Alert - universal credit

Tax Credits: Upper Tribunal decisions (chronological)

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

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

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

Immigration & Residency

Income

Work

Backdating

Disability

Tax credit elements

Claims and processes

Notifications

Appeals

Official error

About revenuebenefits

National Living Wage

April 2016 updating

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 -

Transition to universal credit: Secondary Legislation: 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 | PDF | Explanatory memorandum

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

HTML | PDF | Explanatory memorandum

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

HTML | PDF | Explanatory memorandum

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

HTML | PDF | Explanatory memorandum

Universal Credit (Transitional Provisions) and Housing Benefit (Amendment) Regulations 2013 (SI.No.2070/2013) (Amends SI.No.386/2013)

HTML | PDF | Explanatory memorandum | Correction

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

HTML | PDF | Explanatory memorandum

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

HTML | PDF

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

HTML | PDF | Explanatory memorandum

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

HTML | PDF | Explanatory memorandum

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

HTML | PDF | 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 | PDF | Explanatory memorandum

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

HTML | PDF

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

HTML | PDF | Explanatory memorandum

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

HTML | PDF | Explanatory memorandum

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

HTML | PDF | Explanatory memorandum

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

HTML | PDF | Explanatory memorandum

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

HTML | PDF

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

HTML | PDF

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

HTML | PDF

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

HTML | PDF | Explanatory memorandum

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

HTML | PDF | Explanatory memorandum

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

HTML | PDF | Explanatory memorandum

Universal credit: Adviser guidance

This section of the site contains links to Universal Credit guidance for advisers published by both DWP and HMRC.

DWP Advice for Decision Making (ADM)
HMRC guidance
DWP toolkit for advisers

Universal credit: Entitlement to Universal credit

This section of the website gives an overview of the entitlement conditions of Universal Credit. The primary focus of this website is to provide a comprehensive resource that focuses on the transition of tax credits claimants to UC. This section of the site is not intended to provide detailed information about UC but is aimed at guiding advisers through the main areas whilst providing links to further information.

During the roll-out of UC, only people who are eligible to claim can actually submit a claim. Eligibility to submit a claim is not the same as having entitlement and even if a person is eligible to submit a claim it is possible they may not be entitled to UC. You can find out about the current eligibility to claim rules in our Who can claim UC? section.

Claim conditions
How to claim
Claimant commitment
Work conditions
Rates
Calculating universal credit
Elements
What is income for UC?
Changes of circumstances
Capital rules
Self-employment
Passported benefits 
Benefit cap
Transitional protection
RTI and Universal Credit
Payments

Universal credit: Who can claim Universal credit

Universal Credit is being rolled out gradually. Two systems are currently running side by side – a live service system and a digital (full) service system. This part of the website explains in detail who can currently claim UC, the impact of the changes on claims for tax credits and the rules that apply in each area.

Roll-out timetable
This page explains how UC is rolling out and includes links to a PDF document that contains all roll-out postcodes and dates.

Current eligibility to claim
This page explains who is currently eligible to claim UC and how to work out if someone is in a live service or digital service area.

Digital (full) service
This page explains in detail what the digital service is, gives links to the relevant legislation, explains the impact on tax credit claims of digital service and outlines the main rule differences between digital and live service areas.

Live service
This page explains live service in detail and explains the impact on tax credit claims in live service areas.

Moving areas 
This page explains what happens to claimants who move areas (including between digital areas and live service areas).

Tax credits and UC
This section brings together information about the impact of UC roll-out on claims for tax credits. It explains when people may have a choice between the two and also looks at the possibility of moving back to tax credits from UC.

Universal credit: Stopping tax credits

This section of the site covers the process involved in ending a tax credits claim when someone has made a claim for Universal Credit. HMRC are using the term ‘stopping tax credits’ (STC) to describe this process.

In this section we explain:

When will tax credits stop?
Finalising tax credit claims
Tax credit debt

Universal credit: Guidance

In October 2010, the Government announced that as part of its Welfare Reform agenda, Universal Credit would replace most current working age benefits. You can find out more about the background to UC in the resources section of the website.

Universal Credit is a means-tested benefit for working age people on low incomes who are in and out of work. It replaces the following benefits

Claimants do not need to have paid national insurance contributions to qualify. In Great Britain, (i.e. England, Wales, Scotland) Universal Credit is dealt with by Department for Work and Pensions (DWP). In Northern Ireland, Universal Credit is being introduced along a different schedule and will be dealt with by the Department for Communities (previously the Department for Social Development)..

Universal Credit was introduced in April 2013 by way of a small pathfinder in one part of the UK. By April 2016, some form of UC was available in all Jobcentres in Great Britain. From October 2013, UC started to roll out across the UK. We explain more about the roll-out on the roll-out timetable page

Both working tax credit and child tax credit will be subsumed into the new credit, along with income-based Job-seekers allowance; income-related Employment and Support Allowance; Income support and Housing Benefit. Where Universal Credit is available via the ‘digital service’, most claimants will no longer be able to claim these legacy benefits.


Tax Credits - Concentrix telephone number for intermediaries UPDATE

Universal credit: Tax credit debt

This section of the website explains what happens to outstanding tax credits debt when a claimant moves from tax credits to universal credit. Full details of the process are not yet known and more information will be published as it is released by HMRC.

The general principle is that tax credit debt will be passed to DWP for collection from the claimant’s UC award.

Universal credit: When will tax credits stop?

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 mid 2018 to 2021.

At present, existing tax credit claimants will only be affected if they either choose to move to UC, they join a UC household or they have a change that ends their tax credit award. The general rule is that you cannot claim tax credits and UC at the same time.

Claiming Universal Credit
Joining a UC household
Changes of circumstances
What happens next?

Claiming Universal Credit

Existing tax credit claimants who live in areas where UC has rolled out may be able to choose to claim UC and leave tax credits.

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.

It is important that claimants seek advice from a welfare rights specialist before leaving tax credits as there are many issues to consider aside from which one is better financially as the UC rules are very different to tax credits. It is also important that the decision is the right one, as if the claimant lives in a digital service area they will not be able to re-claim tax credits. Those in live service areas may be able to withdraw the UC claim and re-claim tax credits at the present time.

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.

Joining a UC household

If an existing tax credit claimant forms a couple with an existing UC claimant, then they will be treated as claiming UC as a couple. HMRC will see that this claim has been made and terminate the tax credit award. The tax credit claimant’s tax credit award will be terminated from the date that they became a couple (note that this may be different to the UC start date as UC rules may treat the couple claim for UC as made at an earlier date than the tax credit termination date).

DWP do not actually send a notification to HMRC each time someone claims UC. In brief, what actually happens is that DWP set a marker on their system that there is a UC interest and HMRC trawl the system to look for National Insurance Number matches with tax credit claimants. Where there is a match the tax credit claim will be terminated.

However, it is important to remember that tax credit claimants have an obligation to notify HMRC of changes. A change of status from single to part of a couple is something that must be reported for tax credit purposes anyway and we recommend that claimants continue to notify changes and not rely on DWP to transfer information otherwise there is a risk of a tax credits overpayment if the process fails.

Changes of circumstances

Where a tax credit claimant has a change of circumstances that ends their award, they may have to claim Universal Credit. This would be the case if they live in a digital service area as they would no longer be able to claim tax credits. If they live in a live service area then they may be able to claim UC if they meet certain conditions.  In this case, HMRC will normally terminate the tax credit claim because the claimant has reported a change – for example the loss of a job by a WTC only claimant. However it would also be terminated if the person has claimed UC and not told HMRC about their change as HMRC would receive information from DWP about the UC claim.

What happens next?

Once tax credits have been terminated due to a claim for UC, HMRC will begin the in-year finalisation (IYF) process. This may begin immediately or if the claim for UC happens between April and July the IYF process may be delayed. See our finalising tax credit claims section for more detailed information.

Universal credit: Tax credits and UC

This page explains the relationship between tax credits and Universal Credit and looks at how claimants can move from UC back to tax credits and vice versa.

The general rule
New tax credit claims
Existing tax credit claimants
Claims for tax credits by UC claimant
Treated as entitled to tax credits
Moving back to tax credits from UC

The general rule

The general rule is that you cannot claim tax credits (working tax credit and/or child tax credit) at the same time as Universal Credit. There are exceptions to this rule:

New tax credit claims

Whether a person can make a tax credit claim depends on the status of UC in their area. If UC has not reached their postcode then they can claim tax credits as normal. If UC has reached their postcode area then whether they can claim depends on if their area is a digital service area or a live service area. See ‘current eligibility to claim’ to find out more.

Existing tax credit claimants

At present, existing tax credit claimants are not currently affected by the roll-out of UC. From Mid-2018 DWP will start to move existing tax credit claimants across to UC. This will be completed in 2021 based on current plans.

The only way existing tax credit claimants can move to UC is if they choose to do so or if they have a change in circumstances that ends their tax credit award. First, the person needs to understand whether they are in a live service area or a digital service area. See 'current eligibility to claim' to find out more.

Claims for tax credits by UC claimants

A UC claimant cannot make a claim for tax credits. DWP treat a person as a UC claimant if:

This rule, where a UC claimant cannot make a claim for tax credits, also applies even if a claim for the benefit is made or treated as made at a time when the claimant was not a UC claimant. This specifically refers to the normal tax credit rule which allows backdating of claims up to 31 days. Similarly, a claim for WTC may not be made where backdating is claimed due to being awarded a qualifying disability benefit or refugee status that gives entitlement to longer backdating of WTC.

Where a person is treated as making a claim for tax credits under certain provisions, the above rule will not apply. This means that in some cases, a UC claimant can make or be treated as making a claim for tax credits. This applies where the tax credit claimant is treated as a new claimant partner in UC or where the person is treated as making a tax credit claim under UC legislation. See below our section on people treated as entitled to tax credits.

A new claimant partner for UC refers to a tax credit claimant who forms a couple with an existing UC claimant. The couple are treated as having made a claim to UC providing they both meet the basic conditions (except the claimant commitment requirement). The tax credits award will terminate the day before the UC award as a couple starts. If this happens during the renewals period, UC legislation treats this person as making a claim for tax credits for the current year. They will not be affected by the general rule above that says a tax credit claim cannot be made by a UC claimant.

Treated as entitled to tax credits

Under normal tax credits legislation, there is no entitlement to tax credits without a claim. Due to the annual cycle of tax credits, there are periods where potentially a person (or couple) could be receiving payments of tax credits but not have ‘entitlement’ to tax credits under the Tax Credits Act 2002. Much of the UC legislation refers to people who are ‘entitled’ to tax credits and so to address the differences legislation was introduced in the Universal Credit (Transitional Provisions) Regulations 2014 which treats certain people as having made a claim for tax credits for the current year for UC purposes (even if they technically have not for tax credit legislation purposes).

The general rule noted above is that a UC claimant cannot make a claim for tax credits. However this rule does not apply where someone is treated as claiming tax credits under UC legislation. This ensures that people do not lose out on tax credits for a period before they claim UC.

A person is treated as entitled to WTC or CTC (or both) with effect from the start of the current tax year even though a decision (a Section 14) decision has not been made on their claim providing they were entitled to WTC or CTC (or both) for the previous tax year and:

Moving back to tax credits from UC

Often referred to as the ‘lobster pot’ – the principle is that once a person is entitled to UC, they stay on it even if their circumstances change or they move to an area where UC has not yet been introduced.

One of the questions that advisers often have is ‘is there any way for someone claiming UC to go back to tax credits?’. The answer is potentially yes, whilst HMRC are accepting tax credit claims, it is possible for someone to leave UC (escape the lobster pot) and return to tax credits.

Before moving from UC to tax credits or vice versa, advice should be taken from a welfare rights specialist so that the full range of implications can be understood. Some people will be better off on UC than legacy benefits (including tax credits) whereas others will be worse off. The complexity of the roll-out of UC means that until claims for legacy benefits are completely closed off it may be necessary to carry out a ‘better-off’ calculation. However this is not just restricted to which is financially the better choice, but other factors may affect the decision such as passported benefit entitlement, conditionality in UC, monthly payments in UC as well as a host of other points. This is an extremely complex area and advice should be sought before withdrawing a claim for UC.

It will not come as a surprise to find that the situation is complex. We have tried to summarise the current situation in this section, however there are still a number of unanswered questions and we will update once we have answers.

UC claimants cannot claim tax credits

We have explained above that anyone treated as a ‘UC claimant’ cannot claim tax credits. If a claimants falls into one of those categories moving will not be an option unless they fall out of that criteria so that they are no longer a UC claimant.

UC claim ends naturally

Where a claim for UC comes to an end (for example because the claimant has capital over £16,000, becomes a full time student, reaches state pension credit age) then whether a person can then claim tax credits depends on whether they live in a live service area or digital service area. The only exception to this is in live service areas where UC has ended to an increase in earnings – in those cases the person may still be treated as a UC claimant and so not able to claim tax credits for 6 months.

Existing UC claimants

In response to a Freedom of Information request DWP confirmed that it is possible for a UC claimant to end their award.

No provision in the Universal Credit Regulations or Commencement Orders explicitly permits or prohibits the relinquishment of a Universal Credit award. In the absence of such a prohibition, a person receiving Universal Credit who wished to end their award could contact this Department in the usual way when they have a question concerning their award. Once this Department has received the claimant’s notification that they wish to relinquish their award, the necessary work would be taken to end it.

So, presuming a claimant can convince DWP to end their UC award – can they claim tax credits? The answer depends on their postcode.

However, before withdrawing a UC claim, a better-off calculation should be performed and consideration should be given to timing (due to the rules on assessment periods in UC) as well as other rules that exist under UC (such as conditionality, waiting days, monthly payments) that don’t exist on tax credits.

NOTE: This section and indeed the whole site is about the interaction between UC and tax credits. There are similar considerations in relation to other benefits which UC is replacing and the rules about switching between them may be different. For example, where someone lives in a UC live service postcode and claims UC, JSA or ESA, income-based JSA and income-related ESA are abolished. However if the person later has a change which means they no longer meet the gateway criteria, they may be able to leave UC and claim the relevant legacy benefit.

Universal credit: Moving areas

Once a person becomes entitled to UC, they stay on it even if their circumstances change or they move to a non-UC area (where it has not yet been introduced). This applies within Great Britain. Sometimes this is referred to as the ‘lobster pot’ principle. In live service areas, once entitled to UC, the gateway conditions are not relevant so if a person has a change of circumstances that means they no longer meet one of the gateway conditions it will not necessarily affect their entitlement to UC (unless it is a change that also affects entitlement to UC).

Unfortunately the position on moving areas is not that clear and we are seeking further information from DWP.

Moving from a digital area to a live service area

Our understanding is that if you claim UC in a digital area and move to a live service area, you will remain classified as a ‘digital service claimant’ meaning that the digital rules would continue to apply.

However, it does appear that a claimant in this situation could withdraw their UC claim and reclaim tax credits (see above for more information on the factors to consider if contemplating this).

Moving from a live service area to a digital area

It is not clear what happens to someone who claims UC in a live service area and then moves to a digital area and whether they would become a ‘digital service claimant’ and be subject to slightly different rules. We are seeking clarification on this point.

However what is clear is that once a claimant moves from a live service area to a digital area, they cannot withdraw their UC claim and claim tax credits because HMRC would reject the claim as they are living in a digital postcode.

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 will be become 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: 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

What is a digital service area?
Where are the current digital service areas?
What are the current plans for further digital roll-out?
What happens to live service claimants who live in areas that become digital?
Digital service legislation and guidance
Who can make a claim for UC in digital service areas?
What UC rules are different in digital service areas?
Claims for tax credits in digital service areas
Existing tax credit claimants in digital service areas
Moving to UC due to a change of circumstances

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 be transferred to the digital service.

Where are the current digital service areas?

The current digital service areas are:

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 1, CR5 2, CR5 3, CR6, CR7, CR8 1, CR8 2, CR8 3, CR8 4, CR8 5, CR8 9, 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, CR21 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 be transferred to the new digital full service within 3 months.

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 June 2018. Once that process is complete, from mid 2018, DWP will begin migrating all remaining existing benefit claimants to the full UC digital service with a view to completion in 2012. 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.

DWP have released a PDF that lists Jobcentre areas that will become digital between May 2016 and December 2016.

The following postcodes have also been announced for June 2016 and July 2016: 

29 June 2016

Digital full service expansion

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

IV1 1, IV1 3, IV1 0, 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, 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

DL11 7

These postcodes were previously part of the live service. Existing live service claimants will be transferred to the new digital full service within 3 months of the digital go live date.

27 July 2016

Digital full service expansion

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

These postcodes were previously part of the live service. Existing live service claimants will be transferred to the new digital full service within 3 months of the digital go live date.

 

 

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 be migrated onto the full digital service over the first three months.

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 from 25 May 2016, 29 June and 27 July 2016

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 and 10/16 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.

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 2017 (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 entitled 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 mid 2018 to 2021.

At present, existing tax credit 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 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 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

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:

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 PDF roll-out document that shows the status of all postcodes in Great Britain with the latest published information. The document will tell you whether it is a digital service area or live service area (and if so which gateway conditions apply). It will also show the historic position in that postcode area and any known future changes.

There are also some online tools that may help:

The first two of these tools use postcodes (as does the UC legislation) whereas the DWP list uses Jobcentre areas to show who may be eligible to claim. 

DWP have a general power to stop accepting UC claims in specific areas at any time under Regulation 4 Transitional Provision Regulations 2014. This power was used to stop UC claims from 24 February 2016 in Croydon and Sutton postcodes that were due to become digital areas on that date. Instead they became digital areas on 23 March 2016.

Universal credit: Roll-out timetable

Universal Credit is being introduced over a number of years. To further complicate matters, two different IT systems are being used and different rules apply to each. There are frequent developments in the Universal Credit landscape – we advise that you check our blog for the latest news.

Live service roll-out

Universal Credit was introduced in April 2013 in four postcodes in the North West. Between April 2013 and July 2013, further postcode areas were added. Only people who lived in the relevant postcodes and who met strict conditions were able to claim. These areas were called ‘Pathfinder’ areas. Generally only single jobseekers with no children were eligible to make a claim in the pathfinder areas.

Progressive roll-out of live service UC started in October 2013 and gradually more postcodes were added to the Pathfinder areas.

From 16 June 2014, new rules called ‘gateway conditions’ were introduced. These rules set out whether or not a person living in a designated postcode area is able 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 be entitled to UC. We explain the main entitlement conditions for UC in our entitlement to universal credit section. The initial set of gateway conditions were the same as the previous Pathfinder conditions.

