised Gift Aid payments should be deducted from the gross income figure.

For pension contributions, it is important to check how the contributions are paid, as referring simply to the ‘grossed-up’ amount can be misleading.

Where pension contributions are paid out of net income (i.e. out of income after tax and national insurance contributions are deducted), then the pension contributions should be grossed-up and deducted from the claimants taxable income figure.

Where pension contributions are paid out of gross income (i.e. before any tax or national insurance contributions are deducted), then no adjustment or ‘grossing-up’ is needed because relief has already been given for the pension contributions when calculating the person’s taxable income.

Example

The following shows how this works in practice. Tax credits require the person to declare the taxable income less 100% of any pension contributions.

Person 2 will have a P60 that will show £16,800 (which is £18000 minus £100 x 12 pension contributions) and so they need make no adjustments for their pension contributions.

Person 3 will have a P60 showing taxable pay of £18,000. They can deduct their pension contributions. In this case the £80 a month is grossed up to take account of the tax relief of 20% that is added to the pension fund via tax relief from HMRC. This means the person can deduct a £100 x 12 = 1,200 and declare £16,800 to HMRC.

The result is that both people with pension contributions end up having their tax credits based on the same figure. Without the adjustment made by Person 3, this would not happen.

 

Person 1 – No pension

Person 2 – Occupational pension

Person 3 – defined pension contribution scheme through employer

Pension deduction type

None

Deducted from gross pay before tax and NI are deducted

Deducted from net pay (after tax and NI are deducted)

 

Annual salary

£18,000

£18,000

£18,000

Gross pay per month

£1500

£1500

£1500

 

Less personal allowance

£(916.66)

£(916.66)

£(916.66)

Less pension contribution from gross pay

0

£(100.00)

0

Pay on which tax is due

£583.34

£483.34

£583.34

Tax due

£(116.66)

£(96.66)

£(116.66)

NI due

£(109.99)

£(109.99)

£(109.99)

Less pension contribution from net pay

0

0

£(80.00)

(The scheme claim 20% tax relief from HMRC - £20 making a total into the pension pot of £100)

Net income

£1,273.35

£1,193.35

£1,193.35

 

 

 

 

Income to declare to tax credits

£18,000

£16,800

£16,800

(2016-17 rates and allowances)

Specific income categories

The guidance notes provided by HMRC follow the claim form TC600 and show the claimant the information to include when making a claim.

HMRC - new services coming in 2017

HMRC tax credit survey

Tax tribunals – invitation to provide feedback on the new Tax Tribunals service

Tax Credits: Current Forms, notices and checklists

Below you will find copies of current HMRC forms, notices and checklists relating to tax credits.

If you would like to see previous versions of these products or forms that are no longer produced you can find them in our archived forms, notices and checklists section. You can also find a full list of forms and letters used by HMRC in the tax credits manual on the HMRC website.

NB - You can request printed versions of the following forms by calling the tax credits helpline on 0345 3003900 -

Universal credit: Benefit cap

With the introduction of Universal Credit comes the Benefit Cap, as part of the Government’s Welfare Reform agenda. The benefit cap basically means that there is an upper limit on the amount of benefit that working age claimants who are out of work can receive.

What is the benefit cap?
How much is it?
What benefits count towards the cap?
How does it work with Universal Credit?
Northern Ireland
More detailed information

What is the benefit cap?

From April 2013 a cap was gradually introduced on the total amount of benefit that working-age claimants can receive, with the intention that householdson out of work benefits do not receive more in benefit than the average weekly wage, after tax and national insurance.

Initially the cap was administered by local authorities via housing benefit and was rolled out gradually to various local authorities between April and end September 2013.  

Since October 2013 it has also applied to all new claims to Universal Credit including those migrated from existing benefits. There is a Benefits Cap calculator available on the GOV.UK website

The benefit cap was introduced in Northern Ireland from 31 May 2016.

How much is it?

The current cap is:

Outside of Greater London Borough -

If you live in a Greater London Borough

Before the 7 November 2016, the cap was higher. Between 7 November 2016 and 12 December 2016 the new cap was phased in. The total level of entitlement to welfare benefits was limited to £500 a week for couple and lone parent households and £350 a week for single households. For Universal Credit these amounts were converted to monthly figures to match Universal Credit’s monthly assessment period. For couples and lone parent households the cap was £2167 and for single adults it was £1517 per month.

What benefits count towards the cap?

The benefits currently taken into account in calculating the cap are:

The cap does not apply if anyone in the household is receiving WTC, Guardian's Allowance or certain disability benefits. See the GOV.UK website for a full list of these benefits.      

How does it work with Universal Credit?

The benefit cap is relevant to the final stage of calculating entitlement to UC. Firstly, the amount of excess must be calculated. This is the amount that the UC entitlement (plus any of the other benefits listed above) exceeds the benefit cap minus any amount included in the award for childcare costs. This ensures that childcare costs are protected from the cap. No reduction is applied if the childcare costs exceed the excess amount.

There are some other exceptions to the cap. The cap does not apply where:

Northern Ireland

The cap was introduced in Northern Ireland from 31 May 2016.

In Northern Ireland, ‘Welfare Supplementary Payments' can be paid to any households with children who have their Housing Benefit reduced due to the benefit cap. The payments should match the amount by which their Housing Benefit is reduced, effectively meaning they are no worse off. These payments will remain available until 31st March 2020.

More information

For more information about the changes from 7 November 2016 see ADM memo 27/16

GOV.UK website

DWP ADM guidance

Universal Credit Regulations

House of Commons Library briefing paper (Nov 2016)

Universal credit: Passported benefits

The extent to which eligibility to Universal Credit passports the claimant(s), and their household, to other ‘passported’ benefits, such as free school meals and health costs remains under review. The expectation is that entitlement to passported benefits will be withdrawn as earnings increase, although the exact mechanism and whether it will be consistent between different passported benefits is yet to be announced.

In March 2012, the Social Security Advisory Committee were asked to produce a report about the impact of passported benefits on UC.

Each Government department will be setting its own criteria and therefore advisers will need to check the latest information for the relevant passported benefit.

During the current roll-out phases, some Government departments have announced that any amount of UC will give entitlement to their passported benefit. This is a temporary measure during  and further announcements and consultations are expected as UC rolls-out nationally.

The following links are to information and  announcements about the different passported benefits:

Healthy Start Scheme

From 1 November 2016, Universal Credit is a qualifying benefit for the Healthy Start Scheme for pregnant women, mothers and children who are either entitled to or who are the responsibility of a person entitled to universal credit,with an earned income (after deduction of tax, national insurance and pension contributions) of £408 or less per assessment period. The £408 earnings threshold is to be met in either the most recent complete assessment period or the assessment period immediately preceding it. In the latter case, entitlement continues for a further 8-week run-on period if earnings continue to exceed the earnings threshold (NHS)

Free School Meals (Department for Education)

In England, a child may be able to get free school meals if the parent/guardian gets any amount of Universal Credit. In Scotland, you can claim free school lunches if you are receiving any amount of Universal Credit. In Wales, you can claim free school meals if you are receiving any amount of Universal Credit.

Health costs

You qualify for help with health costs in England if you:

If you are part of a couple, then these thresholds apply to your combined income

According to the NHS website, currently not all health costs claim forms have a tick-box for UC. In those cases the box for income-based Jobseeker’s Allowance should be ticked instead.

In Wales, you qualify for help with certain health costs if you are in receipt of UC. See the Welsh Government website for more information.

In Scotland, you qualify for help with health costs if you are in receipt of UC. See the Scottish Government website for more information.

Other passported benefits

There are many other passported benefits that may be relevant for UC claimants. The following links take you to the relevant information:

Post Office Card Account (POCA) holders

Tax Credits: Upper Tribunal decisions (by topic)

You can use the list below to view cases under each topic. In some instances, the cases cover more than one topic therefore some cases will appear in more than one topic group.

Children

Couples / undeclared partner

Immigration & Residency

Income

Work

Backdating

Disability

Tax credit elements

Claims and processes

Notifications

Appeals

Official error

Tax Credits: Upper Tribunal decisions (chronological)

In this section you will find all Tax Credit decisions from the Upper Tribunal, listed in chronological order.

Tax Credits: Statutory instruments - Up-rating and amending legislation

Below are all original up-rating and amending tax credit legislation.

They are displayed here in chronological order.

Uprating Regulations -

Miscellaneous Amendment Regulations -

Amendments to the Working Tax Credit (Entitlement & Maximum Rate) Regulations 2002 -

Amendments to the Child Tax Credit Regulations 2002 -

Amendments to the Tax Credits (Claims and Notification) Regulations 2002 -

Amendments to the Tax Credits (Definition and Calculations of Income) Regulations 2002 -

Amendments to the Tax Credits (Appeals) Regulations 2002 -

Amendments to the Tax Credits (Residence) Regulations 2003 -

Amendments to Working Tax Credits (Payment by Employers) Regulations -

Amendments to the Income Thresholds and Determination of Rates Regulations 2002 -

Commencement Orders -

Amendments to the First-tier Tribunal and Upper Tribunal rules and procedures -

Other Amendment Regulations -

Concentrix - further update for advisers

Universal credit: Live service areas

This page explains the live service and what it means for new tax credit claims as well as for existing tax credit claimants.

What is a live service area?
Who can claim in live service areas?
Current gateway conditions
Claims for UC based on incorrect information
Claims for tax credits in live service areas
Existing tax credit claimants in live service areas
Transferring from live service to digital service

What is a live service area?

When UC started in April 2013, the IT system used was developed by private contractors. Following a programme ‘reset’, DWP decided to build their own digital IT system that would run alongside the existing system. Areas using the original system are known as ‘live service areas’.

All UC areas will be live service areas unless they are a designated digital area. Live service areas continued to roll-out until April 2016 in order to test and learn processes and policy. From May 2016, live service areas will gradually become digital (full) service areas and all existing live service claimants will be transferred to the digital IT system. 

It is important to understand whether an area is a live service area or digital service area because the main UC rules are different between the two. In addition, some areas that are currently live service will be changed to digital service at some point in the future and advisers will need to understand the process for transferring between the two systems.

Who can claim in live service areas?

Only claimants who meet the ‘gateway conditions’ in place for that area are eligible to make a claim for UC. If the person meets the gateway conditions and lives in a postcode that is accepting UC claims, then they are able to submit a claim. However the gateway conditions should not be confused with the entitlement conditions of UC. Even if a person meets the gateway conditions, it does not mean they will necessarily be entitled to UC. We explain the main entitlement conditions for UC in our Universal Credit section.

Gateway conditions were introduced from 16 June 2014 (prior to that date pathfinder conditions applied). However, they have changed a number of times since that date. To add further complexity, the gateway conditions vary from postcode to postcode.

In the majority of live service areas, claims can only be made by single, childless jobseekers who meet other strict conditions. However in some live service areas, claims can be made by couples and families with children who meet other strict conditions.

We have produced a PDF roll-out document that explains which gateway conditions apply to each postcode.

As with the digital service area, there is a general power that states the Secretary of State may determine not to accept any particular claims for UC temporarily in order to safeguard the efficient administration of UC or ensure the effective testing of systems for the administration of UC.

Current gateway conditions

If a claimant lives in relevant districts No.1 to No.28, then the gateway conditions in this document will apply at the date of claim. These districts accept claims from couples and families with children (subject to some exceptions).

If the claimant lives in any other relevant district (except those designated as digital areas) then the gateway conditions in this document will apply at the date of claim.

The date of claim for UC is normally the date it is received or if later, the first day for which the claim is made. Where a couple is treated as having made a claim for UC, the date on which the claim is treated as having been made is the date they form the couple. More information can be found in DWP ADM Chapter A2.

You can read more detail about the gateway conditions in ADM Chapter M3.

Claims for UC based on incorrect information

Where a claimant gives incorrect information about living in one of the relevant districts or meeting the gateway conditions and this is not discovered until after a decision has be made and at least one payment is made then they will remain entitled to UC.

If this incorrect information is discovered before the award of UC is made, the claimant will be informed they are not entitled to UC. If they then make a claim for WTC or CTC within one month of being told they are not entitled to UC, their tax credit claim will be treated as made on the date that the claim for UC was made. Similar rules apply where an award of UC is made but no payment is made. In that case the UC claim ceases to have effect immediately.