From 30 June 2014, the gateway conditions were amended to allow claims from couples in certain postcodes. Further postcodes were announced throughout 2014 and from November 2014 some postcodes began accepting claims from people with children.

In February 2015, the national expansion phase of UC began with roll-out to more postcodes for single jobseekers without children. This national roll-out into these ‘live service’ areas continued until April 2016 when the live service was available in all Jobcentres across Great Britain.

You can find out more about the roll-out in live service areas in the live service section.

Digital service

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, the 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. From May 2016, the DWP have started rolling out the digital (full) service to existing live service areas. Claimants already claiming UC in these areas will be transferred across to the digital service system within 3 months of the digital go-live date for that area.

Once that process is complete, from mid-2018, DWP will begin migrating all remaining existing benefit claimants to the full UC digital service with a view to completion in 2021.  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. We explain more about this in our digital section.

Northern Ireland

The roll-out above applies only to Great Britain. Universal Credit is expected to roll-out in Northern Ireland in 2017.See our NI legislation section for further details.

Tax credit overpayments - changes to ongoing recovery

Check your tax credits - new on line service

Tax Credits: Statutory instruments – Consolidated – Chronological

Below are the main (substantive) tax credits regulations consolidated by LexisNexis

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.

 

 

 

 

Transition to universal credit: Secondary Legislation: 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

Universal credit: Case law

In this section you will find the main universal credit case law.

Upper Tribunal decisions

Universal credit: Policy changes

Although Universal Credit is not expected to be rolled-out as a full national service for some time, a series of policy changes have been announced. In this section we highlight the principles of those changes, although the legislation (and therefore the fine detail) may not yet have been finalised.

Some of the changes are discussed in a House of Commons Research Briefing paper (January 2016).

Autumn 2016

April 2017

Autumn 2016

Benefit cap

In the July 2015 Budget, the Chancellor announced that the Benefit Cap, which applies to those claiming out of work benefits (excluding claimants entitled to in-work support or certain disability benefits) will be reduced to an annual level of £20,000 outside London and £23,000 in London. The change is expected to take effect from Autumn 2016. (July Budget 2015)

April 2017

Digital service areas – losses and surplus earnings

In order to address some of the problems caused by fluctuating earnings and the potential for self-employed (and employed) people to ‘manipulate’ their income to maximise UC entitlement, DWP introduced new legislation in 2014 (The Universal Credit (Surpluses and Self-employed Losses) (Digital Service) Amendment Regulations 2015). These surplus earnings rules were due to come into force in 2016 for those in digital UC areas only, however these have now been postponed until April 2017.  We consider these some of the most complicated regulations we have seen and we are concerned how DWP will implement them and most importantly how claimants will understand what is happening.

The basic premise of the legislation is that if someone has a UC award terminated (for example because their income goes up due to a new job) a calculation will be done to work out their ‘surplus earnings’ for that month and the following five months. Surplus earnings are essentially the amount of income they have above the point at which their UC would reduce to nil plus a £300 de minimis. If the person then needs to reclaim UC within that period, say because they lose their job after four months, the surplus earnings for those four months will be applied to their new claim as income. This means they will receive either a reduced UC award or a Nil award and that will continue until the surplus earnings are used up. These surplus earnings will apply to both employed and self-employed claimants.

The Social Security Advisory Committee published a consultation on the regulations before they were laid. In that consultation, DWP provided examples that showed how the policy would work for both employed and self-employed. However, none of the examples compared an employed person and a self-employed person. That would have shown that in some situations, a self-employed person earning exactly the same amount as their employed counterpart over a year could end up with far less UC over that period. This is due to how the surplus earnings policy interacts with the MIF.

For both the employed and self-employed, the policy is likely to be difficult to understand and people will need adequate warning that they will need to ‘save’ any excess wages for the first 6 months they are off UC following either a rise in income or a change in circumstances that results in less UC entitlement.

For the self-employed, DWP have also introduced recognition for losses. This means a loss from the previous 11 months can be carried forward and used in an assessment period. However, the loss can only reduce income down to the level of the minimum income floor and it cannot take account of any pension contributions. This is a small improvement on the existing rules but it does not compensate for the harsh effects of the MIF nor the lack of proper recognition of pension contributions for the self-employed.

First child premium

The higher rate of child element payable for the first child, sometimes referred to as the first child premium, will be withdrawn for new claims from April 2017 onwards and the standard child element rate will then apply, subject to qualification of the disabled child additions. (July Budget 2015)

Limiting the child element to 2 children

For new claims from April 2017, the child element will only be included for up to 2 children and will not be included for 3rd or subsequent children born on or after 6 April 2017. (July Budget 2015)

Note: there will be some exceptions to this and we will publish more as the details are known.

Universal Credit Rates table Dec 15

Universal credit: Payments

How is Universal Credit paid?
How often are the payments?
Budgeting support

How is Universal Credit paid?

Universal credit, including any part of the award which is an amount included for housing, is paid directly to the claimant. In a joint claim, both claimants nominate which claimant is to receive the payment (in some cases DWP can split the payment or decide which of the joint claimants will receive the payment). Claimants are responsible for ensuring they pay their rent to their landlord, although in exceptional cases, DWP will consider paying the housing amount of the award separately and directly to the landlord.

Payments are made by automatic transfer to the claimant’s bank account. Bank account details are completed as part of the claim process and any subsequent changes to those details should be notified to DWP. DWP have arrangements to make payment by a separate service for those unable to make use of mainstream bank, building society or credit union account and this method of payment should be discussed with the claimants work coach.

How often are the payments?

Universal credit payments are paid monthly, in arrears. Each monthly payment should be credited to the claimant within 7 days of the end of the assessment period that it covers. DWP expects claimants to be responsible for budgeting their finances accordingly, although they do have some flexibility to alter payments in exceptional circumstances and claimant should discuss this with their work-coach.

For new claims, payments can take up to 5-6 weeks while the claim is processed and payment issued. DWP can award an advance payment of Universal Credit for new claimants who expect to struggle meeting essential expenditure whilst waiting for their first payment and claimants in this situation should be encouraged to discuss their request for an advance payment at their Universal Credit claim interview. Advance payments will only be granted where DWP consider the Universal Credit claim looks likely to result in an award. The advance payment is a loan from DWP and must be repaid, usually by deducting the agreed repayment amount from subsequent payments of Universal Credit.

There is little information published about UC advances by DWP, however CPAG have written an excellent guide explaining advances and linking to the latest DWP guidance: CPAG guide.

Budgeting support

DWP can arrange to pay Universal Credit payments fortnightly, pay the housing part of the award direct to the claimant’s landlord and also split the Universal Credit payment between joint claimants. These are known as alternative payment arrangements and are designed to offer some flexibility in budgeting support for claimants who either need their payments to be paid in any of these ways permanently or just temporarily.

DWP have published a guide explaining personal budgeting support and alternative payment arrangements including when they are available and how to ask for them.

Claimants can ask for alternative payment arrangements either at their Universal Credit claim interview or by calling the Universal Credit helpline (0345 600 0723; textphone: 0345 600 0743, Monday to Friday, 8am to 6pm).

Various organisations offer information and advice for Universal Credit claimants about budgeting. DWP work closely with Local Authorities to provide suitable budgeting support arrangements.

Other information

DWP Advice for Decision Making – staff guide B1

DWP publications

Help with budgeting your Universal Credit

Budgeting your Universal Credit quick guide

Guide to managing Universal Credit payments

Tax-free childcare: Legislation

In this section you will find legislation and case law relating to tax-free childcare.

You can use the menu to your left or use the links below to find the right section. At present there is no case law relating to tax-free childcare as it is a new scheme. As decisions are published, they will be added to this section.

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

The Childcare Payments Regulations 2015 (SI 522/2015)
HTML | PDF | Explanatory memorandum

The Childcare Payments (Eligibility) Regulations 2015 (SI 448/2015)
HTML | PDF | Explanatory memorandum

Up-rating and amending regulations

The Childcare Payments Act 2014 (Amendment) Regulations 2015 (SI 537/2015)
HTML | PDF | Explanatory memorandum

Tax Credits (Claims and Notifications) (Amendment) Regulations 2015 (SI 669/2015)
HTML | PDF | Explanatory memorandum

Tax-free childcare: Statutes

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

Childcare Payments Act 2014

HTML  | PDF  | Explanatory Notes

Tax credits - Concentrix telephone number for intermediaries

Charities launch survey about use of digital technologies

Autumn Statement 25 November 2015

Tax credit cuts - update

Transition to universal credit: Secondary Legislation: Passported benefits

This page shows regulations that are related to passported benefits and Universal Credit. You can find out more about other passported benefits in our guidance section.

Free School Lunches and Milk (Universal Credit) (England) Order 2013 (SI.No.650/2013)

HTML | PDF | Explanatory memorandum

Free School Lunches and Milk (Universal Credit) (Wales) Order 2013 (SI.No.2021/2013)

HTML | PDF

National Health Service (Exemptions from Charges, Payments and Remission of Charges) (Amendment and Transitional Provision) Regulations 2015 (SI.No.1776/2015)

HTML | PDF

Tax Credits: Codes of practice

This section gives details of HMRC Codes of Practice (COP) that are relevant for tax credits.

These are important documents issued by HMRC to say what their practice is in certain situations. They are not legally binding and can be overturned by the courts, although this has happened very rarely in practice. Below we have given details of all current codes as well as links to archived versions that are useful for dealing with older disputes and appeals.

Current Codes of Practice
Archived Codes of Practice

Current Codes of Practice

At present there is only one COP in use for tax credits, however it is extremely important as it sets out how HMRC deal with overpayments of tax credits.

You can find more information about challenging overpayments in our ‘how to deal with HMRC’ section.  

Archived Codes of Practice

The codes that appear below are no longer in use and are presented here for information purposes only. Earlier versions of COP 26 are useful when dealing with old disputes and appeals.

Previous versions of Cop 26 -

Previous versions of COP 23 are no longer available:

Cop 23 dealt with examinations, either before tax credits were paid or during the year whilst tax credits were being paid on a provisional basis. This code of practice was replaced with leaflet WTC/FS2 in April 2005 (WTC/FS2 is available from our tax credit leaflets section).

Previous versions of COP 27 are no longer available:

This covered compliance enquiries and was replaced by WTC/FS1 in April 2005. (WTC/FS1 is available from our tax credit leaflets section).

Tax Credits: Parliamentary Committees

There is a Commons Select Committee for each government department, examining three aspects: spending, policies and administration.

These departmental committees have a minimum of 11 members, who decide upon the line of inquiry and then gather written and oral evidence. These members are elected by other MPs. Findings are reported to the Commons, printed, and published on the Parliament website. The government then usually has 60 days to reply to the committee’s recommendations.

Some Select Committees have a role that crosses departmental boundaries such as the Public Accounts Committee.

Treasury Committee

The Treasury Committee, amongst other things, examines the expenditure, administration and policy of HM Treasury and HMRC. Therefore, the tax credits system gets a regular review by this Committee.

Current members of this Committee are:

Reports from the current session of Parliament can be found here. 

Reports for prior sessions can be found here.

Public Accounts Committee

The Public Accounts Committee is one of the most powerful parliamentary committees as it looks across government and is mainly concerned with value-for-money of government spending judged by economy, effectiveness and efficiency. It gets involved with tax credits primarily when the National Audit Office reviews how HMRC are running the system.

Current members of this Committee are:

Reports from the current session of Parliament can be found here.

Reports for prior sessions can be found here.

Work and Pensions Committee

The Work and Pensions Committee, amongst other things, examines the expenditure, administration and policy of the Department of Work and Pensions. Although having no standing in relation to tax credits the Committee must understand the relationship between tax credits and the welfare benefits administered by the DWP.

Current members of this Committee are:

Reports from the current session of Parliament can be found here.

Reports for prior sessions can be found here.

Public Administration and Constitutional Affairs Committee

The Public Administration and Constitutional Affairs Committee examines constitutional issues and the quality and standards of administration within the Civil Service and scrutinises the reports of the Parliamentary and Health Service Ombudsman. The Committee can therefore be involved in 'benefits' issues such as tax credits.

Current members of this Committee are:

Reports from the current session of Parliament can be found here.

Reports for prior sessions can be found here.

Committees established by Statute

From time to time various statutes provide that Committees should be established to perform specific roles, generally to protect the interests of users of government services.

Tax Credits: Archived leaflets

This section of the website contains past versions of tax credits leaflets. These can be useful when dealing with old overpayments.

We will continue to add earlier versions of the leaflets as we receive them. In some years, HMRC did not update certain leaflets therefore there may not be a version for each year. Some of the earliest versions of the leaflets below are scanned copies of the original leaflet and therefore may be of a reduced quality.

You can find archived versions of COP 26 in the Codes of Practice section.

Click on the leaflet number below to go to the archived versions:

WTC 1 | WTC 2 | WTC 3 | WTC 4 | WTC 5 | WTC 6 | WTC 7 | WTC 8 | WTC 9 | WTC 10 | WTC AP | WTC FS 1 | WTC FS 2 | WTC FS 3 | WTC FS 4 | WTC FS 5 | WTC FS 6 | WTC FS 9 | WTC E6 | Tax Credit Annual Review Help Sheets | How HMRC handle tax credits overpayments

WTC 1 – Child and Working Tax Credits

WTC 2 – A guide to Child Tax Credit and Working Tax Credit

WTC 3 – Tax credits penalties: examinations

WTC 4 – Tax credits penalties: enquiries

WTC 5 – Working tax credit help with costs of childcare

WTC 6 – Other types of help you can get

WTC 7 – Tax credits penalties

WTC 8 – Why do overpayments happen?

WTC 9 – Could you get help with your everyday costs?

WTC 10 – Tax credits help us to help you get it right

WTC AP – What to do if you think our decision is wrong (appeals)

WTC FS 1 – Tax credits enquiry

WTC FS 2 – Tax credits examinations

WTC FS 3 – Tax credits formal request for information

WTC FS 4 – Tax credits meetings

WTC FS 5 – Coming to the UK

WTC FS 6 – Leaving the UK

WTC FS 9 – Suspension of payments

Note: This leaflet was introduced in 2010-2011

WTC E6 - Employers

Tax Credits Annual Review Help Sheets

How HMRC handle tax credits overpayments

Tax Credits: Current leaflets

This section gives details of all leaflets produced by HMRC in relation to tax credits.

The leaflets listed below are all current versions, if you would like to see archived versions of the leaflets or leaflets that are no longer published you can use the navigation to the left. 

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

Tax Credits: Archived forms, notices and checklists

Below you will find historical versions of tax credits forms, notices and checklists. These can be useful for disputes, complaints and appeals that relate to earlier years. We will continue to add materials as they become available.

SE Helpcard

TC600 claim form notes

These are the notes that accompany the TC600 claim form.

TC956 disability help sheet

The disability help sheet lists the 3 conditions for the disability element of tax credits.

TC602SN – checklist

This checklist is sent with award notices to help claimants check that the notice is correct.

TC603R renewal pack notes for annual review

TC603RD renewal pack notes for annual review and declaration

TC689

TC825 income worksheet

This form is provided by HMRC to help claimants work out their income for tax credits.

TC846 dispute tax credits overpayment

WTC/AP (TC23) – Appeal form

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.

HMRC have produced a Self-employed Helpcard for tax credit claimants. The Helpcard gives additional information to that contained in the claim form notes and also provides an insight into the way HMRC look at whether an activity can be classed as self-employment, what types of activity can be included as remunerative work and what kinds of records they expect claimants to keep in case they ask to see them. (Note this Helpcard has not been updated recently.)

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

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.

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

Ombudsman’s reports

Ombudsman Annual Reports -

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

Tax Credits: How to deal with HMRC

This section provides guidance on a range of standard tax credits processes.

Acting on behalf of someone else: This section explains the different ways of acting on behalf of someone else including how becoming an appointee, intermediary or agent.

Navigating HMRC: This section explains what the different parts of HMRC do in relation to tax credits.

Contacting HMRC about tax credits: This section explains the different ways to contact HMRC about tax credits.

Obtaining information held by HMRC: Information held by HMRC can often be useful when writing a dispute or appeal. This section explains how to obtain that information and what to do if HMRC do not provide it within the set timescales.

Appeals: This section explains the appeals process in tax credits.

Disputes: The most common way of challenging overpayments. This section explains how the dispute process works and what to do if a dispute fails. Challenging overpayments: There are several ways of challenging an overpayment depending on the cause of it. This section explains more about each route and the steps needed.

Dealing with mistake and fraud: This section explains more about HMRC’s powers to investigate claims including examinations and enquiries as well as the less well known discovery power.

Dealing with overpayment debt: This section explains how Debt Management and Banking recover tax credit overpayments debt.

Expected HMRC standards: HMRC have a set of standards set out in Your Charter that should be followed by tax credits staff as well as all other parts of HMRC. This section also explains help available to those with disabilities.

Making a complaint: This section explains what to do when things go wrong and includes information about escalating cases to the Adjudicator and Parliamentary Ombudsman.

Benefits and Credits Consultation Group: The BCCG group is a forum comprising of HMRC Benefits and Credits staff and representatives from organisations outside of HMRC where strategic and operational issues are discussed. This section contains the minutes from those meetings.

Child Benefit and Guardian's Allowance: Upper Tribunal decisions

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

Any new cases will be highlighted in our news section.

National Minimum Wage: How much is the National Minimum Wage?

This section provides details of the national minimum and living wage rates (both current and past) and also provides links to national minimum and living wage calculators.

The Chancellor announced the introduction of the new National Living Wage (NLW) in his Summer Budget 2015. The NLW was introduced from April 2016 and sets a specific minimum hourly rate of pay for workers aged 25 and over. The rate will be reviewed annually.

National Minimum Wage: Rates over the years

National minimum wage rates are updated every 1 October. The rates are dependent upon age with a special rate for apprentices.

The current rates from 1 October 2015 are:

Previous rates can be found on the GOV.UK website.

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

Tax Credits: Statutory instruments - Consolidated

In this section you will find the main tax credit regulations consolidated by LexisNexis. You can use the menu to your left to navigate this section.

This section is split into two parts –

These consolidated versions have kindly been provided by Tolley Tax Intelligence and LexisNexis and essentially contain the tax credits part of Tolley's Yellow Tax Handbook.

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

Tax Credits: Statutory instruments – Consolidated – Alphabetical

Below are the main (substantive) tax credits regulations consolidated by LexisNexis

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: 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 -

LITRG publication about the tax credit changes

Tax Credits: HMRC Research Reports

Below are a series of research reports funded by HMRC into various parts of the tax credits system.

Working Tax Credit & Child Tax Credit -

This report is based on findings from the Panel Study of Tax Credits and Child Benefit customers. It explores:

Working Families’ Tax Credit

The following research reports were funded by HMRC and relate to the Working Families’ Tax Credit system and the Disabled Person’s Tax Credit that existed prior to April 2003.

Tax Credits: Understanding self-employment

This guide covers some aspects of the tax credits system that are of particular importance for the self-employed.

Self employment and tax credits

To be entitled to tax credits you must be in ‘qualifying remunerative work’. For claims prior to April 2015, there was no restriction on claiming WTC for people who were self-employed, providing the work was done for payment, or in expectation of payment, and they met the remunerative work conditions. You can find out more about the qualifying remunerative work requirement in our entitlement section.

For claims from 6 April 2015 onwards, claimants must be either employed or self-employed. For tax credit purposes, HMRC define self-employed as meaning the self-employed activity is done on a commercial basis with a view to realising a profit and it must be organised and regular.

HMRC will apply this test to new claims from 6 April 2015 and gradually check existing claims to see if those claimants also meet the new test. HMRC will write out to existing claimants about the new test from July/August 2015 before they start to apply these rules to existing claims later in the year.

HMRC have clarified that new claims will be checked against the test if the claimant's previous year income from self-employment is less than the number of working hours (declared by the claimant) x standard rate of national minimum wage.

Notably, this means for example that where a claimant says they normally work say 25 hours a week even if they are only required to work 16 hours a week to qualify for working tax credits, they may be selected for a check if their earnings fall below the threshold based on the hours they declare. (You can find the national minimum wage rates in our national minimum wage section). If they are not earning that amount, then HMRC may ask the claimant to provide evidence that they meet the requirements of the new test. The evidence asked for may include things such as business plans and other business records, including any relevant insurance documents (see HMRC’s Helpcard – note that this helpcard has not been updated in recent years but it can still prove a helpful guide.) It is expected that not everyone whose earnings fall below the threshold will necessarily be asked to prove their self-employment is commercial with a view to realising a profit and is organised and regular. HMRC are developing their guidance on this subject and we will provide more information as it becomes available.

It is not yet clear how this test will be applied in joint claims, where there is a joint hours requirement nor whether there are tax implications where HMRC determine that the self-employment is not commercial for tax credit purposes.

HMRC issued a briefing in March 2015 about how they will apply the new rules.

We will add further information as it becomes available. HMRC’s Tax Credits Technical Manual contains some information about the new test (what is meant by ‘a commercial basis’ and ‘view to the realisation of profits’ for tax credit purposes. It should be noted that even where HMRC determine that a self-employed activity is not undertaken on a commercial basis with a view to realising a profit and is organised and regular, any taxable income from that activity will still be taken into account when assessing the tax credit award amount. This may be relevant where ctc is awarded but wtc refused or claims where the basic remunerative work conditions are met other than by the self-employment activity in question.

HMRC say that the requirement to be either employed or self-employed will not be applied so as to remove entitlement from those whose status is unclear, such as some company directors and some agency workers.

'Company directors who are not otherwise employees are covered as regulation 2(4) extends references to being 'employed' to include being the holder of an office and thus covers company directors as mentioned in your e-mail.

We can also confirm that agency workers are covered in the amended regulations. Although the definition of ‘employed’ in regulation 2 refers to being employed under a contract of service or apprenticeship, the policy intention is that the definition should be read as including agency workers engaged under a contract for services whose earnings are chargeable to income tax as employment income under Chapter 7 of Part 2 Income Tax (Earnings and Pensions) Act 2003 (ITEPA.) This reading of the ‘employed’ definition is supported by the qualification in relation to engagements falling within Chapter 8 of Part 2 (arrangements made by Personal Service Companies) where similarly individuals may not necessarily be engaged under a contract of service. Agency workers, as described in your e-mail, will therefore be considered to meet the entitlement conditions as an employed person for the qualifying remunerative work test for working tax credit.

HMRC will look to clarify this position and if necessary, put it beyond doubt in regulations at the earliest opportunity.'

Calculating working hours

Under the Working Tax Credit (Entitlement and Maximum Rates) Regulations 2002, the number of hours which a self-employed person is in qualifying remunerative work is defined as ‘the number of hours he normally performs for payment or in expectation of payment’.

The HMRC compliance manual states that any hours which will be costed to the client/customer as spent in producing/providing the individual order or service count when working out hours for self-employment. In addition, the following activities also count:

It goes on to say that:

'The amount of time being spent on these activities may also depend upon how established the business is. If a business is in its early days, it is more likely that the claimant will have to invest large amounts of time and effort in building up business contacts for little or no outcome. However, over time the amount of unproductive time spent in this way reduce considerably. If it does not, it may be an indication that the work is not genuinely remunerative.'

The compliance manual also acknowledges that particular trades may present claimants with more difficulty in calculating their working hours and guidance is given for bed and breakfast owners, artists, writers, property renovators and door to door sales people.

Self employment and income

Tax credits generally follow the tax system when it comes to calculating income from self-employment.

HMRC have produced some online guidance which explains how to calculate income from self-employment. This basically involves taking the claimant’s taxable profit and deducting various allowed items such as gift aid and pension contributions. The remaining figure is to be entered into the self-employment income box on the form. If the figure is a loss, 0 should be entered on the form.

Working sheet TC825, provided by HMRC, can be used to calculate income where trading losses, gift aid and pension contributions are involved.

Losses from self-employment

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

A trading loss in a year must be set off against the claimant’s other income for that year. Where the trader is part of a couple and a joint claim is in force, a trading loss in a year must be set off, for tax credits, not only against the trader's current year income but against the joint income of the trader and his or her partner.

Any surplus may be set off against profits of the same trade in future years for tax credits (ie the same as ICTA 1988, s 385 for income tax losses).

There is no carry-back of losses for tax credits.

Unrelieved losses of 2001-02 could be carried forward to 2003-04 and beyond for tax credits; but losses incurred in years prior to 2001-02, or in 2002-03, could not. These were effectively 'non-years' for tax credits, because the income of those years was 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 carried on upon a commercial basis and with a view to realising profits.

For example:

Walid’s trading results and Leila’s employment income for the years 2012/13 to 2015/16 are shown below, alongside their income for tax credits after taking account of Walid’s loss relief.

Year

Walid

Leila

Loss relief

TC income

2015/2016

£3,000

£13,000

(£500)

£15,500

2014/2015

(£12,000)

£11,500

(£11,500)

NIL

2013/2014

(£10,000)

£11,000

(£10,000)

£1,000

2012/2013

£15,000

£10,500

NIL

£25,500

 

Renewals and the self-employed

Tax credits claims last for a maximum of one year. After the end of each tax year, HMRC send renewal packs to claimants. The purpose of these packs is two fold. They finalise the claim for the year just ended and act as a claim for the new tax year.

In order to finalise the claim for the year just ended and ensure any new claim is as accurate as possible, HMRC ask claimants to provide their actual income for the year just ended.

These packs are generally sent out in the summer time. Many self-employed claimants will not have completed their tax returns nor had their final figures from their accountants. For this reason, HMRC allow claimants to complete their declaration forms using an estimated income.

It is important that claimants give an estimated income to HMRC by the deadline (in most cases 31 July) even if they cannot provide an actual income. If they don’t, their payments may stop. The self-employed should give an estimate even if they receive an auto-renewal and their estimated income is within the limits quoted on the renewal form. This will ensure the system knows they have used an estimated income. See the information on missing the deadline in our renewals section.

The claimant then has until the following 31 January to report their actual income. That is also the filing date for income tax self-assessment purposes.

Thus, in order to renew a claim for 2016/2017, a self-employed claimant should file income figures for 2015/2016 by 31 July 2016, but that may be an estimate. If so, the claimant must file final 2015/2016 figures by 31 January 2017.

It is important that they give HMRC their actual income otherwise HMRC will finalise the claim for the previous tax year using the estimated figure which may not be correct. This could potentially lead to penalties and overpayments.

Protective claims

Self-employment has many benefits, but one of the downsides is that income is not necessarily consistent and regular. It may be that a business is doing well and the claimant’s income is too high to qualify for tax credits, but there is a chance that this could change at any time in the future.

Because tax credit entitlement accrues at a daily rate throughout the year, income is worked out by being spread evenly, day by day, over the whole year. This can mean that tax credits already received may have to be recalculated.

This can work to a claimant’s advantage if they start the year on a high income and finish it on a low income, especially if they have made a claim at the start of the year and been given a Nil Award. This is because their award is recomputed for the whole year to give them the tax credit entitlement which is now due. If they had not made a claim, but had delayed claiming until their income fell, they would only have been allowed one months' backdating.

A claim made in these circumstances and followed by a Nil Award is loosely termed a 'protective' claim.

For example:

Edward and Lisa have two children. Edward, on £50,000 a year, is the sole earner. On 1 October 2016 Edward is made redundant and expects to spend the rest of the tax year on contribution based jobseeker’s allowance (JSA).

If Edward and Lisa have made a ‘protective’ claim for the whole of the tax year, their initial award will have been nil. But when Edward is made redundant, and he reports his fall in income to HMRC, he receives a revised award for the whole tax year backdated to April based on an estimate of £25,000 income (£50,000 a year paid for six months) plus his contribution based JSA of £1,505.40

Tax credits entitlement £1,220.76.

If they have not made a claim, Edward and Lisa can backdate their claim by only one months from the date of the redundancy. Tax credits entitlement approx £488.07.

In March 2012, HMRC wrote to claimants who had made protective claims and who were receiving Nil (as well as claimants who they thought would be Nil from April following various system changes). The aim of these letters was to remove people from the system by not renewing their claims for 2012/2013 unless the claimants responded to those letters by 31 March 2012. This exercise has not been repeated for claims in subsequent years. More information can be found in our renewals section.

HMRC Self-employed Helpcard

In response to requests for more information, HMRC have produced a Self-employed Helpcard for tax credit claimants. The Helpcard gives additional information to that contained in the claim form notes and also provides an insight into the way HMRC look at whether an activity can be classed as self-employment, what types of activity can be included as remunerative work and what kinds of records they expect claimants to keep in case they ask to see them. Note that this helpcard has not been updated since it was first produced.

LITRG have raised concerns about the way HMRC handle claims from self-employed tax credit claimants and we have sought clarification on several points about the new definition of self-employment and other points published in the Helpcard. We will provide additional guidance around their application once we have HMRC’s response.

Transition to universal credit: Secondary Legislation: Main Regulations as enacted

This page shows the main Universal Credit regulations as they were enacted. We have also listed those regulations which amend the main regulations. You can find all amending regulations in our other secondary legislation section.

Universal Credit Regulations 2013 (SI.No.376/2013)

HTML | PDF | Explanatory memorandum

Amended by:

Universal Credit, Personal Independence Payment and Working-age Benefits (Claims and Payments) Regulations 2013 (SI.No.380/2013)

HTML | PDF | Explanatory memorandum

Amended by:

Universal Credit, Personal Independence Payment and Working-age Benefits (Decisions and Appeals) Regulations 2013 (SI.No.381/2013)

HTML | PDF | Explanatory memorandum

Amended by:

Social Security (Payments on Account of Benefit) Regulations 2013 (SI.No.383/2013)

HTML | PDF | Explanatory memorandum

Social Security (Overpayment and Recovery) Regulations 2013 (SI.No.384/2013)

HTML | PDF | Explanatory memorandum

Social Security (Loss of Benefit) Regulations 2013 (SI.No.385/2013)

HTML | PDF | Explanatory memorandum

Universal Credit (Transional Provisions) Regulations 2013 (SI.No.386/2013)

HTML | PDF | Explanatory memorandum

Amended by:

Universal Credit (Transitional Provisions) Regulations 2014 (SI.No.1230/2014)

HTML | PDF | Explanatory memorandum

Amended by:

Transition to universal credit: Secondary Legislation

This section of the site explains the secondary legislation relating to Universal Credit (UC) and highlights those sections that are relevant to the transition from tax credits to UC. Most of the regulations have been enacted using powers in the Welfare Reform Act 2012, the primary legislation that sets out the framework for Universal Credit.

Main Regulations as enacted

In this section you will find the main Universal Credit regulations covering more detailed entitlement rules, appeals and transitional provision rules.

Miscellaneous and Consequential Amendment Regulations

In this section you will find all other related Universal Credit regulations.

Commencement Orders

In this section you will find all commencement orders relating to the Welfare Reform Act 2012.

Regulations relating to passported benefits

This section contains regulations relating to passported benefits that are given as a consequence of claiming Universal Credit.

Universal Credit: Primary Legislation

The main primary legislation relating to Universal Credit is the Welfare Reform Act 2012. This section of the site gives more detail about the provisions contained in the Act. We also highlight other primary legislation that is relevant to Universal Credit.

Legislation
Scope of the Act
Commencement of the Act
Transition from tax credits
Other primary legislation
The Welfare Reform and Work Act 2016

Legislation

The Welfare Reform Act 2012 (original)

Explanatory Notes

The Welfare Reform Act 2012 was debated during the various Parliamentary stages of the Bill. You can find details of these debates and relevant documents in our resources section. You can find consolidated versions of the Act in our Tax Credits: Statutes - Consolidated section.

Note that the Act (under Section 149) only applies to England, Wales and Scotland with the exception of a small number of sections which also apply to Northern Ireland. The sections that apply to Northern Ireland are Sections 32,33,76,92,126(1) to 126(13), 127(1) to 127(9) and Part 7 (except Schedule 14). You can track the progress of the Welfare Reform Bill in Northern Ireland in our Northern Ireland section. You can find out more about devolution of welfare powers to Scotland in our Scotland section.

Sections 128 and 129 (information sharing powers between the Secretary of State and Director of Public Prosecutions) only apply to England and Wales.

Scope of the Act

As well as introducing Universal Credit, the Welfare Reform Act 2012 also makes amendments to jobseeker’s allowance, employment and support allowance, income support, tax credits, industrial injuries benefit, housing benefit and the social fund. It also provides for the abolition of council tax benefit from April 2013 (to be replaced by local council tax schemes) and sets out the framework for the introduction of the personal independence payment (PIP) to replace disability living allowance for people of working age. Various other social security changes are also implemented by the Act including the benefit cap.

You can find detailed commentary on the changes to tax credits made by the Welfare Reform Act 2012 in our tax credits policy section.

Commencement of the Act

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 come into force through a series of commencement orders.

You can find a full list of commencement orders in the secondary legislation section. The latest commencement order always contains a full list of earlier commencement order dates.

Transition from tax credits

There are several sections in the Welfare Reform Act 2012 that are relevant for the transition of claimants from tax credits to Universal Credit.

Abolition of tax credits

Section 33(1)(f) Welfare Reform Act 2012 confirms that child tax credit and working tax credit are to be abolished. As yet there is no commencement date for this sub-section. You can find out more about the latest timetable for migration in our stopping tax credits section.

Migration to Universal Credit

Section 36 and Schedule 6 Welfare Reform Act 2012 set out some basic detail about the migration from benefits that are abolished under Section 33 (including child and working tax credits). Schedule 6 gives power to create Regulations that ‘make provision for the purpose of, or in connection with, replacing existing benefits with universal credit’. The remainder of the Schedule sets out how this power might be used. Paragraphs 1(1), 2(b), 3(1)(a), 4(1)(a), 5(1), 5(2)(c), 5(2)(d), 5(3)(a) and 6 commenced on 25 February 2013 (under Commencement Order No.8)

The appointed day is defined as the day on which Section 1 of the Act comes into force.

The Schedule allows:

In relation to working tax credit and child tax credit (as well as other benefits to be abolished) provisions exist to terminate awards of tax credits, to make an award of UC without a claim to a person whose tax credits have been terminated, and to award transitional protection where the amount of UC will be less than the amount of the existing benefit.

Finally, Schedule 6 grants powers to amend the Tax Credits Act 2002 and any provision made under it as necessary. This is a wide ranging power and means that DWP and HMRC can make changes to the TCA 2002 (primary legislation) through regulations. According to the explanatory notes it ‘may be used to align certain tax credit rules more closely with universal credit in advance to facilitate the transition process’. In addition Schedule 6 allows new provisions to be made for the purposes of recovering overpaid tax credits and specifically states that overpayments of tax credits can be treated as overpayments of UC.

In summary, the Act gives DWP and HMRC a great deal of scope for dealing with the transition from tax credits (as well as other means-tested benefits) to UC both in terms of ending tax credits awards and awarding UC but also in respect of dealing with existing tax credits debt.

Transfer of functions from HMRC to DWP

Section 126 Welfare Reform Act 2012 allows any tax credit function of the Treasury or Commissioners of HMRC to be transferred to the Secretary of State by an Order in Council. This provision was included in order to remove a previous provision under the Commissioners for Revenue and Customs Act 2005 which stated that certain functions, including in relation to tax credits, could not be transferred by Order in Council.

According to the explanatory notes:

'An Order under this section may also make provision in connection with such a transfer or direction, and other provision including provision relating to the use or supply of information, combining any aspect of the payment and management of tax credits with any aspect of the administration of social security and applying social security legislation in relation to tax credits. Subsection (5)(a) allows new functions to be conferred on, or functions to be removed from, the Secretary of State, the Treasury, the HMRC Commissioners, a Northern Ireland Department or any other person. Under subsection (5)(b), the Order may authorise the Secretary of State and the HMRC Commissioners to arrange for the HMRC Commissioners to provide services to the Secretary of State in connection with tax credits.'

The section also allows:

As with the other provisions relating to tax credits, Section 126 gives DWP a wide range of powers in relation to the tax credits system.

Information sharing between HMRC and DWP

Section 127 Welfare Reform Act 2012 allows information held by HMRC (and those who provide services to HMRC) to be supplied to the Secretary of State (or to a person providing services to them) or to a Northern Ireland department (or to a person providing services to him/her) for the purposes of departmental functions. Similarly information held by the Secretary of State (and those who provide services to him/her) can be shared with HMRC for the purposes of HMRC functions.

The Section prohibits either DWP or HMRC receiving information and sharing it with any other person or body unless certain conditions are met.

Other primary legislation

The Welfare Reform and Work Act 2016

Following the Summer Budget 2015, the Welfare Reform and Work Bill was introduced into Parliament. The Bill received Royal Ascent on 16 March 2016.

The Welfare Reform and Work Act (WRWA) introduces several provisions including:

You can read about the bill's progress before it was enacted including explanatory notes and briefing papers by following the links below:

Transition to universal credit: Scotland

This page sets out legislation that is relevant to welfare reform and universal credit specifically relating to Scotland.

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.