Claims for tax credits in live service areas

If a person meets the gateway conditions in a live service area that is accepting UC claims, then they can claim UC.

Our understanding of the current rules is that there is an element of choice, so that if someone meets the gateway conditions but would rather claim tax credits then they can do so. There is nothing stopping HMRC from accepting a tax credit claim from someone living in a live service area who meets the gateway conditions. That same choice does not exist with all legacy benefits – for example where the gateway conditions are satisfied a claim for UC or Jobseekers Allowance or Employment and Support allowance results in the abolition of income-based JSA and income-related ESA for that claimant so they can’t be claimed instead of UC.

The general rule is that a claimant is not entitled to tax credits for any period where they are entitled to UC. The only exception to this is during the first assessment period for UC after two people become a couple and the tax credit award of the ‘new claimant partner’ terminates after the first date of entitlement to UC. This is because in such a case UC rules may treat the claim as made at an earlier date than the TC termination date.

Existing tax credit claimants in live service areas

Existing tax credit claimants are currently unaffected by the roll-out of UC. Their awards of tax credits will continue at present until DWP introduce rules to migrate those people across to UC. Existing claimants will only be affected if they either choose to move to UC or they have a change that ends their tax credit award:

Choosing to move to UC

There is nothing stopping a tax credits claimant from choosing to claim UC providing they meet the relevant gateway conditions. Entitlement to WTC or CTC is not listed as one of the restrictions in the gateway conditions.

Tax credit claimants will need to seek advice from a welfare rights specialist before deciding to make a claim to UC. Some people will be better off under UC than existing legacy benefits, but many people will be worse off financially and UC claimants are subject to conditionality rules that tax credits claimants are not. 

However, as a general rule you cannot be entitled to tax credits and UC at the same time. The only exception to this is during the first assessment period for UC after two people become a couple and the tax credit award of the ‘new claimant partner’ terminates after the first date of entitlement to UC. This is because in such a case UC rules may treat the claim as made at an earlier date than the TC termination date.

In this situation, if a claim for UC is made (or is treated as having been made) and the person (or persons) meet the basic conditions for UC (except for the claimant commitment requirement) then the all awards of tax credits for which there is entitlement (on the date of the UC claim) will terminate on:

This will be the case even if under Tax Credits legislation the award would terminate on a later day.

Although the legislation works in such a way as to bring a tax credits award to an end when a UC claim is made, and the process between DWP and HMRC is such that there should be notification to HMRC to end the tax credits claim, we would advise that claimants report the situation to HMRC in case the process breaks down.

Moving due to a change of circumstances

Where a tax credit claim ends because of a change of circumstances - for example a couple separating or a single person forming a couple, or a WTC only claimant who loses their job - then if the gateway conditions are met the person can claim UC.

Where a single tax credit claimant (the new claimant partner for UC purposes) forms a couple with an existing UC claimant, the new claimant partner will have their tax credit award terminated for the current tax year on:

Transferring from live service to digital service

According to a publication from DWP, when a current live service area becomes a digital (full) service area, anyone currently claiming UC through the live service will be migrated onto the full digital service over the first three months.

A few live service areas became digital areas between January and April 2016 in order to test the transfer process. From May 2016 to mid 2018 the remaining live service areas will become digital areas.

We will update this page when further information is known about the process that will be used to transfer claimants from live to digital service. 

Universal credit: Who is currently eligible to make a claim for Universal Credit?

Universal Credit has a number of conditions that must be met in order to establish entitlement. We explain these in our entitlement to UC section.

However, before even considering the entitlement conditions of the benefit, it must be determined whether the person is eligible to make a claim. Even if a person is eligible to submit a claim, it does not mean they will be entitled to UC.

The first step in establishing eligibility to claim is to find out the claimant’s postcode.

Postcodes accepting UC claims

Once you have established the claimant’s postcode, you will need to find out which of the following categories it falls into:

To help you do this we have created a postcode checker: universalcreditinfo.net

Enter a postcode and the checker will tell you the status of UC in that postcode area and the current situation for tax credits and other legacy benefits.
 

 

For those requiring historical roll-out data, we also have a PDF roll-out document that shows the roll-out for all postcodes since 2013.

DWP have a general power to stop accepting UC claims in specific areas at any time under Regulation 4 Transitional Provision Regulations 2014. Please check our blog for the latest information.

National Minimum Wage: Rates over the years

National Minimum Wage

National minimum wage rates are updated every October.

NB - the rates are dependent upon age, with a special rate for apprentices.

The current rates from 1 October 2016 are:

For the rates of earlier years back to 1999 go to the Low Pay Commission website.

National Living Wage

The national living wage rates are updated every April.

The current rate from 1 April 2016 for those ages 25 and over is £7.20 an hour

Transition to universal credit: Commencement Orders

Commencement Orders

The provisions in the Welfare Reform Act 2012 are being gradually introduced. Some sections of the Act came into force on the day the Act was passed (8 March 2012). The remaining provisions will come into force through a series of commencement orders. Links to each commencement order are below.

The latest commencement order (shown last on the list below) contains a table at the end summarising all prior commencement orders.

See also the following regulations which provide for amendments to certain of the above Commencement Orders

National Minimum Wage: Statutory instruments - Amending

In this section you will find all original amending national minimum wage legislation.

National Minimum Wage amending legislation:

Amendments to acts

Amendments to regulations

Concentrix - An update for advisers

HMRC/Concentrix telephones

Tax Credits: Dealing with overpayment debt

This section of the site provides advisers with information about repaying tax credit debt. Before agreeing to repay, it is worth considering whether the overpayment can be challenged.

Methods of recovery

As explained above, HMRC may recover overpayments under the TCA 2002, Section 29(3) to (5), in one of three ways:

From April 2015, DWP have also been given the power to recover tax credits debt using their existing powers of recovery. As well as similar powers to HMRC, DWP can also recover debts through Direct Earnings Attachment (DEA) where they instruct an employer to recovery money from the employee’s pay. This means that tax credit claimants who claim UC will have tax credit debts recovered from their UC payments. However, these powers will also be used from April 2018 to allow DWP to recover tax credit debts on behalf of HMRC from people whose claims have ended and who have not moved over to UC. You can read more below in our DWP and tax credit debt section.

It should be noted that claimants do not have a choice between ‘ongoing’ and ‘direct’ recovery. The recovery method used is determined by the claimant’s claim circumstances.

If the claim on which the overpayment occurred is still in payment, ongoing recovery will be used by the Tax Credit Office. If that claim has ended, or if the claim is a ‘nil’ award (entitlement exists but no payments are due as income is too high) then HMRC will send the debt to their Debt Management (DM) arm for collection by direct recovery. 

HMRC introduced new IT from October 2014 to allow ‘cross claim’ recovery whereby overpayments on a claim that has ended can be recovered from a subsequent new claim even if it is made in a different capacity (for example an overpayment from an old single claim can be recovered against a new claim as a couple). See below for more detail about how cross claim recovery works.

Tax credit overpayments can also be recovered from payments of Universal Credit and DWP have a power more widely to recover tax credit debts by any of the methods it uses to collect its own debt. You can find out more about the move of tax credit debt to Universal Credit in our Universal Credit section.

HMRC guidance

In 2011, following consultation with various representative groups, HMRC produced a detailed guide for intermediaries ‘How HMRC handle tax credit overpayments’. This guide was incredibly helpful in setting out the process that HMRC used to recover debts. This was withdrawn in 2014 and there is now very little published information for advisers in this area. We will continue to raise this issue with HMRC.

In the meantime, we suggest that advisers use the archived version of the guidance to negotiate with DM.

Direct Recovery

Direct recovery cases are dealt with by Debt Management (DM) which is a separate arm of HMRC to the Tax Credit Office (who deal with ongoing recovery issues). DM collect tax debt as well as tax credit debt although the processes for each are different.

The direct recovery process

The following table gives an overview of the direct recovery process.

  Process Explanation

Step 1

Notification of overpayment – TC610

When a claim ends, for whatever reason, and any overpayment is outstanding, the tax credit system will issue a TC610 notice to pay form once any appeal period has passed (normally 30 days).

 

The TC610 (see GOV.UK for an example) advises the claimant that the amount is owed to HMRC and normally gives 42 days to pay. It advises claimants that overpayments can be spread over a longer period. It encourages claimants to contact the payment helpline on 0345 302 1429. The payment helpline is part of the contact centre directorate in HMRC.

Step 2

Debt passed to Debt Management and Banking (DM)

If no response is received to the TC610, the debt will be passed from the Tax Credit Office system to Debt Management ‘s IDMS system. (A debt will transfer to IDMS 42 days after the TC610 or sooner if the claimant engages and agrees a payment plan).

Step 3

DM checks.

DM will check whether the debt can be passed to one of the private debt collection agencies (DCA) that HMRC uses. If the case has a domestic violence marker, or a claimant or partner has died recently, or there is an outstanding appeal the case will remain with DM otherwise it will be passed to the DCA.

Step 4

Debt Collect Agency recovery process

The DCA will attempt to contact the claimant to arrange payment. The claimant will need to speak to the DCA directly – they will arrange a time to pay and consider hardship requests (which are then referred back to HMRC – see below)

Step 5

Case passed back to HMRC

Eventually, after at least 12 months, if there has been no contact with the claimant the debt will be passed back to HMRC. The case will be reviewed by a HMRC debt officer and they will attempt to contact the claimant to arrange recovery.

Step 6

Legal proceedings

If no contact can be made, or the claimant refuses to make a payment arrangement, HMRC may consider using one of their enforcement powers such as taking control of goods (distraint) or county court action to recovery the debt.

Time to pay arrangements

The TC610 (see Step 1 in the table above) normally gives claimants 42 days to pay the amount stated. Often in tax credit cases the amount due can be several thousands and most claimants will not be able to pay it immediately.

The TC610 informs claimants that the debt can be repaid over a longer period, but does not set out any specific timescales or options. Instead it encourages claimants to contact the payment helpline. 

What claimants are not told at this point is that DM have a time to pay system that allows repayments over much longer periods.

The following time to pay options are available:

  1. 12 months
    HMRC should readily accept an offer to repay the debt in twelve monthly instalments. No additional questions should be necessary. 
     
  2. Over 12 months up to 10 years
    Claimants can ask HMRC to repay over any period up to 10 years without providing full income and expenditure details.

    HMRC will not automatically accept any offer up to 10 years and they will want to confirm income/expenditure. HMRC staff will try and negotiate a time to pay arrangement for the shortest possible time, however claimants should ensure what they agree to is affordable and realistic based on their income/expenditure.  

    Staff are encouraged to try and set up a direct debit arrangement for any time to pay agreements. Generally, repayments of less than £10 per month will not be accepted unless the debt will be cleared in 3 years. Income and Expenditure will be required to justify any arrangement of less than £10 per month if the debt is not cleared within 3 years.  If a claimant cannot afford £10 per month, then DM should suspend recovery for twelve months and then review the situation at the end of that period. If the claimant is still unable to pay more than £10 per month following their twelve-monthly review, HMRC should consider remitting the debt on grounds of financial hardship.
     
  3. 10 years or more
    DM staff are instructed to get a full income/expenditure breakdown where claimants request time to pay agreements that will last longer than 10 years. This is most likely to be needed where the overpayment debt is large and the claimant has a low income. As with shorter arrangements, payments of less than £10 per month will not normally be accepted and HMRC should suspend the debt in those cases and review after twelve months. HMRC may accept payments of less than £10 if the expectation is the amount can be increased at a later date.

    In assessing ability to repay, HMRC state that they will compare actual expenditure with figures produced by the Office of National Statistics and seek an explanation from the claimant where their figure is higher. This should not be done for expenditure that the claimant does not have any control over unless they appear excessive. This includes things like rent, mortgage, secured loans, council tax, court fines, pension payments, life assurance, HP or conditional sale, TV licence, maintenance and child support.

Other methods of recovery

HMRC have the power to use charging orders against a claimant’s residence where a debt is owed. Our understanding is that this will not be considered in stand-alone tax credit debt cases but may be considered if there is another HMRC tax debt as well.

Enforcement proceeding and taking control of goods (distraint)

The final step in the direct recovery process involves HMRC commencing legal proceedings, normally in the county court, to obtain judgement for the debt.

Previously, HMRC’s preferred approach was to take claimants to the County Court and obtain a County Court Judgement (CCJ). However, in the last year HMRC have changed their approach and their preferred method of enforcement is taking control of goods (distraint) which involves the seizing of goods where HMRC believe the person has the means to repay but refuses.

It should still be possible to negotiate a time to pay arrangement right up until the very last stage of the recovery process, although it is advisable that claimants make some attempt to discuss their case with HMRC rather than ignore the demands. If the claimant thinks they should not have to repay, a dispute can be lodged, but it may be necessary to liaise with DM to ensure they know what is happening and negotiate suspension of recovery directly with them. Although official policy by TCO is not to suspend recovery when a dispute is received (policy implemented 15 July 2013), it is still worth asking DMdirectly if they will suspend recovery. Note that there is no obligation on them to suspend recovery and if they refuse, then it is crucial that the claimant set up a time to pay arrangement otherwise DM will continue with their recovery action. This is especially important if taking control of goods (distraint) is the next step in the process.

Although taking control of goods (distraint) is now the preferred method of enforcement, HMRC still reserve the right to take claimants to County Court.

In the past, some claimants who were taken to county court were not given the opportunity to challenge the recovery of the overpayment or even explain if they didn’t understand why they had been overpaid. Even at this stage it is possible that HMRC have given an incorrect explanation or have made a mistake in dealing with the overpayment. Some judges treated tax credit cases in the same way as ordinary tax debt, which meant that if HMRC produced a certificate of debt that was enough to gain judgement against the claimant.

This approach is incorrect. Tax debt cases follow a special procedure called CPRPD7D meaning they do not follow the normal allocation process. Critically CPRPD7D does not apply to tax credits overpayments which basically means that the claim should follow the normal court processes including allowing the claimant to raise a defence and requiring HMRC to answer the points of that defence. A full explanation of the importance of this can be found in an article we wrote in 2008 which explains the procedure.

We still strongly caution against allowing overpayments to reach the county court, but clarification of the status of tax credit debt cases means that claimants may have an opportunity to challenge aspects of HMRC’s case. It remains far from clear how far the courts will go in examining the papers and whether they will consider the test under COP 26. On that basis we prefer to ensure cases are dealt with before proceedings are started.

From April 2012, HMRC began charging costs on cases entered in the county court in England and Wales. Alternative arrangements are in place in Scotland and Northern Ireland.

Debt collection agencies

HMRC practice is now to refer the majority of tax credit debts to a private DCA. This approach was piloted in 2011, and in the Autumn Statement 2012 HMRC confirmed they would once again pilot payment by results using a third party DCA. You can find a list of agencies used by HMRC on the GOV.UK website. It should be noted that the debt remains a HMRC debt, the debts are not sold to the DCA.

Once the debt is passed to the DCA the same time to pay guidance should be followed as outlined in this section. Where a claimant states they are in hardship the DCA will gather information and then refer the case back to HMRC.

Financial hardship in direct recovery cases

The information in this sub-section applies to direct recovery cases. Information about hardship in ongoing recovery cases can be found below. Some claimants will not be able to afford to make any repayments to HMRC or will only be able to offer less than £10 per month (which will take longer than 3 years to clear). If that is the case, there are two potential options available. The first involves getting HMRC to suspend recovery of the overpayment until the financial situation improves or, in cases where there is unlikely to be any improvement in the claimant’s financial situation, the second option is to ask HMRC to remit the debt on financial hardship grounds. Debts remitted due to hardship remain recoverable but may be pursued until later review of financial circumstances.

Prior to March 2010, HMRC’s policy on financial hardship was practically non-existent. It was unclear to advisers when HMRC would remit overpayments on grounds of financial hardship and very few claimants were successful when requesting this. In addition, there was no clear process for such requests which meant they were often left for months with a back office team with whom neither advisers nor claimants could make any contact.

Since March 2010, DM has revised its approach to the recovery of tax credit overpayment debt, which includes a much clearer policy on financial hardship and also more clarity around how this should be requested. This was set out in HMRC guidance which has since been withdrawn, however as far as we can ascertain DM still follow the same processes.

Claimants who are unemployed with no assets or savings

In such cases, HMRC should suspend recovery for 12 months. At the end of that period, the case should be reviewed and if there is no likelihood that circumstances will improve, consideration should be given to remitting the overpayment or, at the very least, suspending it for a further 12 months. If circumstances have improved, HMRC will seek a time to pay arrangement (see above for more details). If a claimant becomes entitled to universal credit then the tax credit debt can be collected by DWP from the UC award.

Claimant is on sickness/incapacity benefit

Where a claimant is in receipt of a sickness benefit such as employment and support allowance, cannot afford to offer any repayment to HMRC and there is little prospect of them ever gaining employment, HMRC should remit the outstanding overpayment. If there is some prospect that the claimant may be able to enter employment in the future, recovery should be suspended for 12 months and the situation reviewed at the end of that period. If the claimant becomes entitled to universal credit then the tax credit debt can be collected by DWP from the UC award.

Claimant unable to meet living expenses

In situations where a claimant cannot meet essential living expenses such as water, gas and electricity, they should request that the overpayment recovery be suspended until their circumstances improve. Where there is no likelihood that this will happen, a request for the overpayment to be remitted on financial hardship grounds should be made. In our experience this is most likely to succeed where evidence of their current situation is given to HMRC.

Financial hardship process

For those in the direct recovery process, DM are tasked with recovering the debt and it is with them that initial contact should be made to discuss financial hardship. Specifically claimants or their advisers should contact the Debt Management Telephone Centre (DMTC) (0345 3021429) and the case should then be referred to a Debt Technical Officer. The DTO should then assess the case based on the information received or by contacting the claimant for further information. Any letter sent to the claimant should include a phone number for the DTO dealing with the case. The claimant should be informed by letter of the outcome, regardless of whether the decision is to temporarily suspend recovery or to remit the overpayment in full.

If DMTC refuse to consider hardship or make a referral to a DTC a complaint should be made.

Recovery via PAYE tax code

Section 29 Tax Credit Act 2002 has always contained a provision allowing HMRC to recover tax credit overpayments by adjusting the person’s tax code. The legislation states that in this respect tax credit overpayments are to be treated the same as underpayments of tax.

HMRC never used this method of recovery until 2011 when they set up a small pilot which was rolled out in 2013/14, However, HMRC have stopped using this method from 6 April 2016 in order to prepare for the transition of debt from HMRC to DWP with the introduction of Universal Credit.

Ongoing recovery

The ongoing recovery process

The Tax Credit Office is responsible for ongoing recovery cases. Ongoing recovery is used where there is an ongoing claim still in payment following the claim which gave rise to the overpayment.

In the legislation, there are certain limits on the amount by which payments of tax credits can be reduced in order to recover an overpayment which arose in the previous year (cross-year overpayment). Those limits depend upon household income . From April 2016, the limits are as follows:

The 50% rate was introduced from 6 April 2016.  In assessing whether the claimant has income over £20,000, HMRC will use the latest held income figure. This could be a current year estimated figure or the previous year income figure. This may not be the same figure as the claim is based on. It also means that claimants may delay reporting changes in income to HMRC where such a rise will take them into the 50% recovery rate.

In addition, from October 2015, HMRC began to recover WTC overpayments from CTC awards and CTC overpayments from WTC awards. Prior to that date, WTC overpayments were only recovered from WTC and CTC overpayments from CTC.

In-year recovery

Sometimes HMRC adjust an award during the award period to try to prevent or reduce an overpayment from accruing by the end of the tax year. Potential overpayments that are identified during the award period in this way are loosely termed in-year overpayments. In such cases, the limits above also apply.  

However, since October 2015, tax credits payments are now stopped in-year where, due to a change in circumstances, an award is reduced to the extent that the claimant has already been paid their full year’s entitlement for that award. This is to prevent a build-up of overpayments by the end of the year. Previously, HMRC continued to make payments to claimants in this situation (unless they specifically asked HMRC not to) all of which became recoverable overpayments at the end of the year.

Ongoing recovery of old tax credits debt (cross-claim recovery)

In the Chancellor’s 2012 Autumn Statement, he announced that tax credit overpayments from old claims that had ended would be able to be recovered from a claimant’s ongoing tax credit payments. This change was introduced from October 2014.

Essentially, it means that any households with outstanding overpayments from ended claims that include the same household member(s) will have those old debts recovered from the new ongoing award.

Cross claim recovery will only take place when there is a suitable ongoing claim. This is one where:

Not all old overpayments can be recovered, the debt must be a ‘relevant overpayment’ which means:

Cross-claim recovery can apply in these situations:

Where an old debt is already being repaid directly, it will not be included in this ongoing recovery.

Ongoing tax credit payments will generally be reduced by 50%, 25% (or 10% if maximum award, see above) until the old debt is repaid.

Where there are a number of old overpayments from different years, awards or households, these will all be moved to the ongoing award and collated as one single overpayment amount.

But if the ongoing award ends before the total overpayment is repaid, the outstanding debts will be returned to their original awards. If there is more than 1 award involved, HMRC will apply a process called ‘reconciliation’ to apportion the amount repaid in a set order to the different overpayments and the outstanding debts will then have to be repaid by direct recovery (see above).

HMRC have produced a more detailed note about recovering old tax credits from ongoing awards, including full details of how the payments will be reconciled. More information can also be found in the Tax Credits Technical Manual.

Financial hardship in ongoing recovery cases

In certain circumstances, HMRC will agree to reduce the recovery percentages from the figures set out above.

Any financial hardship in ongoing recovery cases is dealt with by the Tax Credit Office.

There are two ways to request reduced recovery rates:

Online form

Claimants can access the TC1133 through their personal tax account (PTA). This form is used to ask HMRC to reduce recovery rate where it is causing financial difficulty. The form asks for various details about the claimant and their partner, their household and their income and expenditure.

Claimants will need to log in to their personal tax account. To do this they will need to use the Government Gateway for verification. If they do not have an account, they can set one-up and if they do have an account they will need to sign-in.

Each time someone signs in to their PTA, they will need their mobile phone to receive an access code.

You can read more about the PTA and how to create an account on the LITRG website.

Once in the PTA, claimants will need to click on tax credits and on the first page there is a list of tax credit forms that can be filled in and submitted through the PTA. After the form has been submitted, it can be tracked via the PTA which is again accessed from the account home page.

Telephone process

The first step is for the claimant to contact the tax credit helpline (0345 300 3900) to ask that the recovery percentage is reduced. The helpline should refer the case to the hardship team in the Tax Credit Office

If the claimant receives the family element only, HMRC will not normally adjust the rate of recovery. Nor will they do so if the overpayment was caused by deliberate error or fraud.

Once a referral is received by the hardship team, they will send out an income and expenditure form (TC1133). Once the form is returned, HMRC will compare the income and expenditure figures against figures they hold for various household expenses and make a decision. HMRC aim to make a decision within 2 working days of the form being returned, however sometimes HMRC may contact the claimant by phone (or letter if no telephone number is held) for more information or evidence before making a decision.

If the claimant has disposable income of £20 a month or more, HMRC will refuse to change the recovery rate.

HMRC decision

If the claimant has disposable income of less than £20 a month, the recovery rate will be reduced in 5% increments until the disposable income figure reaches £20 a month.

Any arrangement will only last until the end of the current tax year. It appears there is no way to challenge a refusal to reduce the percentage recovery rate, but a fresh hardship request can be made. If the cases warrants it, a complaint could also be made.

Once HMRC have made their decision, they will issue a decision letter to the claimant:

Couples

Couples and overpayment recovery

The law says that an overpayment debt for a couple can be collected by HMRC in full (but only once!) from either the claimant or their partner. The stated policy of HMRC where this has happened following a household breakdown is to write to both members of the former couple (making every effort to trace any former partner for whom they do not have an up-to-date address).

If the claimant believes that there should be a difference in what they and their former partner should pay, then HMRC will take into account the circumstances of both of them and may ask each of them to pay a different amount, or one of them to pay the full amount. Alternatively, they can agree between them to pay different amounts and inform HMRC of this decision.