Transition to universal credit: Northern Ireland

Welfare Reform Act 2012 coverage
Welfare Reform Bill Northern Ireland
Northern Ireland (Welfare Reform) Act 2015 and secondary legislation
Universal Credit

Welfare Reform Act 2012 coverage

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:

Welfare Reform Bill Northern Ireland

The Welfare Reform Bill was introduced to the Northern Ireland Assembly on 1 October 2012. The Bill has progressed slowly and stalled several times due to disagreement between the various political parties. In December 2014, the Northern Ireland parties agreed a deal on welfare reform (The Stormont House Agreement) in order to get the Bill through the final stages of the Assembly process.

However, on 9 March 2015, Sinn Fein withdrew support for the Bill under the terms of the agreement meaning the Bill stalled once again. On 22 May 2015, a petition of concern was presented by Sinn Fein and SDLP. A petition of concern allows coalition members to block bills which do not have sufficient cross-community support. The Bill therefore stalled once again.

On 17 November 2015, the Northern Ireland Assembly agreed a set of actions on certain matters, which included steps towards the delivery of Welfare Reform. The details of the agreement can be found in the document, A Fresh Start – A Stormont Agreement and Implementation Plan.

In relation to Welfare Reform, the agreement stated that:

The agreement also set up the Welfare Reform Mitigations Working Group to report on a mitigation strategy to Welfare Reform specific to Northern Ireland.

Their report, published on 20 January 2016, highlights mitigation under 3 strands covering disability and carers; advice and sanctions; and mitigation for tax credits and Universal Credit. Strand 3, mitigation for tax credits and Universal Credit recommends aspects of additional discretionary support, for example supplementary payments which recognise the costs incurred by workers with a special weighting for lone parents taking account of childcare costs, discretionary support available for emergency payments in hardship cases as Universal Credit rolls out and an allocation of discretionary support for voluntary sector advice.

The text of the Bill can be found on the NI Assembly website, and links to each stage of the Bill can be found below:

Northern Ireland (Welfare Reform) Act 2015 and secondary legislation

As explained above, under the Fresh Start agreement made in November 2015 it was agreed that the UK Government would legislate for welfare reform in Northern Ireland. The Northern Ireland (Welfare Reform) Act 2015 is an enabling measure providing power to legislate for welfare reform in Northern Ireland and confer powers on the Secretary of State or the Department of Communities (previously DSD) to make further provision by regulations and order.

You can read about the passage of the Act on the UK Parliament website.

The Bill was followed by an Order in Council and a commencement order to start the process of welfare reform in Northern Ireland.

The Welfare Reform (Northern Ireland) Order 2015, 2015 No. 2006 (N.I. 1)

This Order makes provision equivalent to the Welfare Reform Act 2012 and will implement the reforms contained in that Act in Northern Ireland, with some limited specific changes, including top up powers and a different sanctions regime, as agreed in the Stormont House Agreement and in previous discussions between the Government and the NI Executive. This order also allows Regulations to be brought forward to implement the various welfare reforms.

The Welfare Reform (Northern Ireland) Order 2015 (Commencement No. 1) Order 2016

This Order brings into force provisions of the Welfare Reform (Northern Ireland) Order 2015 relating to: employment and support allowance; benefit cap; recovery of benefits; penalties; information sharing; discretionary payments.

Universal Credit

In May 2016, two sets of regulations were published supporting the introduction of UC in Northern Ireland:

It is expected that UC will roll-out during 2017 in Northern Ireland. The DWP are working with NISSA to develop a timetable for the introduction of UC in Northern Ireland. The current JSA and ESA as well as other legacy benefits including tax credits will continue to be available pending the introduction of UC.

Transition to universal credit: Legislation and case law

In this section of the website you will find all primary and secondary legislation relating to the transition of tax credits claimants to Universal Credit.

Primary legislation

This section contains links to the Welfare Reform Act and the accompanying explanatory notes.

Secondary Legislation

This section contains secondary legislation including the main Universal Credit Regulations, consequential and miscellaneous amendments and commencement orders. You will also find legislation related to passported benefits and Universal Credit.

Northern Ireland

In this section you will find information about the progress of the Welfare Reform Bill through the Northern Ireland Assembly.

Scotland

In this section you will legislation relating to devolution of welfare powers to Scotland.

Case law

In this section you will find the main universal credit case law.

Tax Credits: Future policy

In this section you will find information about future tax credits policy changes which have not yet been implemented.

In this section you will find information about future tax credits policy changes which have not yet been implemented.

Most of the changes to the system from now on will be to aid the transition of tax credits claimants to Universal Credit. You can find the detail about the stopping of tax credits and transition to UC in our Universal Credit section of the site.

Changes from April 2016

In Budget 2014, the Chancellor announced that from April 2016 the rate of tax credits debt recovery from ongoing awards will increase from 25% to 50% for households with an income of over £20,000 a year.

The Chancellor also announced in Budget 2014 that HMRC would be given powers to allow them to recover tax and tax credit debts directly from claimant’s bank accounts. Only debts of £1,000 or more will be eligible for direct recovery action and HMRC have said they will leave £5,000 across a debtor’s accounts as a minimum. Following concerns raised by a number of bodies, including LITRG, HMRC ran a consultation on the proposals during 2014. The Government’s response was published in November 2014 where a number of safeguards were announced. This measure will be introduced by legislation in late 2015.

In Budget 2015, the Chancellor re-announced additional changes to tighten the rules for self-employed workers claiming working tax credit, whereby they must register with HMRC for self-assessment and provide their unique taxpayer reference number with their working tax credit claim, This change was initially set for introduction in April 2015, however following Budget 2015 it has been delayed and will now be introduced in April 2016.

Freeze on WTC and CTC elements (April 2016)

Prior to 2011, tax credit elements were increased each year using the Retail Prices Index (RPI). From April 2011, this changed to the Consumer Prices Index (CPI) and at the same time the basic element of WTC and the 30 hour element were frozen for 3 years.

From April 2014, it was announced that most tax credit elements would only increase by 1%, with the exception of the disabled adult and child elements which increased by the higher CPI.

It was announced in the Summer Budget that all elements of WTC and CTC would be frozen for 4 years with the exception of the adult and child disability elements. The disability elements will continue to be increased by CPI. This means that many people will not see an increase in tax credits from April 2016.

Decrease in income disregard to £2,500 (April 2016) See our section on Understanding the disregards.

The Summer Budget 2015 announced that the income increase disregard would reduce again to £2,500 from 6 April 2016.

Example

Bridget has been working in the same job for 2 years and her earnings for 2015/16 were £15,000. After doing well at work, Bridget is promoted to a supervisor role from April 2016 and her salary for 2016/17 will be £19,000.

Under the current rules, Bridget’s 2016/17 tax credits award would not be affected by her pay rise because the increase of £4,000 is less than the £5,000 disregard. Bridget would not see a fall in her tax credits until April 2017.

However, under the new disregard, Bridget’s 2016/17 tax credits award would be based on income of £16,500 meaning she would see a fall in tax credits from April 2016 rather than April 2017.

Limiting CTC to two children (April 2017)

The Summer Budget 2015 announcement limits CTC to 2 children from April 2017 and means that anyone who has a third child born on or after 6 April 2017 will not receive the standard rate child element for that child. We understand that the extra amounts for disabled children and severely disabled children above the standard rate will remain payable.

Example

Assume Gita and David have 2 children in 2015/16 and have their third child on 6 April 2017.  Their 2015/16 award will be around £6,105. Their 2016/17 award is likely to be similar assuming their circumstances remain the same. In 2017/18, under the current rules they would have seen their award increase to around £8,885, however because of the new rules they will continue to receive around £6,105 in 2017/18 despite having an extra child.

Removal of the family element (April 2017)

The family element (set at £545) will not be available to those starting a family from April 2017, although there appear to be some proposed exceptions and we will provide updates once more details are known.

Example

Christopher and Diana have 2 children born on 6 April 2017. Under the current rules, their award would have been around £6,105. However, because of the new rules they will receive no more than around £5,560 in 2017/18. The reduction is due to the removal of the family element.

Other effects

Tax credits can act as a passport to other benefits such as free school meals, help with health costs. Many of these passported benefits have thresholds that have been set close to the CTC only threshold. It is not yet clear whether there will be any changes to those thresholds.

If a tax credit claimant has an overpayment from a previous year, it can be recovered from their ongoing award at a rate of 10% or 25%. The 10% rate is available for those who are in receipt of ‘maximum tax credits’.

The Summer Budget 2015 also announced a ‘living wage’ premium for those aged 25 and over which would see the current National Minimum Wage topped up to £7.20 an hour from April 2016. For tax credit claimants, any rise in their gross salary will see a reduction to tax credits of 48p for each £1 of salary. However, because of the income disregard in tax credits, claimants may not see a reduction in tax credits until the following tax year. Any loss of tax credits may be slightly offset by the extra take home pay and increases to the tax personal allowance.

Overall impact

We have explained each of the changes above, however some tax credit claimants may be affected by one, two or all of the changes mentioned above meaning that the actual impact on you will depend on your circumstances and income (for more than one tax year).

It is important when looking at how the changes affect you to look at all changes including the increase in the personal allowance tax threshold, the new living wage premium and reductions or increases to other benefits, such as housing benefit, as well as changes to tax credits.

Tax credits are due to be phased out over the next few years and replaced by the new Universal Credit. Although the Government promised that no-one would be worse off at the point they are moved to Universal Credit, this only applies to making sure they are not worse off compared to whatever tax credits they are receiving at the time. The cuts to tax credits announced in the Summer Budget mean that people are likely to be on lower levels of tax credits at the point they move across to Universal Credit.

Summer Budget 2015

Tax credit on-line renewals - HMRC makes the process easier

Tax-Free Childcare scheme delayed until early 2017

HMRC sending SMS text messages to contact tax credit claimants

National Minimum Wage: Government reports

Each year the Government submits evidence on the national minimum wage to the Low Pay Commission. The evidence is available in two parts - economic and non-economic evidence.

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003 

Child Trust Fund: Statutory instruments

In this section you will find the original versions of child trust fund (CTF) regulations in date order -

Tax Credits: Renewals

Each tax credit claim lasts for a maximum of one tax year. A new claim must be made each year, however it is not necessary to fill in a new TC600 claim form each year.

HMRC will normally send a set of papers (normally between April and June each year), and so long as the information requested is given within the time limits requested, the legislation treats the claim as having being made for the new tax year in most cases.

An outline of the process
The renewals process
The renewal packs
Auto-renewals - current
Auto-renewals - historic
Reply required
Online renewals
Provisional payments
Missing the deadline
Withdrawing from the system
Penalties
Renewals and Universal Credit

Outline of the process

For the majority of claimants the process aims to do two things: to reconcile entitlement for the year just gone (the current year) with what has been paid; and to renew the tax credit claim for the coming year.

Although the process is often referred to as the ‘renewals process’, not everyone will want or need to renew their claim. Some people, for example where a joint claim ended in the tax year just ended, will need to finalise the old claim but will not be making a new claim. In this case they are not renewing merely finalising the old claim.

HMRC have information about the process on GOV.UK aimed at claimants.

The renewals process

The claim for the year just ended (current year) was based initially on the claimant’s circumstances for that year, and income for the year before (the previous year). One of the functions of the renewal process is to establish the claimant's income for the current year, and to review any changes of personal circumstances during it, so that their final entitlement for that year can be established.

Having established the claimant's income for the current year, it is used, together with their latest set of personal circumstances, to set the initial award for the coming year.

So we have a three-year rolling programme. The initial claim for 2015/16 was based on circumstances current in 2015/16 and income for 2014/15. The renewal process for 2015/16 compares the actual income of 2015/16 with that for 2014/15 to fix the final entitlement for 2015/16, and uses the income figure for 2015/16 to fix the initial award for 2016/17.

The comparison works like this for finalising 2015/2016 claims (concentrating only on income and leaving aside changes in entitlement which are due to changes in circumstances):

So an initial tax credits award is made in the year of payment, then revised at the end of the year to produce in many cases an underpayment or overpayment.

It should be noted that in 2006/2007 and earlier years, the disregard for rises in income was only £2,500 instead of £25,000. See our ‘understanding the disregards’ section for a fuller analysis of the consequences of this change from £2,500 to £25,000. From 6 April 2011 the disregard decreased to £10,000, then further decreased to £5,000 from 6 April 2013, and is set at £2,500 from 6 April 2016.

The decrease from £10,000 to £5,000 did not impact on the renewals cycle which finalised 2012/13 claims, but it did have an impact when HMRC calculated initial claims for 2013/14 and the £5,000 disregard will apply when HMRC finalised claims from 2013/14 and later.

Similarly, the decrease from £5,000 to £2,500 does not impact on the renewals cycle which finalises 2015/16 claims but it will impact claims from 2016/17 onwards.

The renewal packs

Claimants will either receive -

  1. A TC603R auto-renewal form; or
  2. A TC603RR plus TC603D (reply required)

- plus guidance notes (TC603R or TC603RD).

Auto-renewals - Current

Previously if the claimant was in receipt of the full CTC family element only, or if they had a nil award because their income was too high to receive any payments, HMRC sent them a TC603R only. If their personal circumstances had not changed and their income was within a prescribed range so that their award would remain the same, nothing further needed to be done. HMRC would automatically finalise the claim for the year just ended and set up a new claim for the current year. These are what HMRC describe as auto-renewal cases.

Due to changes to the system, particularly the removal of the second income threshold, the number of people getting an auto-renewal fell. However, since 2013/14 many more people are being moved from the reply required group to the auto-renewal group as a result of HMRC having access to Real Time Information data from employers and occupational pension providers.

The following people should receive auto-renewal notices for 2015/16 renewals cycle:

All other claimants should be reply-required cases.

Even though some auto-renewal forms will show income figures provided by an employer or occupational pension provider, it is important that claimants still check to see whether they have other income or can make any deductions from the figure provided by their employer as income for tax credits purposes is not the same as income for tax purposes. See our RTI and tax credits section for more detailed information on what should be checked.

Auto-renewals - historic

In December 2010, in an effort to reduce costs, HMRC introduced legislation which enables them not to automatically renew people on nil awards (or who will be on nil awards from the following 6 April) unless the claimant tells HMRC that they wish to renew their claim.

At the start of the 2011-2012 tax year, HMRC sent letters (TC1015) to anyone on a nil award at the time.

These letters were a ‘relevant notification’ that HMRC would no longer automatically renew their claim unless, within 30 days, the claimant makes a ‘relevant request’. If the claimant did not make a relevant request (ie write to or phone HMRC to say they wished to renew their claims for 2011/2012), their claim lapsed at the end of the 2010/2011 tax year.

HMRC considered the exercise a success and decided to run a similar exercise for people who were Nil award in 2011/2012 or who HMRC thought would be a Nil award from April 2012 due to the various budget changes. HMRC once again sent letters to claimants in February 2012 stating that if they did not contact HMRC by 31 March 2012, their claim for 2012-2013 would not be renewed. There were a number of issues with this letter.

We do occasionally speak to claimants who want to withdraw from the tax credit system (see further the section below on withdrawing from the system) and from that point of view these initiatives may have seemed welcome. However, it is very important that people are fully aware of the consequences of leaving the system and what they could lose by doing so as once the 30 day ‘relevant request’ window passes HMRC cannot renew the claim. Instead a fresh claim would need to be made.

In particular there are two groups of people who may lose out by not renewing:

Failure to respond to the letter by 31 March 2012 meant that HMRC, under the legislation, did not (and cannot after the 30 day period has expired) renew the claim automatically and a fresh claim will need to be submitted in the future. We understand that HMRC allowed some claimants slightly longer than 30 days to respond depending on when their letter was sent.

The other issue with the letter that HMRC sent out in March 2012 was the income limits stated in the letter were misleading. The letter stated that the income limit for CTC was £26,000 for 2012-2013, however this only applied if the claimant was part of a couple with one child. The limit for people with more than one child, qualification for any of the disability elements or who claim help with childcare costs was significantly higher. 

Concerns were raised by various organisations, including Low Incomes Tax Reform Group, that claimants would allow their claim to lapse based on incorrect information and that they would not ask HMRC to renew their claim even though they may have known their circumstances would change during 2012-2013 (e.g due to the birth of a second child) or they thought it might change. This is because they believed their income to be over the £26,000 limit. More information can be found on our blog.

If advisers come across claimants during 2016/17 who allowed their claim to lapse as a result of the letter and whose circumstances changed meaning they would have received payment for 2012-2013 and 2013-2104, they should submit a fresh claim as soon as possible and request the maximum 31 days backdating. A complaint letter should also be sent to HMRC with a request for compensation equal to any tax credits and passported benefits that have been lost as a result of HMRC’s misleading information.

HMRC did not run this exercise for the 2013/14, 2014/15 or 2015/16 tax years. 

Reply required

If the claimant is not an auto-renewal case, they must reply to the TC603RR and complete and return the TC603D declaration form with details of their income for the 'current year' (the tax year just ended). This can be done by;

Since April 2014, HMRC have had access to real time information income data from employers and occupational pension providers. They will replay this information on the TC603RR form. It is important that claimants still check to see whether they have other income or can make any deductions from the figure provided by their employer as income for tax credits purposes is not the same as income for tax purposes. See our RTI and tax credits section for more detailed information on what should be checked.

If they have made more than one claim during the current year, eg because they started the year as a single claimant then became a joint claimant with a new partner, they must complete a set of forms for each claim, even if they each show the same information.

Prior to 6 April 2010, if a couple separated during the renewals period, and one member of the couple did not complete their forms an overpayment would occur of payments between 6 April and the date they separated. This was the case even if one partner completed their renewal forms.

But legislation, effective from 6 April 2010, allows one member of a couple to finalise the previous year’s claim and renew the claim for the period following 6 April – separation. If only one member responds, the award will be based on the information provided which may not be accurate. HMRC have advised that, where possible, it is still recommended that both members send back their forms, although failure to do so will no longer result in an overpayment providing one partner has done so.

It is vital to complete and return renewal papers when required to do so. Dissatisfaction with the system has led some people to deliberately refrain from renewing, with the result that payments made to them from the start of the new tax year are treated as overpayments. It is important that the claimant checks the personal circumstances listed and inform HMRC if any of them have changed.

Online renewals

In April 2014, HMRC introduced the facility to renew tax credit claims online via the GOV.UK website. This online system was initially limited to those who received an annual declaration (reply-required cases) and had no changes to report. HMRC extended the service in July 2014 to also include renewals from claimants who had changes or corrections to report.

For 2015/16 renewals, claimants will once again have the option of renewing online. To do this you must go to: https://www.gov.uk/manage-your-tax-credits  

You will need to have a Government Gateway ID to use the service. If you do not have a gateway ID then you can get one as part of the process. Your number will appear immediately and you should keep a note of this number somewhere safe. To use the system you will also need:

You will need to answer some additional security questions and will be given some options to help confirm your identity. For example you may be asked about your P60, tax credit payments, bank accounts.