Prior to August 2009, HMRC policy was to allow each party to repay 50% of the overpayment. However, when confirming this agreement in writing, HMRC reserved the right to return to the partner who was engaging with them for the other 50% if they could not trace the other partner.

LITRG, along with other representative bodies, expressed concern that HMRC often pursued the engaging partner with vigour whilst the other partner remained ‘untraceable’. This often meant the mother with care of the children had to repay the whole joint overpayment debt where the absent partner was difficult to trace. Since August 2009, HMRC have implemented a much fairer policy in these situations. As before, provided a person engages with HMRC, they will allow repayment of 50% of the joint debt. Provided that this 50% is paid (either by lump sum or on a payment plan) HMRC will not pursue that person for the remaining 50%. Instead they will pursue the other partner, and if they cannot collect the money will not go back to the engaging partner to collect it.

It is important to note that the law still allows HMRC to pursue either partner for the full amount of the joint debt. Also, this process is not well advertised by HMRC, so you should ensure that you ask Debt Management and Banking if you think it applies to your client.

Offsetting

Notional offsetting

Sometimes, tax credit claimants who form a couple or who become single, either because they separate or because one partner dies, are slow in reporting the change to HMRC. Yet in many cases, if they had acted promptly they would have continued to be entitled to tax credits, albeit in a different capacity. Until 18 January 2010, HMRC would recover the whole of any overpayment arising on the old claim, but give no credit for what the claimant would have received had they made a new claim at the right time.

From 18 January2010, HMRC introduced a new policy that means tax credits recipients who start to live together, or who become single after being part of a couple, but are late reporting the change to HMRC, can reduce the overpayment on their old claim by whatever they would have been entitled to had they made a new claim promptly.

This new policy applies to overpayments arising from 18 January 2010, but also to overpayments that were still outstanding as of that date. So, if an overpayment has been repaid in full prior to 18 January 2010, the new policy will not apply. However, if any part of it remains unpaid, offsetting can be applied to it. From Autumn 2016, HMRC should apply notional offsetting automatically. Prior to that date, claimants had to request it be applied in their case. If it does not happen automatically, claimants should contact the tax credit helpline to ask for their case to be referred to the ‘notional offsetting (or notional entitlement)’ team in the Tax Credit Office.

Note that the notional entitlement set-off will not cover the one month by which the claimant will be able to backdate their new claim. Normally HMRC will grant the one month's backdating automatically, but if that doesn’t happen, they will need to ask for it.

Prior to Autumn 2016, HMRC would not allow notional offsetting in cases of deliberate or repeated error. From Autumn 2016, notional offsetting is allowed in all cases where a claimant was late reporting a change to their household status no matter the reason for the delay in reporting.

See our understanding couples section for more information about how to request notional offsetting.

Income Support / NTC Nominal set-off

In cases where a claimant has reduced their working hours to below 16 hours a week and would have been entitled to Income Support instead of working tax credit, had they made a claim, HMRC can reduce the amount of the tax credit overpayment by ‘off-setting’ the amount of Income Support the claimant would have been entitled to against the overpaid tax credit. HMRC call this type of off-setting Class 11 remission. It is not widely known and for that reason can often be overlooked. Claimants and their advisers may need to ask HMRC to consider Class 11 remission, rather than rely of HMRC to automatically apply it. Further information is available in the tax credit manual.

Dual recovery

Some people will be paying back two overpayments, one via ongoing recovery and another via direct recovery. This often happens where there is an overpayment on an old claim, and a new overpayment on a current claim. Since August 2009, HMRC have implemented a new policy which means that any direct recovery action should be suspended until the ongoing recovery ends.

Whilst we welcome this policy, HMRC are not proactive in telling claimants about it. If this applies, you should ask Debt Management and Banking to suspend the direct recovery action. Further details can be found in the Debt Management Banking Manual Online.

DWP and tax credits debt

When a person claims Universal Credit, any outstanding tax credit overpayments will at some point be transferred from HMRC to DWP. This includes any overpayments where claimants have already agreed time to pay arrangements with HMRC. DWP can recover tax credit overpayment debts automatically from Universal Credit awards and will also consider separate time to pay arrangements. See our Universal Credit section for more information.

New regulations from 1 April 2015 allow DWP to recover tax credit debt concurrently with HMRC. These regulations are made under Section 126 Welfare Reform Act 2012 (which allows any tax credit functions to be transferred to DWP). The regulations allow DWP to recover tax credit by any of the methods it uses to collect its own debt, including deduction from benefit and Direct Earnings Attachment.

In February 2017, the Government announced that they would exercise these powers and that from April 2018 DWP would start to recover a segment of HMRC tax credit debt from people whose tax credit claims have ended and who have not engaged with HMRC in repaying their tax credit overpayment debt. This is a more general use of the power and is not only for those people who are moving to UC.

As a last resort, this means that DWP could use their Direct Earnings Attachment (DEA) powers which HMRC do not have. This means employers must, if directed, deduct amounts from an employee’s pay and send it to DWP. The amounts that can be deducted depend on whether the standard DEA rate or higher DEA rate is being used but it will be between 3% and 40% of the employee’s pay after deductions for tax, national insurance and pension contributions. You can read more about DEA on GOV.UK website.

See our transition to UC section for more detail.

Special circumstances

Cases involving mental health issues

HMRC have produced some information for cases involving claimants with mental health issues. The following is reproduced from the intermediaries guidance:

HMRC will deal with mental health cases carefully and sympathetically to avoid distress to the customer.

HMRC will need a letter from a health care professional or mental health social worker explaining the mental health problem to enable it to deal with these cases. The evidence should include the nature of the illness and as far as possible, whether the illness is likely to be long-term (for example, schizophrenia) or where the prospects for recovery are expected to be good.

If the information has not been provided HMRC will need to write to the claimant or third party asking for the documentary evidence. Only in exceptional circumstances will the evidence received be insufficient to relieve the claimant from responsibility for payment.

If the mental health problems existed at the time the overpayment occurred then Benefits and Credits can consider whether exceptional circumstances are such that writing off the overpayment is appropriate. If the mental health problems exist at the time the overpayment is being recovered then DM will review the circumstances:

Further guidance for cases involving claimants with mental health issues can be found in the tax credit section of the DM manual. Further information about the manual can be found in section 5.1.

Exceptional circumstances

In exceptional circumstances, for example where a claimant is seriously ill or a close family member is ill, a request can be made to HMRC to suspend recovery of the overpayment until such time as the claimant is able to discuss their financial situation fully with HMRC. Claimants or their advisers should phone the debt management payment helpline (0345 302 1429) to explain the situation if this applies.

Universal credit: Rates

The rates for elements of Universal Credit are subject to annual uprating.

The Chancellor has also announced changes to the additional first child premium and restrictions on the addition of the child element for 3rd and subsequent children born after April 2017. You can read more about these changes in our policy section.

Universal credit annual rates pdf

Childcare provided in another EU Member State

Self-employment: Minimum income floor

How the MIF works
Problems with the MIF
Exceptions to the MIF

How the MIF works

The amount of the MIF is, very broadly, equivalent to the statutory hourly pay-rate  for each hour that the claimant is expected to work – usually 35 hours a week. Initially, this meant the relevant rate of national minimum wage but, from April 2016, this is the relevant national minimum/living wage hourly rate relating to the age of the claimant. From that is deducted a notional amount to reflect the income tax and national insurance for which the claimant would be liable if they had earned income of that amount. Note however that there is currently no deduction allowed from the MIF for pension contributions meaning that those who are subject to the MIF in reality will not get a true deduction for their pension contributions as their employed counterparts will.

Example

Jack is a 30 year old window cleaner who works full time in his trade. His individual earnings threshold (ie the minimum wage for the number of hours the claimant is expected to work) is based on the national minimum wage of £7.20 an hour for a 35 hour week:

£7.20 x 35 = £252.00 per week

His minimum income floor for any assessment period, using current figures, should therefore be:

(£252.00 x 52)/12  = £1,092.00 minus notional tax and NI (say £86) = £1,006.00

Where a claimant is a member of a couple, and the claimant’s gross profit for an assessment period is lower than the MIF, then the MIF only applies to the extent that the earnings of the couple taken together do not amount to the couple’s combined earnings threshold. The earnings threshold, broadly, is the number of hours both members of the couple are expected to work times the national minimum wage. Where the couple’s earnings exceed the couple’s earnings threshold, the MIF for the self-employed partner is reduced or eliminated accordingly.

Example

Jack’s self-employed earnings for assessment period A are £600. His wife Jill is employed full-time in a bank and earns £15,000 a year (say, net earnings of £1,113.93 a month). The combined earnings threshold of the couple for a month is, say, £2,012.00 (35 hours a week each at the NMW of £7.20 an hour, less tax and NI)

Their actual combined earnings are £600 + £1,113.93 = £1,713.93

Applying Jack’s MIF of £1,006.00, their combined earnings for the month would be £1,006.00 + £1,113.93 = £2,119.93, which exceeds their combined earnings threshold by £2,119.93 - £2012.00 = £107.93.

Jack’s MIF is therefore reduced as follows: £1,006.00 - £107.93 = £898.07

Problems with the MIF

The MIF, and other aspects of the way self-employed earnings are calculated for UC, potentially present several problems for those who are starting out in business.

Exceptions to the MIF

There are three situations in which the MIF does not apply at all:

More information about the Minimum income floor, together with examples, can be found in ADM Chapter H4060.

Reminder to tell HMRC about 16+ year olds staying in education or approved training

What to do if you missed the renewals deadline

Tax Credits: Discovery

This section of the website provides information about HMRC’s powers of discovery.

Discovery powers are set out in Section 20 Tax Credits Act 2002. They allow HMRC to get a second bite of the cherry after the period allowed for opening an enquiry has expired. The circumstances within which this can occur are very limited.

HMRC may re-open a tax credits award if the claimant's income tax liability is 'revised', but must do so within one year of the income tax revision, and can only do so if the enquiry window has passed. This process is known as 'discovery'.

An income tax decision is revised if a SA return is amended, whether by the taxpayer or by HMRC, and whether during or following an enquiry or independently of any enquiry; or if HMRC raises an assessment to make good a loss of tax; or vacates an assessment or return; or grants error or mistake relief; or an appeal is settled following any of the above.

Alternatively, if HMRC have grounds for believing that a tax credits decision is wrong owing to fraud or negligence by the claimant or any person acting for the claimant, they can re-open an award within five years after the end of the year to which it relates.

More information about Discovery can be found in the HMRC compliance manual.

Tax Credits: Penalties and interest.

This section of the website provides basic information about penalties and interest.

It is worth having a quick look at the HMRC guide on this - WTC 7 Tax Credit Penalties.

HMRC has power to seek or impose financial penalties for various types of default. The penalties and their maximum amounts are:

Failure or delay penalties can only be exacted from the person directed to supply the information, ie the claimant or the employer, but penalties for fraudulent and negligent mis-statement can be levied on any person who makes an incorrect statement or declaration in or in connection with a claim for a tax credit, a notification of a change of circumstances, or in response to an end-of-year notice. This can in particular include an agent.

Initial penalties for failure to supply or delay in supplying information can only be imposed by the First-tier Tribunal, to which HMRC must apply, and against whose decision a right of appeal lies to the Upper Tribunal. All other penalties can be determined – i.e. directly imposed – by the Board of HMRC.

The maximum penalty for fraudulent or negligent mis-statement by a couple in a joint claim may be imposed on both partners provided that in aggregate the penalty does not exceed £3,000. In other words, they cannot between them be required to find more than £3,000. But by statute if one of them was not, and could not reasonably have been expected to be, aware of the default by the other, that one is not liable to a penalty.

HMRC have the power to mitigate penalties or remit any penalty. For enquiries or examinations started after 6 April 2008, the level of penalty will depend on the behaviour involved. The claimant compliance manual gives further information.

Interest

Under the tax credit regime interest can only be charged in two circumstances.

Tax Credits: Examinations

This section of the website provides information about examinations.