Provisional payments

So long as renewal papers are returned by the deadlines shown below, claims are treated as made for the new tax year and are backdated to 6 April.

While the renewal process is going on, HMRC will continue pay on the basis of the last known income and circumstances for the tax year just ended. These run-on payments are known technically as provisional payments.

Previously provisional payments for 2016/17 reflected the income and circumstances last reported in 2015/16. This will still be the case for some claimants. Others may see their payments change in April as HMRC use the RTI data they hold from your employer or pension provider. It is important to complete the renewal forms quickly so as to re-establish the award for 2016/17 on the basis of the latest information and to get the rates and thresholds for that year.

When the renewal process is complete, provisional payments are replaced by payments under an initial award for the new tax year. See the information in the claims starting section.

The deadline for return of renewal papers for 2015/16 is the date specified on the renewal papers (in most cases this will be 31 July 2016). This is referred to by HMRC as the ‘first specified date’.

In 2004/05 the deadline was 30 September following the end of the year; in 2005/06 it was brought forward to 31 August 2006; it was then brought forward a further month in 2006/07 to 31 July. The bringing forward of the renewal deadline was part of a series of measures intended to reduce the volume of overpayment in the system.

If the claimant cannot supply firm details of their 2015/16 income by the deadline stated on the renewal papers (in most cases 31 July 2016), for example if they are self-employed and are still waiting for their accounts to be finalised, an estimate is acceptable.

The important thing is to return an estimate by that date. If an estimate is given, it must be confirmed, or actual figures supplied, by 31 January 2017 (which is also the online filing deadline for self-assessment).

Missing the deadline

If the claimant does not renew (either by sending the papers to HMRC or renewing via the telephone or on-line) by 31 July 2016 (or the date on their renewal papers if different) then the award may be terminated.

Failure to renew means that no new claim is made for 2016/17, consequently any provisional payments received from April 2016 will become overpaid and HMRC will seek to recover them via direct recovery.

In addition any other overpayments that were being recovered from their ongoing award will switch to direct recovery when their award is terminated for non-renewal.

If HMRC terminate the award for failing to renew (and consequently stop all payments) regulations allow the claim to be restored providing the claimant renews within 30 days from the date on the notice telling them that their payments are to be stopped (technically called the Statement of Account). Note that for the renewals cycle relating to 2009/10, 2010/11, 2011/12, 2012/13 and 2013/14, HMRC extended the 30 days to 60 days due to problems that claimants had using the tax credits helpline to renew. HMRC have not yet confirmed the position for 2015/16.

Outside of this 30 day period, the claim can only be restored if there was 'good cause' for failing to renew, so long as the renewal papers are returned by the later deadline of 31 January 2017.

In both cases, restoration means that HMRC treat the claim as being made from 6 April 2016.

If the claim cannot be restored (because there was no good cause or if good cause was present the renewal was not done before the 31st January), all provisional payments paid from 6 April 2016 will be treated as overpaid, and the claimant will have to make a fresh claim which can only be backdated a maximum of 31 days.

As mentioned above, it is vital to return renewal papers when required to do so. Claimants should particularly beware of using non-renewal as a tool to pull out of the tax credits system. The consequence of doing so is that their entitlement will cease as from the start of the tax year 2016/17, and therefore any payments received in that year to the date of termination will become overpaid. In addition you will no longer be able to repay any overpayment by reduction of your ongoing award, as there will be no ongoing award to reduce. Instead recovery will be commenced directly.

To summarise:

Withdrawing from the system

As noted above, dissatisfaction with the system has led some claimants to refrain from completing their renewal papers. This has also happened where people have had a change in circumstances and thought they were no longer entitled to tax credits. The consequence of not returning the forms is set out above, and generally means that all payments between April and the date HMRC terminate the claim (for failure to complete the renewals process) become overpaid.

In April 2010, HMRC introduced rules to allow claimants to withdraw from the system by only finalising their previous year claim and not renewing their claim for the current tax year. In effect this means that you must let HMRC know before 6 April that you wish to withdraw your claim for the next year, otherwise you may be overpaid. After the renewals process has been completed, you will not be able to withdraw until the next tax year. During the renewals process, withdrawal may mean you have to pay back anything received from 6 April.

NB - please not however that the above link has been archived by HMRC and has no therefore been updated since May 2014.

Penalties

In addition to the claw back of all provisional payments made to date, there may be financial penalties for not responding to a renewal notice, or for giving the wrong information in response to it. More information about penalties can be found in our 'penalties and interest' section.

Renewals and Universal Credit

Universal Credit, when fully implemented, will replace working tax credit and child tax credit. Claimants will be transitioned from tax credits to UC over the next few years. The finalisation process for claimants who are moving to UC is different to the process for people remaining in tax credits.

Tax credits on-line renewals UPDATE

HMRC tax credits on line renewal service

Child Benefit and Guardian’s Allowance: Rates and tables

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.
 

Child Benefit and Guardian’s Allowance: Forms, notices and checklists

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

This is an on-line version of the child benefit claim form. It can be completed on screen and printed out. It will still need to be posted to the child benefit office, at the address printed on the form. You can find further information on what to do before you start and what else to send with the child benefit claim form on the GOV.UK website.

If you prefer, there is also an option to print the form and then fill it in at home.

If your client’s preferred language is welsh, they can print out and then complete the welsh version of the claim form - CH2 (Welsh) (April 2015)

This form is used as an extension to the child benefit claim form because the paper version has only enough space for two children/young persons. Use this form if your client wants to claim for three or more children/young persons. You do not need this form if your client is completing the online claim form, as that allows an unlimited number of children/young persons to be included. This form can not be used in isolation to add additional children/young persons to an existing child benefit award, in those circumstances a fresh claim for the additional child/young person should be made.

The latest version of the CH2 notes. The notes show each page of the claim form and include information about how to complete it. It is advisable to keep a copy of the notes that were issued with any claim form which is submitted. If your client’s preferred language is welsh, they view the welsh version of the claim form notes - CH2 Notes (Welsh) (April 2016)

This form is used to apply for an extension of child benefit, for up to 20 weeks, for young people who have left full-time non advanced education or approved training

This appeal form can be used to submit an appeal. Normally, an appeal has to be made within one month of the decision. See our section on submitting an appeal for more information.

This is the authority form that must be used by intermediaries who wish to act on behalf of child benefit claimants. It is generally used by intermediaries such as Citizens Advice, Local Authority welfare rights and other voluntary advice agencies. You can find out more about the different ways of representing child benefit claimants in the acting on behalf of someone else section. This form can only be completed on screen.

See also -

Child Benefit and Guardian’s allowance: Current leaflets and forms

This section gives details of all leaflets and forms produced by HMRC in relation to child benefit and guardian’s allowance.

Leaflets

All current leaflets relating to Child Benefit can be found on the GOV.UK website. Please check the date carefully next to each leaflet as some leaflets have not been updated for some time.

Forms

You can access all current child benefit forms on the GOV.UK website including the claim forms for Child Benefit and Guardian’s Allowance, forms to report changes and forms relating to the High Income Child Benefit Tax Charge.

Child Benefit and Guardian’s Allowance: Qualifying for child benefit and guardian’s allowance

This part of the website provides information about qualifying for child benefit and guardian’s allowance.

There is a range of information about qualifying for both benefits on the GOV.UK website. We have provided links to the relevant information based on the claimant’s circumstances

Child Benefit
Guardian’s Allowance

Child Benefit

Basic eligibility criteria for child benefit
Children over 16
Fostering a child
Adopting and child benefit
Children living with someone else
Children in care
Children in hospital or residential care
Living or working abroad
Newly arrived in the UK

If you need more detailed information, the following sections of the child benefit and guardian’s allowance manual may be useful.

Responsibility for a child or qualifying young person

Entitlement to child benefit requires the claimant to be ‘responsible’ for a child or young person. This part of the manual explains what ‘responsible’ means in the context of entitlement along with an explanation of related concepts such as ‘living with’, ‘prescribed residential accommodation’ and how contributions to the cost of a child are relevant to entitlement.

Prescribed conditions for a child or qualifying young person

In order to claim child benefit, the claimant must be responsible for a child or young person. This part of the manual explains what counts as a child and ‘qualifying young person’.

Exclusions from entitlement and priority between persons

In some situations, child benefit cannot be claimed. This part of the manual explains those exclusions. Sometimes more than one person claims child benefit for the same child or young person. This part of the manual explains who takes priority in such situations.

Entitlement after the death of a child

This part of the manual explains what happens to child benefit if a child or young person dies.

Residence and Immigration

Child benefit legislation includes certain requirements relating to residency and immigration status. This part of the manual explains those requirements.

Guardian’s Allowance

Qualifying for guardian’s allowance

If you need further information about who is entitled to guardian’s allowance, the following sections of the HMRC manuals will be useful.

General conditions of entitlement
Adopted children and qualifying young persons
Illegitimate children and qualifying young persons
Surviving parent in prison
Residence and entitlement
Whereabouts of the surviving parent

 

Child Benefit and Guardian’s Allowance: Payment information

Frequency

Child benefit payments are usually paid every four weeks on a Monday or Tuesday. In some cases child benefit may be paid weekly. The award notice should show the date of the first payment. Subsequent payments should follow every 4 weeks unless it is a bank holiday.

Guardian's Allowance is paid with child benefit payments, and is usually paid every four weeks directly into any bank, building society or National Savings and Investment (NS&I) account that accepts Direct Payment. GOV.UK have information on their website about the types of account that HMRC will pay child benefit into.

Bank Holidays

If your client’s payment is due to be paid on a bank holiday the payment will be made early, usually the last working day before the bank holiday. The GOV.UK website provides a table so you can check if your client’s payments will be affected by specific bank holiday dates and, if appropriate, the earlier date when they should receive the payment.

Child Benefit and Guardian's Allowance: Making a complaint

As HMRC administer child benefit and guardian’s allowance, complaints follow their normal complaints process which is outlined briefly on the GOV.UK website and in their complaints leaflet C/FS1

A complaint is generally about the way your client has been treated, unlike an appeal which is against a decision which has been made on a child benefit claim. A complaint may take the form of an unreasonable delay, a mistake which could have been avoided, poor or misleading advice, the use of discretion, inappropriate staff behavior or more generally how your client has been treated. Your client may be able to claim back reasonable costs caused by the child benefit office's mistakes such as postage, phone calls and professional fees. They may also be entitled to a redress payment for things such as worry or distress. Full details can be found in HMRC’s Redress Guidance.

In the first instance, complaints should be made to the child benefit office. Your client can do this in a number of ways:

Child Benefit Office
PO Box 1
Newcastle Upon Tyne
NE88 1AA

The Guardian's Allowance Unit
Child Benefit Office
PO Box 1
Newcastle upon Tyne
NE88 1AA

If the reply received from HMRC is still not satisfactory, your client can ask them to look at the complaint again. This is often called a ‘Tier 2’ complaint and is usually dealt with by the child benefit office Director's Complaints Team. You contact them in the same way as above but make sure that you address the complaint to the Director of child benefit or the Director’s Complaint Team.

If the response from the Tier 2 complaint is still not satisfactory, a further complaint can be made to the Adjudicator’s Office and onwards to the Parliamentary Ombudsman via your client's MP. More information about the escalation routes can be found in the equivalent tax credits sections.

Child Benefit and Guardian’s Allowance: Making a claim

This section of the website explains how to make a claim for child benefit and guardian’s allowance.

Child Benefit

Claims for both child benefit and guardian’s allowance

Guardian’s Allowance

Child Benefit

Claiming child benefit

Form CH2 is the child benefit claim form. There are 3 main ways to obtain a claim form:

The form is also available in Welsh.

The completed claim form should be sent to:

Child Benefit Office
Washington
Newcastle Upon Tyne
NE88 1ZD

HMRC has produced guidance to help claimants fill in the claim form. The guidance goes through the claim form page by page.

More detailed information for advisers about making a claim is available in the HMRC child benefit and guardian’s allowance manual.

When to claim

Child Benefit should be claimed within three months of becoming entitled to it. Late claims can only be backdated up to three months.

HMRC recommend that a claim should be made as soon as:

Backdating

Claims can normally only be backdated up to 3 months, and there is no need to show why the claim was late.

There are special rules for backdating for refugees. Providing the claim is made within three months of being awarded refugee status, the claim can be backdated to the date the person first claimed asylum. The HMRC child benefit and guardian’s allowance manual explains these rules in full.

Documentation and evidence

HMRC generally require an original birth or adoption certification along with a completed claim form. HMRC advise claimants to send the form anyway, even if they don’t have the form.

One exception to this requirement is if someone has claimed child benefit for the same child previously.

HMRC have produced guidance for claimants about birth and adoption certificates.

Claims for both child benefit and guardian’s allowance

Under child benefit and guardian’s allowance legislation, where a person who claims child benefit also appears to have entitlement to guardian’s allowance for the same child or qualifying young person, the child benefit claim may be treated alternatively or additionally as a claim for guardian’s allowance.

Where a person who claims guardian’s allowance also appears to have entitlement to child benefit for the same child or qualifying young person, the guardian’s allowance claim may be treated alternatively or additionally as a claim for child benefit.

Guardian’s Allowance

Claiming guardian’s allowance

Claims for guardian’s allowance are to be made on form BG1. This form can be downloaded from the HMRC website or a paper copy can be obtained from the guardian’s allowance unit (0300 200 3101; Textphone 0300 200 3103).

A set of notes accompany the claim form which help claimants complete the form.

The form should be sent to:

The Guardian's Allowance Unit
Child Benefit Office
PO Box 1
Newcastle upon Tyne
NE88 1AA

More detailed technical information for advisers about claiming guardian’s allowance is available in the HMRC child benefit and guardian’s allowance manual.

Backdating

Guardian’s allowance claims can generally only be backdated three months. As with child benefit above, special rules apply for refugees. In some cases, it can be backdated further if a claim for child benefit has also been made.

Documentation and evidence

HMRC ask for original copies of the child’s birth certificate and the original death certificate of the parent (or parents).

Child Benefit and Guardian's Allowance: Intermediaries

This section of the site outlines how to become an intermediary in respect of child benefit and guardian’s allowance and the processes HMRC have in place that can help intermediaries.

The processes for child benefit are the same as for tax credit’s intermediaries, using joint forms and a shared support team – the Tax Credit Office External Relations Team.

What is an intermediary?

An intermediary can be one of the following:

It also includes other organisations such as welfare rights workers within Local Authorities.

What can an intermediary do?

According to HMRC, an intermediary can:

They cannot receive the payment on behalf of a child benefit claimant (unless they are also an appointee) and they cannot get any award notices or other decision notices (unless they are also an appointee or an agent).

How to become an intermediary

HMRC authorise intermediaries using form TC689.

If it is a joint claim, both claimants should sign the form. For joint claims that have ended, it is sufficient for only your client to sign the form (without the other partner). In such cases HMRC should give all information about the previous joint claim and should not require a signature from the second partner.

To avoid delay in setting up the authority, you must ensure that all questions are completed and that signature(s) have been obtained. HMRC will not process incomplete TC689s. You should note that the new TC689 is an online form and must be completed on screen. If you are a registered organisation, you can use the online submission form.

Once logged on the system, the TC689 lasts for 12 months unless a different end date is specified.

If you deal with tax credits on a regular basis you may wish to become a registered intermediary which will allow you to submit the TC689 electronically. See below for details of how to do this.

Registering as an intermediary organisation

HMRC have a process in place to allow organisations who deal with child benefit on a regular basis to become an intermediary organisation.

To do this your organisation will need to register with the Intermediaries, Agents and Appointees Team by completing form TC1136 and posting it to:

HMRC Benefits and Credits
Intermediaries, Agents and Appointees Team
PRESTON
PR1 4AT

Once authorised, you will be given a reference number for your organisation which can be used on the TC689 form. In addition, in cases where a TC689 is needed quickly, authorisations for child benefit can be submitted electronically using the on-line KANA version of TC689 (KANA). Please note that the on-line TC689 form doesn’t have the customer(s) signature so you must keep an additional copy signed by the customer(s) as HMRC may request to see the original at any time as part of their assurance checks. HMRC will only accept a TC689 electronically from registered organisations.

Intermediaries helpline

There is an Intermediaries helpline which is separate from the main helpline and generally answered by knowledgeable HMRC staff. In many instances they will arrange for you to get a call-back from the processing team dealing with the claim (usually the same day).

The phone number is 0300 200 3102 and lines are open 9am to 5pm, Monday to Friday.

Child Benefit and Guardian's Allowance: Help with disabilities

There are many ways of contacting HMRC which are outlined in the ‘contacting HMRC’ section of the website. 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 the GOV.UK website.

Following the closure of HMRC’s enquiry centres, claimants who need face to face help should contact the child benefit helpline (0300 200 3100 or textphone 0300 200 3103) or guardian’s allowance unit (0300 200 3101 or textphone 0300 200 3103) to arrange a face-to-face appointment.

More information is available on the GOV.UK website.

Child Benefit and Guardian’s Allowance: Overpayments

Background

Overpayments usually happen when there is a change of circumstances but the Child Benefit (or Guardian’s Allowance) payments haven't been adjusted to match.

Where there is an overpayment, the Child Benefit Office will send out a letter explaining that Child Benefit (or GA) has been overpaid, by how much, why and whether the claimant has to pay back the overpayment. There should also be a separate letter which explains how to pay the money back.

Anyone who thinks they have been overpaid Child Benefit or GA but hasn’t received a letter should contact the Child Benefit Office to check.

If someone is overpaid Child Benefit (ChB) or Guardian’s Allowance (GA) and it is as a result of either misrepresentation or the failure to disclose information by the claimant, whether fraudulently or not, HMRC can recover the overpayment.

How to pay back overpayments

Usually, claimants are asked to pay back the money in a one-off lump sum, with large debts, there is the option to ask for a ‘Time to pay’ arrangement spread over a period of time.

However, since June 2012, there was a correction to the policy and the Child Benefit Office can now also let claimants repay overpayments directly from ongoing awards. When ChB and GA were transferred to HMRC, the provision to recover an overpayment of Child Benefit or Guardian’s Allowance from an ongoing award of one of these benefits was inadvertently lost. The provision in section 107 of the Welfare Reform Act 2012 re-enables overpayments of Child Benefit and/or Guardian’s Allowance to be recovered from future payments of these benefits.

Process for recovery of Child Benefit and Guardian’s Allowance overpayments from an ongoing award

Any letters sent will have a contact number for the claimant to ring to discuss the repayment options, including whether they will be put into financial hardship because of the amount they are being asked to repay by deductions.

More information about overpayments of Child Benefit and Guardian’s Allowance can be found on the GOV.UK website.

Information about how to appeal can be found in our appeals section.

Child Benefit and Guardian’s Allowance: Government websites

In general terms, Government websites are the most reliable in providing information on child benefit and guardian’s allowance, but sometimes the information is not always correct.

Child Benefit
Guardian's Allowance

Child Benefit

https://www.gov.uk/browse/benefits/child

The GOV.UK website provides coverage for most basic issues concerned with child benefit. There is also a section of the site dedicated to those who help others @ http://www.hmrc.gov.uk/childbenefit/people-advise-others/how-to-act.htm

http://data.gov.uk/

Here you can search for various child benefit datasets.

http://www.legislation.gov.uk/

Here you can search for legislation relating to child benefit. You can also find legislation in PDF format in our legislation and case law section.

http://webarchive.nationalarchives.gov.uk/*/http:/www.hmrc.gov.uk/

Here you can enter past versions of HMRC’s website (from 2006 onwards). It allows you to access HMRC’s website at various snapshots in time to see what the website contained at that moment. The contents and links are still live so you are able to navigate through the site and see the guidance, forms and leaflets as they were at that time.

Guardian’s Allowance

https://www.gov.uk/guardians-allowance

The GOV.UK website provides coverage for the basic issues concerned with guardian’s allowance.

http://www.legislation.gov.uk/

Here you can search for legislation relating to guardian’s allowance. You can also find legislation in PDF format in our legislation and case law section.

http://webarchive.nationalarchives.gov.uk/*/http:/www.hmrc.gov.uk/

Here you can enter past versions of HMRC’s website (from 2006 onwards). It allows you to access HMRC’s website at various snapshots in time to see what their website contained at that time. The contents and links are still live so you are able to navigate through the site and see the guidance, forms and leaflets as they were at that time.

Child Benefit and Guardian’s allowance: External commentary

This section of the site contains links to information about child benefit and guardian’s allowance written by other, non-governmental organisations.

If your organisation produces child benefit material please let us know and we will include it below.

Citizens Advice

Citizens Advice publish an advice guide online which includes information about child benefit and guardian’s allowance

Turn 2 Us

Turn2us is a charitable service which helps people access the money available to them through welfare benefits, grants and other help.

The charity also has a benefits calculator and produces information on a range of topics including child benefit and guardian’s allowance.

Child Benefit and Guardian’s Allowance: Changes of circumstances

This section of the website gives an overview of changes of circumstances that need reporting for child benefit and guardian’s allowance.

Child benefit
Guardian’s allowance

Child benefit

The HMRC sets out the changes that claimants need to report for child benefit purposes.

They also explain how these changes will impact on the child benefit claim.

The HMRC child benefit and guardian’s allowance manual has detailed information for advisers about misrepresentation and failure to disclose for child benefit.

How to report changes

There are three ways to report changes:

Child Benefit Office
PO Box 1
Newcastle Upon Tyne
NE88 1AA

Given the potential consequences if changes are reported late, it is crucial that records are kept when changes are reported.

For calls to the helpline, it is recommended that claimants record the date, time, operator name and brief details of the call.

For letters sent to the Child Benefit Office it is recommended that a copy of each letter is kept and that it is sent recorded delivery (requiring a signature) as a minimum. At the very least a proof of posting should be obtained.

Guardian’s allowance

Guardian’s allowance changes are similar to those above for child benefit. To report changes relating to guardian’s allowance, claimants can use the online child benefit form or contact the guardian’s allowance unit:

(Textphone: 0300 200 3103)

The Guardian's Allowance Unit
Child Benefit Office
PO Box 1
Newcastle upon Tyne
NE88 1AA

As above, it is recommended that the claimant keep good records of any changes that are reported.

Child Benefit and Guardian's Allowance: Benefits and Credits Consultation Group

BCCG is a forum hosted by HMRC to discuss tax credits, child benefit, guardian’s allowance and tax-free childcare with representatives.

The format and objectives of the group were reviewed during 2014 and members consulted on proposals to streamline the arrangements. Before then, the Group provided:

The group used to meet bi-monthly and the minutes were published after each meeting on the HMRC website. You can find further information and links to the minutes of each meeting within the tax credits - BCCG section of this website.

During 2014, BCCG agreed to reduce the number and frequency of their meetings such that they now meet in various specific sub-committee arrangements to discuss items of current and specific interest, such as the in-year finalisation of tax credits.

Tax Credits: Starting an appeal

This section provides information about appealing a tax credits decision. Not all decisions are appealable. The appeals process changed significantly for decisions made on or after 6 April 2014. The new process is explained below as well as what to do for appeals against decisions made before 6 April 2014. You can find a full list of appealable decisions here. The information below was written by the Low Incomes Tax Reform Group.

The appeals process

A tax credit appeal is a formal process that allows a claimant to challenge an incorrect entitlement decision. The appeals process is set out in Section 38 Tax Credits Act 2002. For decisions made on or after 6 April 2014, an appeal cannot be brought under Section 38 unless a review of the decision has been carried out (called mandatory reconsideration) and a mandatory reconsideration (MR) notice issued showing the outcome.

Following the mandatory reconsideration process, onward  appeals are dealt with by an independent tribunal which is completely separate from HMRC. This is the Social Entitlement Chamber of the First-tier Tribunal to which most welfare benefit appeals go in the first instance. It is administered by HM Courts and Tribunals Service which is an agency of the Ministry of Justice. This agency is legally independent of HMRC and there is a specific set of rules governing the First-Tier Tribunal’s procedures. The Tribunals service was previously a separate agency of the Ministry of Justice but merged with HM Courts Service from 1st April 2011.

If the claimant is dissatisfied with the decision of the First-tier Tribunal, they can appeal further, but only on a point of law and with permission, to the Administrative Appeals Chamber of the Upper Tribunal which replaced the former Social Security and Child Support Commissioners on 11 November 2008. On matters of fact, as opposed to law, the decision of the First-tier Tribunal is nearly always final.

From the Upper Tribunal, a right of further appeal lies, again with permission and on a point of law, to the Court of Appeal, Court of Session in Scotland, or Court of Appeal in Northern Ireland.

Appeals vs. Dispute

The distinction between MR/appeals and disputes is one even HMRC staff find hard to understand. The appeal route is used where there the claimant thinks that HMRC have calculated their entitlement incorrectly, it can therefore be used to challenge an overpayment if the underlying calculation that led to the overpayment is wrong. A dispute is used where there claimant has been overpaid (they have in fact received more than their entitlement for the year) but they don’t think it should be paid back. Generally this is because they believe HMRC have made a mistake and that they met their responsibilities as set out in COP 26. More information can be found in our disputes section.

There are some important differences between the two processes:

Changes from 6 April 2014

On 3 July 2012, HMRC published a consultation document called ‘Tax Credits: mandatory revision before appeal’. HMRC sought views on the impacts of changing the tax credits appeals process to mirror the Department for Work and Pensions planned changes to their appeals process which was announced in the Welfare Reform Act 2012 and subject to a consultation between February and May 2012.

The aim of the consultation was to look at simplifying the tax credits appeals process by introducing a mandatory consideration of revision before appeal. HMRC anticipated that this would significantly reduce the number of appeals to be heard by the Courts and Tribunal Service and ensure continued alignment and consistency of treatment with the revised DWP appeals legislation and processes which DWP will be introducing.

The consultation closed in October 2012. HMRC confirmed at the November 2012 Benefits and Credits Consultation Group meeting that although the proposals in the consultation document would go ahead to mirror DWP changes, given the current delays in the tax credits appeals system they would not be implemented from April 2013 as originally planned. Instead they have been introduced from 6 April 2014.

The main change is that claimants must ask for a review of the decision before they can appeal. This review is called ‘mandatory reconsideration. Some other differences between the old system and the new are:

These changes were brought in by new regulations – the Tax Credits, Child Benefit and Guardian’s Allowance Reviews and Appeals Order 2014 - which amended the Tax Credits Act 2002 and inserted some new sections covering mandatory reconsideration.

Decisions made on or after 6 April 2014

How to request a mandatory reconsideration (MR)

MR requests need to be made in writing or using form WTC/AP . There is no requirement for the request to be signed, as long as HMRC are satisfied that the claimant has sent in the request they can continue. Intermediaries and agents can ask for a MR if they have written authority to act.

The request should be made within 30 days of the date on the decision notice. See ‘late requests’ below if the claimant has missed this 30 day time limit. Recovery of any overpayment will be suspended upon receipt of the MR.

The case will then be sent to the relevant part of HMRC. If the decision was made in the course of a compliance investigation then the case will be sent to compliance to consider the MR request.

According to HMRC guidance, upon receipt of a MR request HMRC staff will decide whether the decision carries MR rights or not. If it is decided that the decision does not carry MR rights then staff are instructed to contact the claimant by phone and explain why this is the case and make a note on the claimant’s records. Only if they are not contactable by phone will a letter be sent. Historically, HMRC have been known to refuse appeals where they believe there is no appeal right and this is either incorrect or can potentially be challenged at Tribunal. With the introduction of MR, it appears that challenges over the validity of a MR request are being dealt with by HMRC and there is no recourse to a Tribunal on an issue of validity. This would leave Judicial Review as the only potential option.  We are confirming this position and will provide an update once more information is obtained.

HMRC have published guidance in their manual outlining the mandatory reconsideration process which covers what attempts HMRC will make to get further information and what notices will be issued to claimants.

Late requests

You should always try to ensure that you, or the claimant, lodge the appeal within the 30 day time limit for appealing. However if this time limit has passed, it is not necessarily fatal as MR requests can be accepted providing the following conditions are met:

  1. The claimant has applied for an extension of time
  2. The claimant explains why the extension is sought and the request for late MR is made within 13 months of the notification of the original decision.
  3. HMRC are satisfied that due to special circumstances it was not practicable that the application for MR be made within the 30 day time limit
  4. HMRC are satisfied that it is reasonable in all of the circumstances to grant the extension. In determining whether it is reasonable to grant an extension, HMRC must have regard to the principle that the greater the amount of time that has elapsed between the end of the 30 day time limit and the date of application, the more compelling the special circumstances should be.

An application to extend the time limit which has been refused may not be renewed.

One important point is that under the old appeals system, if HMRC refused a late appeal request then it was ultimately up to the Tribunal to decide whether to allow the appeal or not. Under the MR process, HMRC are effectively judge and jury on late requests and other than possibly using Judicial Review  there appears to be no process to challenge HMRC’s refusal to accept the late MR.

The mandatory reconsideration decision

Upon receipt of a MR request, HMRC will first decide whether the decision has a right to request MR attached to it (see above) and then decide whether any further information is required to make their decision.

If HMRC need more information they will make 3 attempts to contact the claimant by telephone to obtain the additional information. If contact cannot be made, a ‘mandatory reconsideration triage letter’ will be sent asking for further information.

HMRC guidance appears to state that if no further information is required, HMRC staff should still telephone the claimant to either tell them the original decision is correct or to tell them the original decision was wrong. There is guidance on what staff should do if, during this telephone call, the claimant then agrees the original decision was correct. Outbound calls from HMRC are normally not recorded and so staff are directed to make a note of this on TC648. Advisers may need to request a copy of this if the claimant then seeks advice and you find the decision is wrong and an appeal needs to be lodged with the Tribunal.

Once HMRC make their decision they should send the claimant two copies of the mandatory reconsideration notice. According to HMRC guidance this notice should in most cases contain the following information:

WTC/AP form confirms that ‘we will put any recovery action on hold while we carry out the reconsideration or while your appeal is being considered’. However the staff guidance states that at the point of issuing the MR notice, the suspension of recovery is to be lifted. It is not clear at what point this gets suspended again if the claimant continues their appeal and we are seeking clarification from HMRC on this point.

Appealing the mandatory reconsideration decision

Under the old appeal system, if HMRC did not agree that the original decision was wrong, the case was automatically sent to the Tribunal service. The claimant did not need to take any action. Under the new process, claimants must appeal directly to the Tribunal service if they are not happy with HMRC’s mandatory reconsideration decision. This is called ‘direct lodgement’. The process is currently different in Northern Ireland although it is expected that direct lodgement will comment there in late 2014.

For people who live in Great Britain (England, Scotland and Wales), form SSCS5 should be used to appeal against the mandatory reconsideration decision. HM Courts and Tribunals Service also publish a booklet on how to complete the form. You must include a copy of the mandatory reconsideration notice with the appeal. You must include a copy of the mandatory reconsideration notice with the appeal.

For claimants in Northern Ireland, appeals should be sent to the Tax Credits Office, Preston, PR1OSB and if you cannot reach agreement with HMRC or do not agree with their decision, it will be forwarded to the Tribunal Service by HMRC.

Claimants have 30 days from the date of the mandatory reconsideration notice to lodge their appeal. If an appeal is received by HMRC against a MR decision, they will write to the claimant and tell them to lodge it directly with the Tribunal service. If an appeal is sent to HMCTS they will check whether a MR has been carried out and if not, it will be forwarded to HMRC and treated as a MR request.

Decisions made before 6 April 2014

If the decision was made before 6 April 2014, then the old appeals process explained below should be followed.

How to appeal
(Decison made before April 2014)

An appeal must be made in writing within 30 days of the date of the decision that is being challenged. This will normally be the date on the tax credits award notice. Although the appeal will eventually be heard by an independent tribunal, the notice of appeal must be sent to the Tax Credit Office (TCO).

The appeal must state what the customer thinks is wrong and must also state which decision they are appealing against.

The appeal does not have to be on a special form. You can use form WTC/AP but a letter will also be sufficient. You must give the name and contact details of the claimant, confirm the decision that you are appealing against and sign the letter. If you have authority to act for the claimant, the appeal can be signed by the adviser, otherwise the claimant should sign it. It is generally useful to include a copy of the authority form.

Appeals should be sent to:

Appeals Team
Tax Credits Office
Preston
PR1 4AT

Additionally, the letter should explain the grounds for appeal. It will generally not be sufficient simply to state that you are appealing because you, or the claimant, think the decision is wrong.

Prior to July 2013, the TCO should acknowledge receipt of the appeal in around 5 working days from when they logged it on their system. This provided useful evidence that an appeal had been sent. However from 15 July 2013, HMRC have stopped these acknowledgement letters as they are now undertaking to deal with all appeals within 6 weeks. We advise that all appeals are sent recorded delivery or with some proof of posting.

There have been reports of the TCO declining to accept an appeal even though it is validly made. This is sometimes due to confusion within the TCO as to what constitutes a valid appeal in respect of an overpayment – it is sometimes not understood that there is a right of appeal against a decision on an award that results in an overpayment, even though there is no statutory right of appeal against the collection of the overpayment.

It is worth remembering that HMRC do not have power to decline to entertain a valid appeal, and jurisdiction over what is a valid appeal lies with the appeal tribunal, not with HMRC.

If you, or the claimant, do not receive any acknowledgement from HMRC within a reasonable time, you should contact the Tribunals Service and ask them if they can list the appeal directly.

HMRC do not have power to refuse to accept a valid appeal or to strike out an appeal. If there is any uncertainty or dispute in this regard it is for the independent tribunal to decide, not HMRC.

Although it is possible in some circumstances make a late appeal, you should wherever possible ensure that the appeal is sent to HMRC within the 30 day time limit and that you make allowance for any postal delays. If you are still awaiting information relevant to the appeal, it is advisable to include a request for that information with the appeal and make it clear that you will be sending further representations at a later date.

Late appeals
(Decison made before April 2014)

You should always try to ensure that you, or the claimant, lodge the appeal within the 30 day time limit for appealing. However if this time limit has passed, it is not necessarily fatal. Both HMRC and the First-tier Tribunal have discretion to accept a late appeal provided it is made within 13 months of the date of the original decision.

If the appeal is late, it should explain why.

A late appeal can be accepted provided: --

  1. there are reasonable prospects that the appeal will be successful; and
  2. one of the following circumstances applies:-

Ignorance of the law is not in itself a good reason for appealing late and generally the later the appeal is, the stronger the reasons should be.

It may be that HMRC will simply accept and process the late appeal. If they do not do so, the question of the late appeal will be referred to the tribunal for immediate consideration. This will be considered by a tribunal judge but without a hearing. It is advisable to ensure that the request is as detailed as possible.

Late appeals can arise where an appeal against an award concerns detail relating to the calculation of the claimant’s entitlement. Tax credit claimants are not given calculations with their award notices and will have to ask for them separately. This information could be outside the 30 days allowed for appealing against the award. It is our understanding in such cases that HMRC will generally not decline to accept a late appeal. Alternatively it could perhaps be argued that the 30 day time limit runs from the date on which the claimant receives the additional information. But the only safe course is to ensure that appeals are lodged within the 30 day time limit.

If HMRC do not consider a late appeal to be in the interests of justice, they are not entitled to refuse to admit it on those grounds without first consulting the First-tier Tribunal.

Settling an appeal with HMRC
(Decison made before April 2014)

Once the appeal has been processed, someone at the TCO will contact you (if there is an authority in place, otherwise they will contact the claimant), usually by phone, to discuss the appeal. HMRC may agree a settlement of an appeal with you or the claimant, and that is what they generally aim to do in the first instance. Although the proposals should be considered, you do not have to settle and can choose to have the case listed with the First-tier Tribunal.

If agreement is reached, the TCO will confirm it in writing, and amend the award there and then. It is advisable to ask for the direct dial number of the appeal officer should there be any further queries and ensure that they agree to send confirmation of the outcome in writing in addition to a new award notice (on occasion TCO have been known to send only the new award notice).

If settlement is not reached, a date will be set for a hearing before the First-tier Tribunal. The claimant has the right to back out of any agreement made with the TCO under this procedure, provided TCO are told within 30 days.

More information about settlements can be found in the HMRC tax credits manual.

Appeal delays

Due to the rapid rise in the number of compliance interventions being carried out by HMRC in trying to tackle error and fraud in the system, the number of appeals has also risen dramatically. This has caused a concerning backlog of appeals in the Tax Credit Office. It is not uncommon for compliance appeals to take several months before any contact is made with the claimant and even longer for the case to progress to the Tribunal.

HMRC do try and triage cases to ensure that people who are completely out of payment (such as those subject to undisclosed partner decisions) have their appeals dealt with quickly (within three months is the timescale). However, evidence suggests this doesn’t always happen.

For decisons made before April 2014, in theory it is possible to ask the First-tier Tribunal directly to list the case where HMRC are acting unreasonably and delaying the appeal and there is hardship. Child Poverty Action Group have written some guidance on dealing with delays that covers writing to the Tribunal directly. They note that such applications are unlikely to be entertained unless there are special reasons why the case should be dealt with urgently, or there has been a significant delay.