Examinations are one of the compliance powers that HMRC can use to check tax credit claims. Examinations can be carried out:

Examinations can start with a simple letter, or a formal notice seeking information. There is no right of appeal against the issue of a notice seeking information, and therefore little recourse if HMRC decide to question the claimant about things which do not strictly relate to their tax credit entitlement (known as 'fishing expeditions'). However, instructions to compliance staff discourage such actions. Also, by statute the purpose of an examination is:

'to provide any information or evidence which [the Board] consider they may need for making their decision',

There are penalties for failure to comply with a formal information notice.

HMRC have the power to suspend tax credit payments where they have made a formal request for information and the person has not provided the information asked for. This is a very wide power, and the legislation has no ‘reasonable excuse’ or similar defence for not providing the information requested.

The power to suspend payments applies only to requests for information during the tax year (not examinations prior to the first decision, nor any requests made after the end of the tax year). HMRC have produced leaflet WTC/FS9 that deals with this process.

HMRC practice in conducting examinations is set out in their Claimant Compliance Manual CCM4000ff .

Official leaflets are the factsheets FS2 (Tax credits examinations) and FS3 (Tax credits formal request for information).

Tax Credits: Enquiries

This section of the website provides basic information about enquiries.

The 'enquiry window'

The statute defines the period during which HMRC is allowed to open an enquiry, and any enquiry begun before the start of that period, or after its end, is invalid. That period is known as the enquiry window.

The earliest time for starting an enquiry

An enquiry may not be started before the date of HMRC's formal decision on the claimant's final entitlement for the tax year. This is usually given after the claimant has returned all their renewal papers. Normally, renewal papers should be returned by 31 July in the following tax year (so the renewal papers for 2015/16 should be sent in by 31 July 2016). In a small minority of cases the renewal deadline may be different and will be shown as such on the Section 17 notice.

Where the claimant is not at that stage ready to state what their income was for the year, and shows an estimated income figure in their renewal papers, no enquiry may be started before the estimate has been confirmed, or the actual amount substituted. This should be done by 31 January in the following tax year. So an estimate for 2015/16 should be confirmed, or actual 2015/16 income notified, by 31st January 2017.

See our section on renewals for more information about the finalisation process.

The latest time for starting an enquiry

The latest time for starting an enquiry depends on whether the claimant has also filed a self-assessment (SA) return for ordinary tax. Where they have, and the return is not subject to a SA enquiry, a tax credit enquiry may not be started later than the date on which the SA return becomes final. This is usually 12 months after the date of filing, if the return is filed on time (ie on or before 31 January following the end of the tax year to which the return relates), but there are important exceptions; see the LITRG website for the detailed rules.

In the case of a joint claim where both claimants are SA taxpayers, and there are different final dates for each partner, the later of the two dates is taken for the couple.

Where the return is subject to a SA enquiry, the latest date for starting a tax credit enquiry is the date on which the SA enquiry is brought to an end (or the later date in the case of joint claimants). This is of course much later than the normal SA enquiry window. Where the claimant has not filed a SA return, a tax credit enquiry must be begun within one year of the date shown on the end-of-year notice as the date by which income details must be returned. In practice this date is 31 July, or the following 31 January if an estimate is returned.

Closing the enquiry

A tax credit enquiry ends when HMRC issues a 'closure notice'. But the claimant may apply to the Appeal Tribunal at any time for a direction that the Board must give a closure notice; in which case the Tribunal must do so unless the Board can show that they have reasonable grounds for continuing the enquiry.

This can be a useful tool in the claimant's hands if HMRC are dragging their feet, or refusing to be forthcoming about the nature and purpose of their enquiry.

Link with self-assessment

We have already said quite a lot about the links between the time-limits for opening and closing self-assessment and tax credit enquiries. Where the claimant is also a self-assessment taxpayer, the one may give rise to the other and it is important for the adviser to bear in mind the implications of both when negotiating with HMRC.

When a self-assessment enquiry is opened and the taxpayer is also a tax credit claimant, a tax credit enquiry may also be opened and HMRC may work the two together. Needless to say, if a self-assessment enquiry results in an increased profit figure, the trading income figure for tax credits may similarly be increased. It follows that no self-assessment enquiry should be concluded without considering its effect on the tax credits claim, and seeking simultaneous closure of any related tax credit enquiry.

Similarly, where the self-assessment enquiry covers more than one year and it is sought to apportion the adjusted income figure between the years, care should be taken in agreeing any such apportionment to maximise the potential for the annual disregard for increases in tax credit income.

Income discrepancy enquiries: gift aid and pension contributions

One of the grounds for starting an enquiry is that the income details supplied for tax credits do not match those held for income tax purposes. This can affect both self-assessment (SA) and PAYE taxpayers.

Gross gift aid payments and gross pension contributions are deducted from tax credits income. Because such deductions are not separately identified on the claim form TC600, it is not unknown for TCO to start a tax credit discrepancy enquiry when the income declared for income tax and for tax credit purposes differs by the amount of the gross deduction.

Advisers should look out for such risk assessment-based enquiries which ought to be subject to a 'sanity check' by a human before being started, but have in the past appeared not to be.

Potential conflict of interest where a SA enquiry gives rise to a tax credit enquiry and the tax credit claim is a joint one

Where a tax adviser is acting for a taxpayer facing a SA enquiry, the result of which is likely to impact on the tax credit claim which the taxpayer has made jointly with his or her partner, a conflict of interest may well arise. There is an obvious conflict between the demands of taxpayer confidentiality, in respect of the SA enquiry, and joint and several responsibility of both members of the couple for the accuracy of the tax credit claim. In some cases it may be necessary for the practitioner not to act, or to cease acting, for both parties, and to arrange for the non-SA client to be independently advised on the tax credits enquiry.

HMRC guidance on enquiries

See:

Tax Credits: Other Government research and reports

In addition to reports published by HMRC, other parts of the Government have also produced reports about the tax credits system.

Public Accounts Committee Reports

The Public Accounts Committee has produced several reports on the tax credits system.

Public Administration Select Committee

The Public Administration Select Committee has produced two reports in relation to the ‘Tax Credits – Putting it right’ report from the Ombudsman:

Treasury

HM Courts and Tribunal Services

National Audit Office

NB - the National Audit Office website is available at https://www.nao.org.uk

See also

Tax Credits: Adjudicator’s Office and Ombudsman’s reports

The Adjudicator’s Office investigates complaints about HMRC, and the Ombudsman’s office investigates complaints made against a wide range of Government departments including HMRC.

More information about the Adjudicator complaints process and about taking a case to the Ombudsman can be found in the tax credits guidance section of this website.

Adjudicator’s Office

Each year, the Adjudicator’s Office publishes a report which sets out the number of complaints dealt with (including tax credits) and the number that were upheld. The report also highlights key areas of concern as well as a series of case studies showing the outcome as well as the reasoning for each example.

2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | 2003

Ombudsman’s reports

Ombudsman Annual Reports -

2015/2016 | 2014/2015 | 2013/2014 | 2012/2013 | 2011/2012 | 2010/2011 | 2009/2010 | 2008/2009 | 2007/2008 | 2006/2007 | 2005/2006 | 2004/2005

Tax Credits: HMRC annual reports, performance reports and business plans

Annual reports and Autumn Performance Reports

Business Plans

You can find all of HMRC’s archived reports and plans on their web archive and current reports and plans on GOV.UK.

Transition to universal credit: Miscellaneous and Consequential Amendment Regulations

In this section you will find miscellaneous and consequential amendment regulations relating to Universal Credit.

Social Security (Miscellaneous Amendments) No.1 Regulations (SI.No.443/2013) (Amends SI.No.380/2013) HTML | Explanatory memorandum

Universal Credit (Consequential, Supplementary, Incidental and Miscellaneous Provisions) Regulations 2013 (SI.No.630/2013) (Amends SI.No.376/2013) HTML | Explanatory memorandum

Universal Credit (Miscellaneous Amendments) Regulations 2013 (SI.No.803/2013) (Amends SI.No.376/2013 and SI.No.386/2013) HTML | Explanatory memorandum

Social Security (Miscellaneous Amendments) (No.2) Regulations 2013 (SI.No.1508/2013) (Amends SI.No.376/2013) HTML | Explanatory memorandum

Universal Credit (Transitional Provisions) and Housing Benefit (Amendment) Regulations 2013 (SI.No.2070/2013) (Amends SI.No.386/2013) HTML | Explanatory memorandum | Correction

Housing Benefit and Universal Credit (Size Criteria) (Miscellaneous Amendments) Regulations 2013 (SI.No.2828/2013) HTML | Explanatory memorandum

Welfare Benefits Up-rating Order 2014 (SI.No.147/2014) HTML

Universal Credit and Miscellaneous Amendments Regulations 2014 (SI.No.597/2014) (Amends SI.No.376/2013, 380/2013 and 381/2013) HTML | Explanatory memorandum

Universal Credit (Transitional Provisions) (Amendment) Regulations 2014 (SI.No.1626/2014) (Amends SI.No.1230/2014) HTMLExplanatory memorandum

Universal Credit (Digital Service) Amendment Regulations 2014 (SI.No.2887/2014) (Amends SI.No.376/2013) HTML | Explanatory memorandum

Universal Credit and Miscellaneous Amendments (No.2) Regulations 2014 (SI.No.2888/2014) (Amends SI.No.376/2013, SI.No.380/2013) HTML | Explanatory memorandum

Welfare Benefits Uprating Order 2015 (SI.No.30/2015) HTML

Social Security (Information-sharing in relation to Welfare Services etc.) (Amendment) Regulations 2015 (SI.No.46/2015) HTML | Explanatory memorandum

Universal Credit (Work-Related Requirements) In Work Pilot Scheme and Amendment Regulations 2015 (SI.No.89/2015) (Amends SI.No.376/2013) HTMLExplanatory memorandum

Universal Credit (Surpluses and Self-employed Losses) (Digital Service) Amendment Regulations 2015 (SI.No.345/2015) (Amends SI.No.376/2013) HTML | Explanatory memorandum

Universal Credit (EEA Jobseekers) Amendment Regulations 2015 (SI.No.546/2015) (Amends SI.No.376/2013) HTML | Explanatory memorandum

Universal Credit (Waiting Days) (Amendment) Regulations 2015 (SI.No.1362/2015) HTML

Universal Credit (Work Allowance) Amendment Regulations 2015 (SI.No.1649/2015) HTML

Universal Credit and Miscellaneous Amendments Regulations 2015 (SI.No.1754/2015) HTML

Universal Credit (Transitional Provisions) (Amendment) Regulations 2015 (SI.No.1780/2015) (Amends SI.No.1230/2014) HTML | Explanatory memorandum

Universal Credit (Surpluses and Self-employed Losses) (Change of coming into force) Regulations 2016 (SI.No.215/2016) HTMLExplanatory memorandum

Universal Credit (Transitional Provisions) (Amendment) Regulations 2016 (SI.No.232/2016) HTMLExplanatory memorandum

Social Security (Jobseeker’s Allowance, Employment and Support Allowance and Universal Credit) (Amendment) Regulations 2016 (SI.No.678/2016) HTML | Explanatory memorandum

Social Security (Treatment of Postgraduate Master’s Degree Loans and Special Support Loans) (Amendment) Regulations 2016 (SI.No.743/2016) HTML | Explanatory memorandum

Universal Credit (Benefit Cap Earnings Exception) Amendment Regulations 2017 (SI.No.138/2017) HTML | Explanatory memorandum

Universal Credit (Surpluses and Self-employed Losses) (Change of coming into force) Regulations 2017 (SI.No.197/2017) HTML | Explanatory memorandum

Employment and Support Allowance and Universal Credit (Miscellaneous Amendments and Transitional and Savings Provisions) Regulations 2017 (SI.No.204/2017) HTML

Universal Credit (Housing Costs Element for claimants aged 18 to 21) (Amendment) Regulations 2017 (SI.No.252/2017) HTML

Social Security Benefits Up-rating Order 2017 (SI.No.260/2017) HTML | Explanatory memorandum

Social Security (Social Care Wales) (Amendment) Regulations 2017 (SI.No.291/2017) HTML | Explanatory memorandum

Universal Credit (Reduction of the Earnings Taper Rate) Amendment Regulations 2017 (SI.No.348/2017) HTML | Explanatory memorandum

Social Security (Restrictions on Amounts for Children and Qualifying Young Persons) Amendment Regulations 2017 (SI.No.376.2017) HTML

Transition to universal credit: Scotland

This page sets out legislation that is relevant to welfare reform and universal credit specifically relating to Scotland. You can find detail about how this legislation will impact UC in Scotland in our Scotland policy section.

The Welfare Reform Act 2012 broadly applies only to England, Wales and Scotland. There are a couple of exceptions to this set out in Section 149 Welfare Reform Act 2012:

The Scotland Act 2016 received Royal Assent on 24 March 2016. The Act sets out the powers that are being transferred to the Scottish Parliament or Scottish Ministers. Part 3 of the Act relates to welfare benefits with Sections 29 and 30 relating specifically to Universal Credit. There is also a power to create other new benefits under Section 28.

You can find the Bill as introduced, amendments, debate transcripts and explanatory notes on the Parliament UK website.

The first set of regulations, laid on 14 July 2016, set out the timetable for the transfer to Holyrood of a number of welfare powers, including the ability to:

The majority of these powers transfer on 5 September 2016. Discretionary housing payments transfer on 1 April 2017.

Secondary Legislation

Tax Credits: Social security income

For tax credit purposes, taxable social security benefits are taken into account as income and non-taxable benefits are ignored. The TC600 guidance notes (page 11) show which benefits to include.

State retirement pension is not included here as social security income but HMRC ask for it to be included under 'other income' in box 5.6 of the claim form (see below) - the significance is that the other income category is broadly the Step One equivalent and therefore eligible for the £300 deduction.

Specifically, the following benefits are disregarded for tax credits, together with any child dependency increases payable with them – arranged alphabetically rather than in the order given in the Income Regulations:

* Note - statutory maternity, paternity, adoption, shared parental & sick pay are disregarded as social security income but treated as employment income.

Tax Credits: The four steps

The Income Regulations prescribe a series of four steps to work out income for tax credits purposes. The claim form does not require this, but we have set out the steps below in order to give a complete picture of the legislative method.

NOTE: This section of the site explains what is income for tax credit claims. Where a claimant has their tax credits terminated because they are moving to universal credit, there are new rules on how to calculate income. Please see our transition to universal credit section for more information.

For joint claims, the joint income for the relevant tax year of both partners (or of all members of a polygamous unit) should be used, as in the example below. Only the income of the partners in the couple, or members of the polygamous unit, is aggregated; any income belonging to any children in the household is left out of account, except in certain circumstances where a claimant artificially transfers income to a child in an attempt to maximise their tax credits entitlement.

Step 1. Add together:

  1. pension income 
  2. investment income
  3. property income
  4. foreign income
  5. notional income 

If the total is £300 or less, it is ignored completely. Otherwise, £300 is deducted from the total. There is no notional capital rule as for social security benefits - only the actual income from savings is counted. The rationale of the £300 was to protect the position of former benefits claimants whose savings were small enough to come within the £3,000 capital limit applied by the DWP at the time WTC and CTC were introduced.

Step 2. Add together:

  1. employment income
  2. social security income
  3. student income
  4. miscellaneous income 

Step 3. Add together the amounts in Step 1 and Step 2.

Step 4. Add trading income to - or if there is a loss subtract the trading loss from - the total in Step 3.

Then deduct:

If a claimant has sustained a loss in a UK or overseas property business (‘property loss’) it can be set against total income for tax credits purposes.

Unlike mainstream tax, income for tax credits includes all worldwide income, whether or not it is remitted to the UK or is exempt under the terms of a double taxation treaty. ‘Unremittable’ income is an exception to this rule (explained below).

Where a claimant would be chargeable to income tax but for some special exemption or immunity from income tax, tax credits income must be calculated on the basis of the amount which would be so chargeable but for that exemption or immunity. In other words, income must be taken into account for tax credits even if it is exempt from tax, unless it is specifically disregarded under the Income Regulations.

Income paid in a foreign currency must be converted into sterling using an average of exchange rates in the 12 months up to 31 March in the tax year in which the income arises. HMRC publish the exchange rates at www.gov.uk/government/collections/exchange-rates-for-customs-and-vat

Tax Credits: Income from self-employment (or trading income)

Trading income for tax credits is the claimant’s taxable profits as defined in Part 2 of ITTOIA 2005. This is broadly the same as the business profits appearing in the claimant’s self-assessment return. See page 15 of TC600 guidance notes.

However, the income tax rules on the averaging of trading profits which apply to farmers and creative artists do not apply to tax credits.

Note also that relief for trading losses is computed differently from tax - see below.

If the claimant is a partner in a trading partnership their trading income for tax credits is the taxable profit arising from their share of the partnership’s trading or professional income.

Relief for trading losses

While the calculation of trading profits and losses is the same for income tax and tax credits, there are important differences in the way the relief is calculated for tax and tax credits.

Where the trader is making a joint claim with their partner, a trading loss must be offset, for tax credits, not just against the trader's current year income but against the joint current year income of the trader and their partner.

There is no ‘carry-back’ of losses for tax credits – see example below.

Any surplus may be offset against profits of the same trade in future years for tax credits.

Unrelieved losses of 2001-02 – that is, losses which could not be fully relieved in that year – can be carried forward to 2003-04 and beyond for tax credits; but losses incurred in years prior to 2001-02, or in 2002-03, cannot. These are effectively 'non-years' for tax credits, because the income of those years is not used for any tax credit purpose.

Trading losses cannot be carried forward for tax credits unless the trade in which they were incurred is being undertaken on a commercial basis and with a view to realising profits.

HMRC have produced worksheet TC825 which gives guidance on certain deductions and trading losses.

Example

Bill has the following trading results from 2011/12 to 2015/16. His wife Emily has employment income of £10,000 for each of those years.

Tax year

Profit/(loss)

£

Bill – taxable

£

Emily salary

£

Bill/Emily tax credits income

£

2015/16

5,000

NIL

10,000

10,000

2014/15

(15,000)

NIL

10,000

NIL

2013/14

3,000

NIL

10,000

13,000

2012/13

2,000

NIL

10,000

12,000

2011/12

5,000

NIL

10,000

15,000


As can be seen, Bill makes modest trading profits in 2011/12, 2012/13 and 2013/14. He then sustains a serious loss in 2014/15.

The £15,000 loss is offset against the couple’s current year income i.e. Emily’s earnings, leaving £5,000 to be carried forward and set against Bill’s £5,000 profits of the following year. Their income for tax credits for 2015/16 is just Emily’s salary of £10,000.

For tax purposes, however, the loss can only be set against Bill’s profits of the previous three years (i.e. the ‘carry back’) and any surplus carried forward against future years’ profits. The £15,000 loss is, therefore, sufficient to reduce Bill’s profits from 2011/12 to 2015/16 to nil.

Legislation: Income Regulations (SI 2002/2006), reg 3(1), Step 4.

Tax Credits: Student income

The only student income taken into account for tax credit purposes are the adult dependants’ grants, payable under section 22 of the Teaching and Higher Education Act 1998 (in England and Wales), under the Student’s Allowances (Scotland), Regulations 2007 and under equivalent provisions in Northern Ireland .

Non-taxable interest payable on repayment of loans to the student (ITTOIA 2005, section 753) and scholarship income (ITTOIA 2005, section 776) are disregarded.

Tax Credits: Pension income

Pension income for tax credits mirrors the tax treatment.

It includes the following taxable pension payments and annuities:

In calculating pension income for tax credits, the following are disregarded:

  1. a wounds pension or disability pension paid to members of the armed forces (ITEPA 2003, section 641);
  2. an annuity or additional pensions payable to the holder of an award for bravery e.g. Victoria Cross (ITEPA 2003, section 638);
  3. a pension in respect of death due to military or war service (ITEPA 2003, section 639), together with any pension or allowance by reason of which such a death pension is abated or withheld (ITEPA 2003, section 640);
  4. a mobility supplement, or constant attendance allowance, paid with a war pension;
  5. that part of a pension awarded at the supplementary rate under Article 27(3) of the Personal Injuries (Civilians) Scheme 1983 which is specified in paragraph 1(c) of Schedule 4 to the Scheme;
  6. the exempt amount of a pension awarded on retirement through disability caused by injury on duty or by a work-related illness as calculated in accordance with ITEPA 2003, section 644(3);
  7. the tax-exempt part of a lump sum paid under a registered pension scheme (ITEPA 2003, section 636A);
  8. coal or smokeless fuel, or allowances in lieu of coal, given or paid to former colliery workers or their widows or widowers, to the extent that it is exempt from income tax under ITEPA 2003, section 646(1).

Donations to charity under the payroll deduction scheme (ITEPA 2003, section 713) may be deducted from any pension payment.

Pension withdrawal flexibilities

From April 2015, individuals aged 55 or over will have more flexibility around when and how they can make withdrawals from their pensions funds.

The changes bring more choice about how to use or spend the pot of money accrued in a pension fund but there are no changes to the way income from pensions is taxed and no change in how pension income affects tax credits or other social security benefits.

For this reason it is important that claimants who find themselves in the position where they are making decisions about whether and how to use their pension fund in light of the new flexibilities should not overlook the implications for their tax credit awards, benefits and overall household income.

The tax-free element of pension withdrawal is ignored as income for tax credit purposes but any amount over that limit should be declared as pension income in the usual way, as with interest on savings and investments. Both are classed as ‘other income’ and the total amount of ‘other income’ (which also includes foreign, property and notional income) which is over £300 is taken into account in assessing income for tax credit purposes.

Tax credit awards are assessed against income from the previous year as well as the current year and increases and decreases up to £2,500 are disregarded in the comparison between current year and previous year (see our understanding the disregards section). So a modest taxable pension income in current year (within the £2,500 increase disregard) shouldn’t affect the tax credit award that year, although it may impact on the amount of tax credits the following year.


 

Tax Credits: Notional income

Under section 7(9) of the Tax Credits Act 2002, HMRC can treat a person:

The intention is to prevent people from manipulating their income to claim more tax credit than they would otherwise be entitled to.

There are four categories of notional income:

  1. Certain sums deemed to be income for income tax purposes. In the tax system, there are so-called anti-avoidance rules which aim to prevent people manipulating their income in order to pay less tax.
  2. Income claimants have deprived themselves of in order to claim/increase entitlement to tax credits (known in social security shorthand as income deprivation).
  3. Income which would be available to claimants if they applied for it.
  4. A reasonable rate of pay where work is done at less than the going rate, and the recipient of the service can afford to pay it. This does not apply to volunteers working free of charge for a charitable or voluntary organisation.

Sums deemed to be income for income tax

Certain sums which are deemed to be income for income tax purposes in order to counter tax avoidance are also to be taken into account for tax credits purposes.

These sums are the amounts charged to income tax under the following tax provisions:

See also page 16 of the TC600 guidance notes.

Income deprivation

If a claimant deprives themselves of income for the purpose of securing entitlement to, or increasing the amount of, a tax credit, the claimant can be treated as still having that income.

It should be noted that the restriction should only apply where the claimant deprives themselves of income for the purpose of securing entitlement to, or increasing the amount of, a tax credit.

So, a company director who waives a dividend in order to retain the profits within the company to aid future growth ought not to be caught by this provision. However, if the same director waived the dividend solely in order to increase their tax credit entitlement, the amount of the dividend may be treated as the director’s notional income.

The Tax Credits Technical Manual (TCTM 04803)  states:

“the claimant may have more than one reason for disposing of income, only one of which is to obtain tax credit or more tax credit. Securing or increasing entitlement to tax credit may not be a claimant's main motive, but it must be a significant one.” [italics supplied.]

Thus a carer who stopped claiming carer’s allowance so that the person in their care, who was not a member of the carer’s family, could claim the severe disability premium in income support, was held not to have notional income by the equivalent social security provision (CIS/15052/1966).

Income available on making of a claim

If income would be available to a claimant on making an application for it, the claimant is treated as having that income.

There are exceptions:

Claimants providing services to others for less than full rate of pay

If a claimant provides a service to someone, and

  1. that person makes no payment, or pays less than that paid for a comparable employment or self-employment in the area, and
  2. HMRC are satisfied they have sufficient means to pay for the service, or pay more for it,

the claimant is treated as having as much employment income, or trading income, as is considered reasonable for that service.