From 15 July 2013, HMRC have undertaken to deal with all appeal cases within 6 weeks.

More information

 

Tax Credits: How to claim

To be entitled to tax credits you must claim them. There is no entitlement without a claim.

In the early years of the tax credits system, it was possible to claim online. This facility was withdrawn due to fraudulent attacks. The majority of claimants will now need to obtain a paper claim form from HMRC, although there are some other methods of claiming that are available to certain groups of claimants which are explained below.

Obtaining a paper claim form

The paper claim form is called the TC600. You can find a sample of the current form in our forms, notices and checklists section. The primary way of obtaining a claim form is from the tax credits helpline (0345 300 3900 or textphone 0345 300 3909). Some advice organisations also carry stocks of forms, although HMRC are reducing the organisations who can do so.

It is standard procedure for the Tax Credits helpline to ask for the claimant’s name, address and National Insurance number when they request a claim form. The helpline may also ask the claimant some questions to estimate what their entitlement might be. In some cases, the helpline may refuse to issue a claim form as they believe that the claimant does not meet the criteria, or the claimant does not have a national insurance number or the entitlement check shows entitlement as NIL. This should not happen and if it does full details of the date, time and operator name should be taken and used to prepare a complaint. It is not the function of the helpline to make a decision on entitlement to tax credits, especially not on the basis of a single phone call.

The paper claim form can also be requested by submitting an on-line request via GOV.UK. Anyone using this service is advised to run through either HMRC’s ‘Do I qualify ’questionnaire or HMRC’s tax credits calculator first, the on-line claim form request automatically becomes available at the end of either of those services. Even if the online calculator suggests you may not be able to claim, if you are unsure or your circumstances are complicated you may want to request a form anyway.

Security procedures -

In 2010, HMRC introduced a new security procedure whereby they require people to answer questions based on their Experian credit data. Initially it appeared that if the claimant could not answer these questions, HMRC were refusing to issue a claim form unless the claimant attended an interview at an enquiry centre. If the claimant did not have a national insurance number, they would not be able to go through the security procedure. However, HMRC staff had an alternative set of questions for such situations. Following an impact assessment consultation about the new security procedures, HMRC agreed to pilot issuing claim forms without requiring the claimant to answer security questions. This pilot remains ongoing.

Full details of the IDAS security procedure can be found in our dealing with HMRC section. Information for obtaining a national insurance number can be found on the DWP website.

One point to note about the new security arrangements was that advisers could no longer request forms on behalf of claimants as the new process required the claimant to pass the security checks. Since the pilot commenced allowing forms to be issued without going through the additional security checks, it is unclear of the position for advisers who want to request a form without the claimant being present. Members of the Benefits and Credits Consultation Group (BCCG) have raised this and other related problems with HMRC.

In and out of work process (IOW)

The IOW process is aimed at those claiming income-based jobseeker’s allowance and income support to enable their benefit claims to be quicker and easier when moving in and out of work.

The new process was originally tested in six pilot areas from September 2007. More information about the pilots and their evaluation can be found in the DWP evaluation report. From December 2008 to March 2010, the process was rolled out nationally.

The basis of the process is that when a claimant moves from benefits into work, they will be able to end their out-of-work benefits and claim their in-work benefits in one phone call. Similarly if they stop working, the process works in reverse ensuring their in-work benefits stop when they should and enabling claims to out-of-work benefits.

The process is led by Jobcentre Plus. The claimant makes a single call to them and they take the relevant information and pass it to Local Authorities (for housing benefit and council tax benefit) and to HMRC for tax credits.

From a tax credits perspective there are some points to note:

More information about the process including detailed guidance and leaflets can be found here: http://www.dwp.gov.uk/local-authority-staff/housing-benefit/claims-processing/closer-working-with-dwp/in-and-out-of-work-project/

Fast track claims via Jobcentre Plus

A fast track process is in place between Jobcentre Plus and HMRC for certain types of claim. Historically this included anyone moving from a Jobcentre Plus benefit into work, or for those claiming a Jobcentre Plus benefit making a claim for child tax credit. The In and Out of Work process has meant the fast track is no longer needed for many of these claims.

However, there are still some customers of Jobcentre Plus who will still require a claim for tax credits and who cannot be helped through the In and Out of Work process.

In particular the process can be used for refugees who wish to claim tax credits, one of the benefits being that Jobcentre Plus can verify documentation which should ensure the claim is put into payment more quickly.

The process is manual and requires Jobcentre Plus to complete a TC600 claim form and send it with a pro-forma to a specialist unit in HMRC. This means that it should be dealt with much quicker than the normal HMRC channels, although it should be noted that the claim may still be subject to various pre-award checks. HMRC guidance suggests that claims should be put into payment within 7 working days.

This can be a useful process for vulnerable claimants and Jobcentre Plus staff should be reminded of the process to ensure it is used in appropriate cases. There is some HMRC guidance about the process on their website, although this makes reference to an E-Portal that is no longer in use. The process is clerical as described above.

Tell us once – telephone claims

The ‘Tell us Once’ service for reporting a death was rolled out in England, Scotland and Wales during 2011. Initially used for reporting deaths, it is currently being extended to include a birth service. If someone reports a death to a registrar and wants to take part in Tell us Once. Information about the death with be passed to HMRC for tax credits purposes.

Part of the service includes the registrar helping new parents fill in their child benefit claim form. In addition, parents who are on certain benefits (the full list of benefits have not yet been confirmed although it is likely to be income based benefits) will be given a special phone number for HMRC Tax Credit Office which will allow them to make a fast track claim over the phone.

Tax Credits: Help with disabilities

There are many ways of contacting HMRC which are outlined in the contacting HMRC section of the website. 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 the GOV.UK website.

Following the closure of HMRC’s enquiry centres, claimants who need face to face help should contact the tax credits helpline to arrange a face–to-face appointment.

More infomation is available on the GOV.UK website.

Request a tax credit claim form on-line

Tax Credits: Enquiries

This section of the website provides basic information about enquiries. The material in this part of the website was written by the Low Incomes Tax Reform Group.

Tax credit enquiries are analogous to self-assessment enquiries in mainstream tax. They are furnished with more statutory safeguards than the in-year examinations. Nevertheless tax credit enquiries, unlike examinations but like self-assessment enquiries, may be conducted at random.

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 2014/15 should be sent in by 31 July 2015). In some cases the 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 2014/15 should be confirmed, or actual 2014/15 income notified, by 31st January 2016.

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:

Disputes

This section outlines the dispute process which is one of the ways in which a claimant can challenge an overpayment. This page is based on more detailed information in the LITRG ‘Challenging Overpayments’ Guide which is available for download in the ‘Challenging Overpayments’ section of our site.

To find out more about how to understand whether the claimant has an overpayment and how to identify the cause of an overpayment see our overpayment and underpayments section.

The dispute process

Most challenges against overpayments will be done using the dispute process. This process is used where there is in fact an overpayment but the claimant believes that they should not pay it back because of an error by HMRC.

The dispute process is not governed by statute. Under statute, HMRC may recover all overpayments howsoever caused. HMRC set out their policy on how they exercise this discretion in Code of Practice 26. The process in COP26 is referred to as the ‘dispute process’.

The dispute process is internal to HMRC. Disputes are decided by the Customer Service and Support Group (CSSG), part of the Tax Credit Office in Preston.

In September 2009, a specialist team was set up within CSSG to deal with disputes and complaints from certain intermediaries (primarily only for those who provide free help to claimants). As well as creating a dedicated team, a new process was implemented which means advisers should receive an acknowledgement letter with the contact details of the named caseworker dealing with the dispute or complaint. In February 2012, HMRC stopped issuing acknowledgement letters to advisers following a successful trial as they were dealing with disputes quickly. Disputes should be addressed to:

IDCT
CSSG
Tax Credit Office
Preston
PR1 4AT

Disputes can be lodged using form TC846 or by letter (generally preferred by advisers as it allows a full argument to be put forward).

Suspension of recovery during a dispute

For disputes received by HMRC prior to 15 July 2013, as soon as a claimant disputed an overpayment, whether on form TC846 or in some other written format, HMRC suspended recovery of the overpayment whilst they investigated the matter. Recovery did not recommence unless and until the dispute was resolved against the claimant and in HMRC’s favour. Thereafter, HMRC’s policy was that suspension could only be reactivated if the claimant submitted a new dispute with new evidence to HMRC which required further investigation.

HMRC changed their policy in relation to recovery suspension for disputes received from 15 July 2013. This represents a major change in policy. For disputes received after that date, there will no longer be any suspension of recovery when a dispute is lodged.

If the overpayment is being recovered from an ongoing tax credits award, that will continue whilst the dispute is considered. If the overpayment is being recovered directly via debt management and banking (DMB), they will continue recovery action whilst TCO consider the dispute.

We are not aware of any changes to the policy that if a dispute is successful, any payments made will be refunded to the claimant.

The new policy means it is crucial that claimants and their advisers engage with DMB if the debt is in direct recovery so that further action (ultimately distraint or county court) is avoided. Information about time to pay arrangements can be found in the dealing with debt section.

It is still worth speaking to DMB for direct recovery debts to request a suspension of recovery by DMB (rather than TCO). This can be requested under their official guidance where the claimant is in financial hardship or in receipt of certain means tested (see dealing with debt section for further details). Even if the claimant doesn’t fit this criteria it is still worth asking DMB for suspension if a dispute has been filed as even though it is not official DMB policy some officers are prepared to suspend when cases are in dispute or go to the Adjudicator.

Appeals vs. disputes

The distinction between appeals and disputes is one that even HMRC staff have difficulty with. There are some important differences between the two processes:

Examples of when an appeal and dispute may be appropriate -

Example of when an “appeal” is the right thing to do:

Daisha claims tax credits for her three children. Her eldest child finishes her GCSEs but decides to stay on at school to do her A levels. Daisha tells HMRC and continues to receive tax credits for three children. When HMRC work out Daisha’s final tax credits for the year, they only include two children. Because Daisha received money for three children, HMRC think that they have overpaid her. Daisha can appeal the decision and ask HMRC to change her award as she should have received tax credits for three children. If this is successful, the overpayment will disappear.

Example of when a “dispute” is the right thing to do:

Eric and his wife were paid tax credits for three children when they only have two. When Eric received his award notice, he phoned HMRC to tell them they had the number of children wrong. HMRC did not correct the mistake and kept on paying Eric too much tax credit. After the end of the year, Eric had received more tax credit than he should have and so has an overpayment. Eric can use the dispute process because he accepts that he has been paid too much, but doesn’t think he should have to pay it back because he told HMRC of the mistake as soon as he saw his award notice.

If a claimant sends an ‘appeal’ to HMRC that should be a dispute, it will generally be re-directed. Unfortunately when the opposite happens, a claimant sends a ‘dispute’ when in fact they want to appeal, the letter tends to be treated as a dispute. In such cases we recommend that advisers argue that HMRC should treat the original letter as an appeal. There is no requirement that appeals must state that they are an ‘appeal’ so long as they meet the other appeal requirements.

The previous ‘reasonableness’ test

Prior to 31 January 2008, claimants faced the much criticised ‘reasonableness test’. This test had long been criticised by representative bodies, and following a succession of reports in 2007 by the Adjudicator, The Parliamentary Ombudsman and Citizens Advice, HMRC decided to revise the test.

The following paragraphs contain information about the operation of the reasonableness test. Whilst the test is not applicable to new cases, HMRC have stated that the test will still be used where a claimant asks HMRC to review a previous dispute decision that was made under the old test. In practice, our experience is that all current disputes are being dealt with under the new test which is generally more generous to claimants. Officially, any disputes outstanding as of 31st January 2008 should have been dealt with under the new test.

COP26 (April 2007 version) stated:

‘For us to write off an overpayment you must be able to show that the overpayment happened because:

- we made a mistake, and

- it was reasonable for you to think your payments were right.’

Both tests had to be satisfied before HMRC would write off an overpayment.

Of the two tests described above – that HMRC must have made a mistake, and that it must be reasonable for the claimant to have thought their award was right – it was the second of the two, commonly known as ‘the reasonableness test’, that provoked the most controversy.

The responsibilities test

The old versions of COP26 were most noticeably silent on what claimants could expect from HMRC. Whilst HMRC internal guidance gave some indication of what claimants could expect, the reasonableness test centred around the claimant and put the emphasis on them to check HMRC’s work. There seemed little responsibility for HMRC and this led to large overpayments being recovered in situations where the claimant did not spot an error which HMRC had made.

In designing the new test, HMRC attempted to move away from the one-sided list of responsibilities, replacing a test which imposed all of the responsibility on the claimant to one which set out responsibilities for both parties.

The responsibilities for both the claimant and HMRC can be found in HMRC's Code of Practice leaflet COP 26.

There are four possible outcomes to a dispute:

In this situation the overpayment will not be written off since, if both sides have met their responsibilities, the overpayment is likely to be a naturally occurring overpayment which is built into the system, or is caused because HMRC have 30 days to action a change.

In this situation the overpayment will not be written off because of the failure of the claimant to meet their responsibilities. This may be overridden if there are exceptional circumstances.

In this situation the overpayment will be written off because HMRC failed to meet their responsibilities.

In this situation the part of the overpayment attributable to HMRC’s failure will be written off, but the part attributable to claimant error will remain recoverable unless exceptional circumstances are present.

There is an extremely useful document within HMRC’s own guidance detailing the steps that advisers should follow in determining disputes under the new test.

Under point 4 in the summary table above, where both parties have failed in their responsibilities there will be a partial write off calculated by apportioning the part of the overpayment that is attributable to HMRC’s failure.

The guidance directs dispute staff to go on and consider four additional questions in this situation:

Did the claimant, for overpayments in 2008-2009 onwards, report any error on their award notice within one month of receiving it?

Did the claimant, for overpayments prior to 2008-2009, report any award notice error promptly?

Did HMRC delay in processing a change of circumstances for more than 30 days?

Did HMRC incorrectly process a change of circumstances?

In the first two cases, if the claimant informed HMRC within one month (or promptly for overpayments arising earlier than 2008-2009) the overpayment relating to the error on the award notice should be written off. If notification is made outside of these time limits, it would seem that the overpayment will only be written off from the date that HMRC were actually informed of the error.

In the last two cases, the part of the overpayment relating to HMRC’s error in not processing a change of circumstances within 30 days or processing a change incorrectly should be written off.

Any remaining overpayment would appear to be recoverable.

One other way of having an overpayment written off is to examine whether ‘notional offsetting’ applies if the case involves separating couples, couples coming together or one member of a couple dying or going abroad for longer than 8 or 12 weeks (depending on the circumstances). More information can be found in our Understanding Couples section.

Time limit for disputes

Background

Since the tax credits system began, most challenges of overpayments have been made through the dispute process. Prior to 6 April 2013, there was no time limit for disputing an overpayment.

Due to the design of the award notices, it isn’t always easy to tell whether there is an overpayment and, even if there is an overpayment, to tell how much is owed. This is especially true for overpayments that occurred in the early years of the system and are still being recovered. It often isn’t until the claimant’s award ends and they receive a demand from DMB (debt management and banking - part of HMRC) that they realise that they have an overpayment, or appreciate its true extent.

Because historically there has been no limit on the time allowed to dispute an overpayment, people could still dispute an overpayment even after their award had ended, and could still be successful in getting it written off if the relevant evidence was available.

However, in order to manage the number of disputes, and get tax credits system ready for the move to Universal Credit, HMRC decided to introduce a three month time limit for disputes from 6 April 2013.

Although this is a fairly simple change in theory, the operation of the time limit is very complex. As a result, although the time limit appeared on award notices from April 2013, it was fully implemented from October 2013.

When does the time limit run from?

As set out in COP 26, the three month time limit for disputing an overpayment runs from the date of the final award notice relating to the tax year in which the overpayment arose (but see below for overpayments from earlier years).

For people whose claims are auto-renewed the time limit runs from the date the renewal notice states a final decision will be made. For most people this will be 31 July following the end of the tax year to which the claim relates. Note that it is not the date of the renewal notice itself, but the date that it says a decision will be made.

Example 1: Dean and Sharon receive a Section 17 auto-renewal notice which is dated 14 May 2013 as they were in receipt of income based Jobseeker’s allowance for the entire 2012-2013 tax year. The notice states that if HMRC do not hear from the couple, they will confirm the amount due for 2012/13 and make a decision on entitlement for 2013/14 on 31 July 2013. Dean and Sharon have 3 months from 31 July 2013 to dispute any overpayment listed for 2012/13.

Following representations by LITRG, where an appeal is unsuccessful (or only partially successful) and any remaining overpayment then needs to be disputed, the three month time limit for the dispute will run from the date of letter telling the claimant the outcome of their appeal.

Finally, in some cases, such as where a claim is investigated by HMRC under their compliance powers, a new final award notice may be issued at the end of the investigation. If that happens, the three month time limit is activated again from the new final award notice.

Overpayments from earlier years

The time limit was introduced from 6 April 2013 and therefore affected finalised notices for the 2012-13 tax year. As explained above, the time limit runs from the date of the final notice relating to the tax year in which the overpayment arose. However as this is the first year of operation of the time limit, consideration needs to be given for overpayments from earlier years and how the limit will work.

For 2012-13 final award notices only, the time limit will apply to overpayments relating to the 2012-13 tax year and historic overpayments for earlier years.

In other words, claimants should dispute within three months of the 2012-13 final notice in order to challenge any 2012-13 overpayments and any overpayments from earlier years that have not already been disputed. If they do not, the chance may be lost (subject to the relaxation for some disputes between April and October 2013 described below under the heading ‘Interim arrangements from April 2013’).

Example 2: Ronnie has been overpaid during 2012-13 because HMRC did not initially process a change of circumstances that she reported. The overpayment of £1000 is shown on the final award notice dated 21 August 2013. Ronnie will have until 21 November 2013 to dispute that overpayment.

Example 3: Daniel and Hazel have been overpaid in 2012-13 by £850. They also have two overpayments from earlier years. One is from 2005-06 with £2,800 outstanding and the other from 2009-10 with £1,400 outstanding.

Their final award notice for 2012-13 is dated 3 August 2013 and shows all three overpayments.

They have until 3 November 2013 to dispute all three overpayments. Once that date has passed, HMRC’s intention is that they will lose the ability to dispute these overpayments (but see below for a relaxation of this rule in certain situations during 2013-14).