There are exceptions:

Tax Credits: What is income

A tax credits award is based on the income of the claimant, or of both claimants if the claim is a joint one. You can find out how to calculate tax credits in the calculating tax credits section of this site.

What constitutes income is set out in the Tax Credits (Definition and Calculation of Income) Regulations 2002, SI 2002/2006 , as amended (referred to in this section as ‘the Income Regulations’). We explain in this section the detailed rules on what counts as income.

NOTE: This section of the site explains what is income for tax credit claims. Where a claimant has their tax credits terminated because they are moving to universal credit, there are new rules on how to calculate income. Please see our universal credit section for more information

Tax Credits: Investment income

There is no capital limit for tax credits; the value of any savings/capital is ignored.  However, any taxable income from savings and investments is taken into account as investment income.

Investment income is the gross amount of:

The following are disregarded:

Certain payments made from government trust funds or from the Eileen Trust, the 1992 Fund, the Macfarlane Trust or the Independent Living Funds to persons diagnosed with variant Creuzfeldt-Jakob disease or haemophilia, or to their partners, are disregarded. Payments made to the parents of a diagnosed person after their death are also disregarded for a period of two years from the date of first payment. Payments out of the estate of a diagnosed person, up to the amount of trust payments that person had received, are disregarded if paid to their partner, or disregarded for two years if paid to a parent.


 

 


 

Tax Credits: Foreign income

Foreign income for tax credits means income arising in the tax year from a source outside the UK. It does not comprise employment income, trading income, or chargeable event gains which are taken into account as investment income. It does include profits from property overseas, overseas investment, pension and social security income.

The losses of an overseas property business which can be carried forward against future profits of that business under ITA 2007, sections 118 and 119 are also taken into account in calculating foreign income.

The tax rules allowing foreign income to be taxed only to the extent that it is remitted to the UK does not apply to tax credits – all of a tax credit claimant’s worldwide income must be taken into account, even if it is exempt under the terms of a double taxation treaty.

The following are disregarded:

Also disregarded is any unremittable foreign income but this is taken into account in the main calculation rather than in the foreign income part.


 

Tax Credits: Employment income

See pages 12-16 of the TC 600 guidance notes. HMRC have produced worksheet TC825 to help with calculating deductions.

‘Employment income’ broadly follows employment income for tax purposes, so most employees can use the amounts given on their P60 or P45. However, there are a number of minor differences between the two, particularly in the treatment of benefits in kind.

‘Employment income’ means:

Employment income does not include pension income.

Where a member of the Brigade of Gurkhas is subject to the voluntary settlement of tax liabilities by the Ministry of Defence to HMRC, his employment income from that employment for a tax year is the amount published by the Ministry of Defence as the UK equivalent rate in his case.

Benefits in kind and similar payments

In calculating the value of a benefit to be included in employment income for tax credits, the higher of the following two figures is used: the monetary value of the benefit to the employee; or the cost to the employer of providing it (less any contribution by the employee).

Taxable benefits included in employment income are broadly the cash equivalent of company cars and fuel, taxable expenses payments and mileage allowances, cash and non-cash vouchers and credit tokens, and money's worth – broadly, anything that can readily be converted into cash.

Taxable benefits that are not counted are living accommodation, vans, beneficial loans, taxable sick pay, and scholarships.

Other payments and benefits that are disregarded for calculating income tax on income from employment are generally disregarded in assessing employment income for tax credits.

The disregarded benefits are:

At the end of each tax year, claimants who have received benefits in kind should receive a P11d or P9d from their employer listing the value of the benefits they have received. The TC600 guidance notes (page 14) instruct claimants to gather various figures from boxes on the P11d/P9d when working out their total income.

The normal process of paying tax on benefits in kind involves HMRC adjusting a person’s tax code in the following year to recover the tax owed on those benefits. However, there are a small number of employers who tax benefits in kind by including them in weekly or monthly pay. Although they still issue a P11d/P9d at the end of the year, it means that when a claimant receives their P60 or P45, the total income figure will include some benefits in kind.

Prior to April 2012, tax credits guidance notes were silent on what to do in this situation. From April 2012, HMRC instruct claimants to deduct the benefits in kind figure from their P60/P45 income before entering it into the relevant box on the tax credits claim form or renewals form. They should then enter the figure relating to the benefits in kind (from their P11d/P9d) into the relevant box. This avoids double counting of the benefits in kind.

Deductions from employment income

The following tax-deductible items are also deducted from employment income for tax credits:

IR35

'Deemed payments' under the IR35 rules for income tax are not included in employment income. The IR35 rules come into play if you are an employee of your own company, and have to pay tax not only on the dividends and salary you receive from the company, but also on the payments your clients make to your company.

Share Incentive Plans (SIPS)

There is no deduction from earnings for any amount of pay that the claimant saves into a Share Incentive Plan (SIP).

Where a person who participates in a SIP exits the plan within 3 years, not for reasons of ill-health, incapacity or redundancy, they must declare the market value of their shares as employment income (under Part 7 ITEPA). This means that for tax credit purposes, not only do they not receive any deduction from income for any contributions they make to the scheme, but if they leave the scheme early, they also have to include the market value of the shares they have acquired as employment income. This is the case even though the money they used to buy those shares has already been declared.

For example:

A person earns £15000 gross per annum and pays £50 gross per month into their SIP, they declare their employment income as £15000 for tax credit purposes as no deduction for the SIP is permitted in tax credits.

The SIP builds to acquire shares to the value of £1200 (£50 per month for 2 years) before the person exits the SIP within 3 years. On leaving the SIP, the shares are transferred to the person and the £1200 is subject to tax under Part 7 ITEPA and they must declare the same money again for the tax credits claim. So their income in the year they leave the scheme will be increased by £1200.

More information about SIPs and the impact on benefits can be found in HMRC’s leaflet IR177 - Share Incentive Plans and Your Entitlement to Benefits.
 

Tax Credits: Disregarded income

Income which arises outside the UK and is ‘unremittable’ for the purposes of ITTOIA, Part 8, Chapter 4, is disregarded for tax credits.

Income is ‘unremittable’ where

The following types of income are also disregarded:

Tax Credits: CTC elements

Both WTC and CTC comprise a number of elements. CTC can be claimed by people who are responsible for one or more children or qualifying young persons. It can be claimed by joint claimants (couples or polygamous units) where at least partner has responsibility for a child or young person, or by lone parents. It is immaterial whether the claimant is in work. This section of the site explains the qualifying criteria for CTC elements.

Being responsible for a child or young person

In order to claim CTC a person must be responsible for a child or qualifying young person. There are two tests that are relevant in determining responsibility – the ‘normally living with’ test and the ‘main responsibility’ test.

Normally living with test

The basic test is that a person is responsible for a child or qualifying young person (QYP) if that child or QYP is normally living with them.

The legislation gives no further guidance on what this means. The HMRC guidance manual states that it should be given its ordinary meaning which is ‘regularly, usually, typically lives with them which allows for temporary or occasional absences’. (TCTM02202)

Main responsibility test

The ‘normally living with’ test is supplemented with the ‘main responsibility test’ where a child or QYP usually lives with two or more people in different households or where they live in the same household where those persons are not limited to the members of a couple.

If two or more people make separate claims for CTC for a child or QYP, only one claimant can be treated as responsible for the child or QYP, for tax credit purposes. In such cases, the CTC will be awarded to the person who has main responsibility. Normally both (or all) claimants will decide between them who has main responsibility and make a joint ‘election’ as to who should receive the CTC. However, if agreement cannot be reached, HMRC will make the decision.

Similarly, ‘main responsibility’ is also not defined in legislation. HMRC guidance states that it should also be given its ordinary everyday meaning of ‘someone who is normally answerable for, or called to account for, the child or qualifying young person’.

This can be quite a difficult test to apply in practice and HMRC have developed a list of factors that can be considered in determining who has main responsibility. The list is not exhaustive but includes the following factors:

Exceptions to the responsibility rules

There are exceptions to the normally living with and main responsibility test. A claimant cannot be responsible for a child or QYP in the following circumstances:

Case A:

The child or QYP is provided with, or placed in,  accommodation under Part III of the Children Act 1989, Parts 4 or 6 of the Social Services and Well-being (Wales) Act 2014, Part II of the Children (Scotland) Act 1995 or Part IV of the Children (Northern Ireland) Order 1995, and the cost of that child's accommodation or maintenance is borne wholly or partly –

Case B: The child or QYP is being looked after by the local authority and has been placed for adoption in the home of a person proposing to adopt them. This applies if the local authority (or authority in Northern Ireland) is making a payment in respect of the child or QYP’s accommodation or maintenance under section 22C(10) (for England) of the Children Act 1989, or section 81(13) of the Social Services and Well-being (Wales) Act 2014, or section 26 of the Children (Scotland) Act 1995 which gives rise to regulation 33 of the Looked After Children (Scotland) Regulations 2009 or in Northern Ireland, Article 27 of the Children (NI) Order 1995.

Case C: The child or QYP is serving a custodial life sentence (without limit of time), is detained at Her Majesty’s pleasure (or in Northern Ireland at the pleasure of the Secretary of State), or is detained for a term of more than four months.

Case D: A QYP is awarded CTC in their own right for a child they are responsible for.

Case E: A QYP is awarded contributory employment and support allowance in their own right. This also applied to Incapacity Benefit. There is an exception to this rule for certain people whose period of incapacity for work began before 6 April 2004.

Case F: A QYP claims and receives WTC in their own right.

Case G: The QYP has a spouse, civil partner or partner with whom they are living and that person is not in full-time education or approved training. Both concepts are explained below. This case does not apply to people in receipt of CTC for a QYP who is living with a partner before 1September 2008.

Case H: The responsible person is the spouse, civil partner or partner of a QYP with whom they are living. This case does not apply to people in receipt of CTC for a QYP who is living with a partner before 1September 2008.

Special cases

Where a child or QYP is in residential accommodation defined in regulation 9 of the Child Benefit (General) Regulations 2006 and in the circumstances prescribed in paragraphs (a) or (b) of that regulation, they are treated as being the responsibility of any person who was treated as being responsible for him immediately before they entered that accommodation.

Where a claimant is treated as responsible for a child or QYP based on the rules outlined above and that child or QYP has their child normally living with them, the claimant should also be treated as responsible for e.g. their grandchild. The HMRC manual gives the following example:

A seventeen year old girl and her baby live with her mum. The young mum attends full-time non-advanced education at the local college so she remains a qualifying young person for child tax credits. Grandma can claim for both her daughter and grandchild unless the young mum claims CTC for herself and baby in her own right. (TCTM02206)

What is a child or qualifying young person?

For CTC purposes a child is under the age of 16. CTC can be claimed for a QYP from their 16th birthday until the following 31 August. During this period there is no requirement that the young person be in full time education or training.

From 1 September following the QYP’s 16th birthday CTC can continue if the QYP is under 20 and in full time, non-advanced education, approved training or registered with a qualifying body for work or training (where the education/training is not provided as part of their work).

The upper age limit was increased from 19 to 20 on 6 April 2006 to enable a young person who started a course before their 19th birthday to continue until they reach 20 without their parents or carers losing CTC. But young persons who were 19 before 6 April 2006 do not qualify.

However, the young person will no longer be a QYP during this time if they start remunerative work and cease full time, non-advanced education or approved training or they claim income-based job seeker’s allowance, income-related employment and support allowance, income support or Universal Credit in their own right. This means that the claimant can no longer claim CTC for that young person. In this context, remunerative work means work done in expectation of payment for not less than 24 hours a week.

From summer 2013, the Government started to raise the age of participation in England. This means that pupils who left year 11 in summer 2013 have to stay in education or training until the end of the academic year in which they turn 17. This increases to age 18 from 2015. The new rules allow 16-17 year olds to remain in full-time study or training, full-time work/volunteering with part-time study or training or undertake an apprenticeship. Many of the terms used in defining a child and QYP have very specific legal definitions. These are explained briefly below.

Full time education

To be in full-time education, the young person must be receiving full-time, non-advanced education. They must be studying at a school or college, or elsewhere providing they were studying there prior to their 16th birthday and it is approved by HMRC or it is part of a Study Programme (England only). The course of study must also not be one that the young person is pursuing because of his or her employment

Full-time study means on average not less than 12 hours a week spent during term-time in tuition, supervised study, exams and practical work. The 12 hours includes gaps between courses, but not meal breaks or periods of unsupervised study or homework undertaken outside normal hours. The Child Tax Credit Regulations 2002 (SI 2002/2014) defines full time education as:

‘education received by a person attending a course of education where, in pursuit of that course, the time spent receiving instruction or tuition, undertaking supervised study, examination or practical work or taking part in any exercise, experiment or project for which provision is made in the curriculum of the course, exceeds or exceeds on average 12 hours a week in normal term-time, and shall include gaps between the ending of one course and the commencement of another, where the person is enrolled on and commences the latter course.’

Non-advanced education

A young person is only a QYP if they are in full time education that is not at an advanced level. The legislation does not define non-advanced education, but instead defines advanced education. If the education does not fall under the advanced heading, it is by definition non-advanced. Advanced education means full time education for the purposes of a course in preparation for a degree, a diploma of higher education, a higher national diploma, a higher national diploma or higher national certificate or Edexcel or the Scottish Qualifications Authority, or a teaching qualification. Alternatively it means any other course which is of a standard above ordinary national diploma, a national diploma or national certificate of Edexcel, a general certificate of education (advanced level) or a Scottish national qualifications at higher or advanced higher level.

Non-advanced education includes qualifications such as A-levels (As and A2 levels), Scottish Highers, NVQ at level 3; ordinary national diploma; a national diploma or national certificate of Edexcel; GCSEs; International Baccalaureate; Study Programme (England only); Scottish national qualifications at advanced or higher level. It does not include university courses.

There is some information about the definition of a qualifying young person and education levels on the GOV.UK website.

Approved training

This is defined by reference to various training programmes arranged by the Government. It has the same meaning given by regulation 1(3) Child Benefit (General) Regulations 2006. Generally, approved courses don’t pay wages and teach skills needed to do a particular job. Training must not be provided under a contact of employment.

HMRC guidance (TCTM 02230) defines approved training as:

Note: There should be no new starts on 'Skillbuild' or 'Skillbuild+' from 1 August 2011, only starts prior to 1 August 2011.

Note: The West Lothian Council Skills Training Programme should be treated as ‘Get ready for work’.

Unlike non-advanced education, there is no requirement to attend approved training for a minimum number of hours.

Registered with a qualifying body

If a young person is under 18 and has ceased full time education or approved training, , CTC can continue to be paid for up to 20 weeks. This only applies if the QYP has registered for work or training with a qualifying body and the CTC claimant has notified HMRC of the change within 3 months of the leaving date..

A qualifying body for this purpose is the Careers or Connexions Service, the Ministry of Defence, the Department of Employment and Learning or an Education and Library Board established under article 3 of the Education and Libraries (Northern Ireland) Order 1986 or any corresponding body in a member state where Council Regulation (EEC) No. 1408/71 and Regulation (EC) No 883/2004(h) of the European Parliament and of the Council applies. More information about what constitutes a Careers or Connexions Service can be found in TCTM02230.

Interruptions to education

The regulations allow for certain periods to be disregarded when determining whether a person is undertaking full time education or approved training. A period of up to 6 months can be disregarded if HMRC decide it is reasonable to do so. Any period due to illness or disability can also be disregarded, again if HMRC decide this is reasonable.

According to the HMRC manual, this provision allows for interruptions such as school holidays, moving location or illness as long as there is an intention to continue full time education or approved training.

Practical aspects

In practice, the HMRC computer system is set up to stop the CTC child element from 1September following the child’s 16th birthday. The claimant is then required to inform HMRC, both TCO and CBO, that the child is either staying on in full time education or approved training in order for CTC to continue. However, it is not unknown for the computer system, to fail to stop CTC so this should not be relied upon and claimants should inform HMRC if their child is not staying on in full time non-advanced education or approved training so that they no longer qualify for CTC for that child.

Additionally, from September 2014, the HMRC computer system automatically stops the CTC child element on the 31st August following the respective 18th and 19th birthdays of any qualifying young person. This means that HMRC must be notified annually when a young person who turns 18 or 19, respectively, remains in full-time non-advanced education or approved training, otherwise the award will be reduced prematurely. There is a concern that claimants may not be fully aware of this change in approach and could therefore see their tax credit award reduced, or in some cases, end, early. To ensure entitlement continues correctly, claimants need to notify HMRC if the young person on their claim is continuing in full-time non-advanced/approved training. As mentioned above, HMRC’s computer may fail to stop CTC in some cases so this should not be relied upon and claimants should still inform HMRC if their young person leaves full-time non-advanced education or approved training so that they no longer qualify for CTC for them.

One particular area of difficulty for claimants is determining when CTC stops if a young person plans to continue to advanced level education e.g. by going to university. HMRC guidance states that in such cases, CTC can be paid to 31 August (the last day of the academic year) unless the young person changes their mind and decides not to remain in education before that date. For example:

A claimant telephones on 27 August to inform tax credits that her daughter has found work. The claimant states that although her daughter had originally intended to go to university, following her exam results she had decided to look for a job instead and has now found work. She is asked what date her daughter made the decision to look for work and not go to university. This date is given as the 21 August. CTC can therefore be paid to the 20 August. (TCTM02230)

Once the claimant can no longer include their only or last QYP in their CTC claim, entitlement to WTC can also be affected as they will need to work number of hours that apply to a person who is not responsible for a child/QYP.

Death of a child or young person

If a child or QYP dies, CTC should continue for a period of 8 weeks following the death. In the case of a QYP, it will continue for 8 weeks or until they would have reached the age of 20, if earlier.

Family element

The family element is paid to each family entitled to CTC, irrespective of the number of children or QYPs in the family. Only one family element is payable on each claim.

Child element of CTC

For each child or QYP that the claimant is responsible for, a child element is included in the award. There are three rates of the child element and which one is payable depends on whether the child has a disability. The three levels of child element payable cover:

Sometimes, the three rates are referred to as three different elements. However, when calculating daily rates and awards, the HMRC system follows the legislation which has only 1 child element payable at one of three rates.

Disabled child

The child element is paid at a higher rate for each disabled child or QYP that a claimant is responsible for. This is sometimes referred to as a ‘disabled child element’ but the true description, in line with the legislation, is that the value of the child element is higher in these circumstances.

A child or QYP is disabled for tax credit purposes if any rate of DLA or Personal Independence Payment (PIP) is payable for the child or QYP, or has ceased to be payable solely because they are a hospital in-patient.

A child or QYP will also qualify if they are certified as severely sight impaired or blind by a consultant ophthalmologist, or has ceased to be registered or certified as blind within the 28 weeks immediately preceding the date of claim.

Severely disabled child

The child element is paid at a higher rate for each severely disabled child or QYP that a claimant is responsible for. As suggested above, this is sometimes referred to as a ‘severely disabled child element’ but the true description, in line with the legislation, is that the value of the child element is higher in these circumstances and is, in fact, a higher amount than the value of child element for a disabled child or QYP.

A child or QYP is severely disabled for tax credit purposes if the highest rate care component of DLA, the enhanced rate daily living component of Personal Independence Payment (PIP) or any component of Armed Forces Independence Payment (AFIP) is payable for them, or would be payable but for a suspension or abatement due to hospitalisation.

Note: If a new claim for DLA/PIP or AFIP is made whilst a child is in hospital, it cannot be paid until the child is discharged.  However, HMRC should be notified of any successful claim as soon as possible (especially if the highest rate care component or enhanced rate daily living component has been awarded).  This is because the CTC severe disability element can be included whilst the child is in hospital, even though DLA has never been in payment.  The same does not apply to the CTC disability element.

Baby element

For historical purposes only, this paragraph discusses the baby element of child tax credit. This element was available to CTC claimants from 6 April 2003 to 5 April 2011. It ceased from 6 April 2011, even for families whose children had only received it for part of the 2010/11 tax year.

The baby element was paid in addition to the family element to families until a child’s first birthday. Only one element was payable no matter how many children under one were in the family.


 

Tax Credits: HMRC calculators

HMRC have produced various tax credits related calculators which are on their website.

This section of the site gives links to these calculators with a brief description of what they are about.

Tax Credits – Do you qualify questionnaire

HMRC produced this brief questionnaire to help people see if they may be entitled by answering a few questions. There are some people who cannot use the calculator such as those who qualify for the severe disability elements or those who have a partner with a disability.

Tax Credits Calculator

A much more detailed calculator which seeks to give claimants an estimate of their entitlement.

Childcare vouchers and tax credits – better off calculator

Some employers offer employees childcare vouchers either in exchange for some of their salary (known as ‘salary sacrifice) or in addition to their salary. It is not possible to claim help with childcare costs for any childcare covered by these vouchers. This means that claimants need to work out whether they are better off accepting vouchers or claiming their childcare costs through the childcare element of Working Tax Credit (or in some cases a combination of both).

This calculator seeks to tell claimants which scenario is the most favourable based on the information entered.

As with the other calculators, HMRC state that certain people cannot use the calculator.

Childcare costs calculator

This calculated was added in March 2012 to help claimants calculate their childcare costs more accurately. This is an area identified by HMRC as high risk in terms of error and fraud. You can find out more about calculating childcare costs in our understanding childcare section.

Tax Credits: How do tax credits work?

In this section you will find information about how the tax credits system works.

The annual cycle: Unlike other benefits, tax credits are based on a tax year. This section explains the yearly cycle and critical dates during the tax year including claims starting , changing , renewals and finalisation.

Forms, notices and checklists: In this section you will find links to the most common current forms and notices used by HMRC to communicate information to claimants. You will also find archived versions of forms, notices and checklists used in previous years.

Calculating tax credits: Calculating tax credit awards can be complicated. This section explains how awards should be calculated under the legislation as well as quicker ways for advisers to do calculations that are still accurate.

Making a claim: In this section you will find information about the different ways of making a claim for tax credits including protective claims . It also explains how claims are processed once received by HMRC and what steps need to be taken to request backdating.

Entitlement: This section provides information about the rules concerning entitlement to tax credits and the various elements

Payments: This section of the site explains how payments of tax credits are made, how tax credits interact with national insurance contributions and the rules around bank accounts.

What is income: A tax credits award is based on the income of the claimant, or of both claimants if the claim is a joint one. This section provides information covering the detailed rules on what counts as income.

Real Time Information and tax credits: HMRC are able to use Real Time Information provided by employers and pension providers for tax purposes to help finalise some tax credit claims. This section explains more about RTI and how it will be used for tax credits.

Who can claim: To be entitled to tax credits, a claim must be made. Without a claim, there can be no entitlement. This section provides information about the rules regarding who can claim tax credits

Changes of circumstances: Some changes of circumstances affect the amount of tax credits payable and some must be reported to HMRC within a certain timeframe. This section explains what changes must be notified , other changes that can be notified and how to notify changes.

Understanding the disregards: The disregards for rises and falls in income are unique to the tax credits system and cause a great deal of confusion amongst claimants. This section explains in detail how the disregards work and includes several examples.

Understanding childcare: Childcare is one of the most complicated parts of the tax credits system for claimants, advisers and HMRC. This section of the site explains the law relating to the childcare element and also covers how to calculate childcare costs.

Understanding disability: A claimant with disabilities may not necessarily be disabled for tax credits purposes. This section explains the disability elements of working tax credit and child tax credit in detail.

Understanding couples: A claim for tax credits must be made jointly by a couple or by an individual. Making the wrong claim can have severe consequences in terms of overpayments and penalties. This section explains the concept of a couple and outlines the consequences of making the wrong claim. It also explains ‘notional offsetting’ and how this can help overpayments relating to wrong capacity claims.

Understanding self-employment: This section of the site explains parts of the tax credits system relevant to self-employed claimants. It includes detailed information about self-employment compliance investigations.

Special circumstances: In this section you will find information about foster carers and shared lives carers , how the tax credits system works for those with mental health conditions and special provisions for situations involving domestic violence.

Overpayments and underpayments: Overpayments and underpayments are built into the tax credits system and can occur naturally even if everything is done correctly by HMRC and the claimant. This section explains the most common causes of overpayments and underpayments.