Final award notices for 2013-14 and subsequent years will only carry dispute rights against any overpayment that occurred in the year being finalised. For example, the final notice for 2013-14 will give three months to dispute any overpayment that occurred during 2013-14 but not any overpayment from 2012-13 or earlier years. The time limit for disputing those overpayments will have passed.

Example 4: Ronnie has been overpaid again during 2013-14 as HMRC did not initially process a change of circumstances that she reported. The overpayment of £2500 is shown on the final award notice dated 17 August 2014. Ronnie will have until 17 November 2014 to dispute that overpayment. She cannot dispute the overpayment that will show on the notice for the earlier year of 2012-13 (see example 2) as the time limit for that overpayment has expired.

Interim arrangements from April to October 2013

As noted above, the time limit runs (in most cases) from the date of the final award notice for the relevant tax year. Those who are familiar with award notices will know that this is not as straightforward as it sounds.

There are two major problems with the time limit:

Example 5: Peter and Angela have a joint tax credits claim. They receive an initial 2013-14 award notice and then two further notices after reporting changes to HMRC about their childcare costs. The couple separate in November 2013 and a potential overpayment is showing for 2013-14. The notice will say that the couple have three months to dispute that overpayment from the date of the notice, but as the claim is not yet finalised they will get another three months from their 2013-2014 final award notice to dispute the overpayment.

To address this second issue, interim measures were put in place between April and October 2013.

If a claimant has incurred an overpayment for the 2012-13 tax year, this will be confirmed after they renew their claim. It will be shown on their 2012-13 finalised award notice which will be issued in the summer of 2013. If that is the only overpayment showing on the notice, the claimant will have three months to dispute the overpayment from the date on the final award notice.

As explained above, for 2012-13 final notices, the three month time limit will apply to overpayments that occurred in 2012-13 as well as overpayments from earlier years. For finalised award notices for 2013-14 and later years the intention is that the time limit will apply only to those overpayments occurring in the year being finalised.

Continuing the example of Daniel and Hazel (Example 3 above), the problem with this approach is that at the same time as receiving their final 2012-13 notice, Daniel and Hazel will also receive their initial 2013-14 award. If they then report any changes during the 2013-14 tax year, or if their award is recalculated for any reason, they will receive a new notice. This notice will still show the three historic overpayments (2012-13 now being a previous year overpayment along with 2005-06 and 2009-10) with a notice that says they have three months to dispute those overpayments. These notices do not reflect HMRC’s policy intention and are misleading for claimants.

As a result of representations by LITRG, HMRC have agreed that between April and October 2013, they will accept disputes from people on earlier year overpayments where they have been issued with new award notices that restate the time limit.

Example 6: Suppose Daniel and Hazel have another child in September 2013 and report the birth to HMRC on 5 September. A new award notice will be issued which will show their three historic overpayments and tell them they have three months to dispute from 5 September. In strict terms, the time limit for disputing those overpayments expires on 3 November 2013 (three months from their final award notice for 2012-13).

However, under a relaxation of the rules, HMRC will accept a dispute within three months of the new award notice for 2013-14, which is three months from 5 September 2013 so gives a dispute deadline of 5 December 2013.

Example 7: Suppose Daniel and Hazel did not report any changes to HMRC before October 2013 and so did not receive any further notices for 2013-14. In that case the three month time limit of 3 November 2013 on their 2012-13 notice would stand and they could not dispute their three historic overpayments .

LITRG believe it is essential that claimants fully understand when the time limit runs for both current and historic overpayments. Until HMRC can communicate this clearly and fully, we believe they should continue to accept disputes in cases where people have had notices that state they have three months to dispute. It is expected that new materials will be produced in October 2013 to address these issues.

Claimants with old overpayment debts

Many tax credits claimants do not realise that they have an overpayment until their claim has ended and they receive a demand from Debt Management and Banking. The volume of overpayment debt has meant that HMRC have been slow to chase claimants for old debt. In some cases, claimants have heard nothing from HMRC for a number of years. It is worth checking whether the Limitation Act 1980 might apply in particularly old cases.

Up until October 2013, where claimants received a new demand from HMRC after years of no contact, if they chose to do so they could have sent in a dispute against the overpayment.

From October 2013, HMRC have made it clear that claimants can no longer dispute old overpayments where they have not disputed within 3 months of their final award notice. In practice, this means that those with debts being recovered directly for 2012/13 and earlier years are unlikely to have the right to dispute.

What if a claimant misses the deadline?

If a claimant is outside of the three month time limit, HMRC guidance is that they will accept the dispute if there is a good reason why the claimant missed it. For example due to serious illness. This should be explained in the dispute letter sent to HMRC.

What if HMRC refuse to admit a dispute?

As explained above, the time limit is extremely complicated due to the inflexibility of the award notices and HMRC’s policy intention not matching what is actually stated on the award notices people receive.

It is crucial that advisers check award notices carefully to see whether they are interim or final notices, and to which tax year they relate.

We envisage that there may be situations where claimants have contacted the helpline to dispute an overpayment but have received incorrect advice. Or the issue may have been referred to a back office team and no dispute form been given to the claimant. In such cases, advisers should write to HMRC stating that the dispute should be admitted.

If HMRC still refuse to accept the dispute, then advisers should lodge a formal complaint (remembering that there is generally no suspension of recovery during the complaints process unless agreement can be obtained on a case by case basis from DMB).

Alternative ways to challenge the overpayment

The introduction of the three month time limit for disputes means that the statutory official error provisions become more important.

Under these provisions, an HMRC decision can be revised in favour of the claimant if it is incorrect by reason of official error – defined as an error by HMRC or DWP to which the claimant or adviser did not materially contribute. In most cases these provisions provide an avenue where the appeal time limit has passed, although in certain circumstances they can apply as an alternative to disputes.

Although these official error provisions have always existed, they are rarely used by claimants and advisers. Instead the issues often get dealt with as ‘disputes’ particularly where the time limit for an appeal has expired. For the claimant, the result of a successful challenge under the official error provisions is that the overpayment does not have to be repaid. The two routes are different because a successful official error argument means that the award is amended so the overpayment disappears, whereas with a dispute the overpayment remains but is simply written off so the claimant does not have to repay it.

As there has been no time limit for disputes up to 5 April 2013, there was no need for claimants to specify which heading they were challenging the overpayment under.

However, now the dispute time limit has been implemented, it is important to consider whether the statutory official error provisions apply because the time limit for official error is much longer (five years) than the three months allowed for disputes and the time limit allowed for appeals. The rules relating to official error are explained in a separate section.

If HMRC refuse to admit a dispute because it is outside of the time limit and the appeal time limit has passed, but the case is one that fits the official error provisions, advisers should make a request under the Official Error Regulations and highlight the time limit. The complaints process can be used if HMRC continue to refuse to accept this or in serious cases Judicial Review might need to be considered.

Exceptional circumstances

The seventh step of the process for TCO advisers requires consideration of whether any ‘exceptional circumstances’ were present which prevented the claimant from meeting their responsibilities (see 2 and 4 in the summary table above).

According to the guidance exceptional circumstances do not need to be rare, and the words can simply mean ‘strong reasons’. Examples given of exceptional circumstances are the death of a close relative, serious illness, and flooding of the claimant’s home.

If exceptional circumstances are found then the overpayment that resulted from the claimants’ failure to meet their responsibilities due to exceptional circumstances should be written off.

It is not possible to list circumstances which HMRC will accept as ‘exceptional’. HMRC take a different approach in each and every case depending on the circumstances. It should be noted that the exceptional circumstances with which HMRC are concerned in this part of the test are those existing at the time when the claimant was expected to meet their responsibilities. Exceptional circumstances may also exist which mean it is more difficult for the claimant to repay an overpayment..

Evidence

One of the biggest difficulties with disputes is evidence. HMRC will often refuse to accept that a claimant has met their responsibilities if they cannot locate correspondence or telephone calls in support.

It is for this reason that we recommend that claimants keep a file with copies of all tax credit correspondence. Claimants should keep copies of all letters sent to HMRC as well as detailed notes about any telephone calls including date, time, operator name and a brief description of the conversation.

Sometimes called data protection requests, Subject Access Requests are a useful way to obtain copies of data from HMRC including print outs of household notes (the notes that helpline operators make during telephone calls), other award information and telephone calls. You can find details of how to submit a SAR request in the Obtaining information about your client section of the website.

Records of telephone calls

As noted above, a SAR request can help you obtain copies of phone call recordings. Step 8 of the HMRC staff action guide on dealing with disputes states that telephone records should be checked if the claimant mentions a call in their dispute. In our experience HMRC do not always do this and it is therefore advisable to make it clear in any dispute that HMRC should listen to all relevant recordings and if necessary refer HMRC to their own guidance on this subject.

Unfortunately, despite HMRC repeatedly saying that all telephone calls are recorded, this is not always correct particularly in relation to the early tax credit system. In a number of cases in 2003 and 2004, calls to the helpline that were diverted to a private supplier were not always recorded. The scale of the problem was revealed in the answer to a Parliamentary question by David Laws MP on 20 February 2007 (see col 612W in Hansard for that date). The response from Benefits and Credits was:

‘The private sector advisers dealt mainly with generic, non-claimant specific enquiries. They received the same training as the HMRC staff to enable them to do this.’

However, it would have been very difficult to filter accurately the generic from the claimant-specific, particularly where the same call contained elements of both.

Following a campaign by LITRG and others, tax credit officials have agreed that where an issue arises as to whether a claimant telephoned the helpline at that time to report a change in circumstances or a mistake in their payments, in the absence of any tape recording of the call the claimant will usually be given the benefit of the doubt, with any ensuing overpayment being written off.

Second disputes and next steps

As noted above, when a dispute is received, HMRC will suspend recovery of any overpayment.

If the dispute decision is negative, HMRC will re-commence recovery of the overpayment once again. If the claimant has further evidence in support of the overpayment, a further (second) dispute can be sent to HMRC. It is advisable that this second dispute makes it absolutely clear what the further evidence is and why it changes the previous dispute decision.

In cases where the claimant has further evidence, previously unconsidered by HMRC, recovery will be once again suspended under COP26.

However, if a claimant submits a further dispute with no new evidence, COP26 states that HMRC will not suspend recovery even if HMRC have failed to take this previous information into account.

Given the history of poorly explained dispute responses, we are disappointed that HMRC have decided not to suspend recovery in cases where they have failed to consider a crucial piece of evidence. We continue to argue that recovery should be suspended in our own dispute cases in such circumstances, although the official policy is as set out in Cop26.

Next steps

While there are rights of appeal against awards and other decisions on tax credit entitlement, there is no statutory right of appeal against the exercise by HMRC of their discretion in relation to an overpayment recovery. That is not to say there is no legal or other remedy. If HMRC refuse a request to write off an overpayment resulting from their error, the following steps may be taken.

Although there is no statutory right of appeal against HMRC’s exercise of their discretion, there is one judicial remedy – that of judicial review. See our judicial review section for more information.

Tax Credits: Penalties and interest.

This section of the website provides basic information about penalties and interest. The material in this part of the website was written by the Low Incomes Tax Reform Group.

Penalties

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 sets out the percentage reductions available.

Interest

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

Tax Credits: HMRC Charter

HMRC publish a range of their responsibilities in relation to tax credits in the Code of Practice 26 which is considered in detail in other parts of this website.

However, in relation to more general responsibilities these are set out in HMRC’s Your Charter. The Charter was introduced in 2009 and has statutory backing in the Finance Act 2009. Although it does not replace existing rights and remedies, it is a useful addition especially during the complaints process. The Charter was updated in 2016.

These rights may be quoted at HMRC and they expect to be held to account to them. There is statutory backing for Your Charter and HMRC have to report on their adherence to the provisions.

If HMRC do not adhere to their undertakings it can be used as the basis for a complaint and possibly compensation and a consolatory payment. See our section on Complaints.

We have summarised the Charter rights and obligations below:

Your rights - what you can expect from us:

Your obligations - what we expect from you:

Obtaining copies of the charter

The charter is available @ https://www.gov.uk/government/publications/your-charter.

There is a British Sign Language video (opens new window) to view.

Tax Credits: Calculating tax credits income

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

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.

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%.

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.

Tax Credits: Intermediaries

This section of the site outlines how to become an intermediary in respect of tax credits and the processes HMRC have in place that can help intermediaries.

What is an intermediary?

HMRC defines an intermediary as one of the following:

It also includes other organisations such as welfare rights workers within Local Authorities.

What can an intermediary do?

According to HMRC, an intermediary can:

They cannot receive the payment on behalf of a tax credits claimant.

How to become an intermediary

HMRC authorise intermediaries using form TC689.

If it is a joint claim, both claimants should sign the form. For joint claims that have ended, it is sufficient for only your client to sign the form (without the other partner). In such cases HMRC should give all information about the previous joint claim and should not require a signature from the second partner.

To avoid delay in setting up the authority, you must ensure that all questions are completed and that signature(s) have been obtained. HMRC will not process incomplete TC689’s.

Once logged on the system, the TC689 lasts for 12 months unless a different end date is specified.

If you deal with tax credits on a regular basis you may wish to become a registered intermediary which will allow you to submit the TC689 electronically. See below for details of how to do this.

Registering as an intermediary organisation

HMRC have a process in place to allow organisations who deal with tax credits on a regular basis to become an intermediary organisation.

To do this your organisation will need to register with the Intermediaries, Agents and Appointees Team by completing form TC1136 and posting it to:

HMRC Benefits and Credits
Intermediaries, Agents and Appointees Team
PRESTON
PR1 4AT

Once authorised, you will be given a reference number for your organisation which can be used on the TC689 form. In addition, in cases where a TC689 is needed quickly, authorisations for tax credits can be submitted electronically using the on-line KANA version of TC689. Please note that the on-line TC689 form doesn’t have the customer(s) signature so you must keep an additional copy signed by the customer(s) as HMRC may request to see the original at any time as part of their assurance checks. HMRC will only accept a TC689 electronically from registered organisations.

Intermediaries helpline

There is an Intermediaries helpline which is separate from the main helpline and generally answered by knowledgeable HMRC staff who can deal with more problematic cases.

The phone number is 0345 300 3946 and lines are open 9am to 5pm Monday to Friday.

Intermediaries dispute and complaints team

In 2009, HMRC set up a small team within the Customer Support and Service Group which deals with disputes, explanation requests and complaints from certain intermediaries. At this time, only letters from voluntary organisations who receive no payment for helping claimants will be routed through the team. More information about this process can be found in a Low Incomes Tax Reform Group press release.

Tax Credits: Tax Credits Manuals

HMRC have 4 manuals that are published on their website and are useful for tax credits advisers.

These manuals explain in detail how HMRC interpret tax credits law, how their processes operate and how HMRC operate in specialist areas such as debt collection and compliance.

Tax Credits Technical Manual

Often referred to as the TCTM for short, this manual sets out how HMRC interpret the law relating to tax credits.

The manual is updated at various periods throughout the law as changes are made. A full list of updates can be found on the GOV.UK website.

The manual is split into 12 sections:

  1. Overview
  2. Entitlement
  3. Maximum Rates
  4. Income
  5. Change of circumstances
  6. Claims and notifications
  7. Calculation of entitlement
  8. Payments
  9. Decision Making
  10. Compliance
  11. Transition to Universal Credit
  12. Consolidated legislation
  13. Abbreviations

This manual is useful if you are looking for information about certain parts of the legislation and can be quoted to HMRC in support of disputes and appeals. The layout is fairly self-explanatory and therefore easy to navigate if you know the topic you are looking for. There is a search function for the manual which is available on the top of each page.

Tax Credits Manual (TCM)

The TCTM manual (above) sets out HMRC’s interpretation of the law. This manual shows how that law is put into practice by setting out HMRC’s processes. You may see it referred to as the ‘New tax credits manual’.

This manual has thousands of pages of information about processes. Generally each process has two main pages – an information page and an action guide (process) page. The first gives information about the process, often linking to the TCTM manual. The latter outlines the process in a step by step guide that staff follow.

The sheer volume and use of technical jargon makes the manual difficult to follow to those unfamiliar with the tax credits system. However, it does contain some very useful information that can be used in disputes, appeals and complaints. There are two main ways to use the manual.

The first is to search by topic area from the main index page. If you are looking for something more general this route works well.

The second way is to use the search function for the manual. The search box is available at the top of each page. 

HMRC publish updates to the manual online. The updates are listed in date order.

New Tax Credits Claimant Compliance Manual

This manual, often referred to as CCM, is used by HMRC for tax credits compliance purposes. HMRC have a range of compliance powers including examinations, enquiries, discovery and penalties. This manual sets out how HMRC deal with each of these compliance powers.

The main navigation for this manual is via the index page. Below we have listed the main compliance functions and the chapters which contain relevant information.

Examinations

Enquiries

General

Penalties

This manual is particularly useful if you are representing a claimant who is undergoing some sort of compliance investigation. One of the most common enquiries focuses on undisclosed partners and Chapter 15 of the manual is useful reference in such cases.

The manual is updated regularly via the GOV.UK website. Although arranged by topic and therefore easier to navigate, there is also a search function for the manual which is available via the box at the top of each page.

Debt Management and Banking Manual

This manual is not specifically for tax credits, but it does contain a section on tax credits which advisers may find useful.

Specifically it contains information on:

Tax Credits: Calculating tax credits

Tax credits, unlike other benefits, are based on an annual system. This section explains how to calculate tax credits.

Introduction

This section of the website explains in detail how to calculate tax credits so that advisers can check HMRC calculations. Legislation changes in April 2012 meant that the calculation of tax credits is different from earlier years. This section covers calculations under both sets of rules. Throughout the section we have tried to include a number of worked examples. These examples can be accessed as a PDF document by clicking on the relevant link.

Relevant income

In order to calculate tax credits, you need to determine the ‘relevant income’ to use. This may be the current year income or the previous year income. We explain in detail how to work out the relevant income in our ‘understanding the disregards’ section. In summary, the income to use for calculating any 2016-2017 award (whether initial, amended or final) is established using the following rules:

The disregard for income rises decreased from £10,000 to £5,000 on 6 April 2013. The £10,000 disregard was still used to finalise 2012/13 claims in the summer of 2013. The disregard for income rises reduces from £5,000 to £2,500 on 6 April 2016. The £5,000 disregard is still used to finalise 2015/16 claims in the summer of 2016 but the £2,500 disregard will be used to set 2016/17 awards. You can find out more about the disregards in our understanding the disregards section.

Annual and daily rates

Tax credits are paid at a daily rate throughout the award period. This means that the annual amounts announced in the Budget and shown in the table have to be converted into daily amounts. This is done by dividing the annual rate by 365 days (366 days in a leap year) and rounding up to the nearest penny.

Note: this does not apply to the WTC childcare element because this is always worked out on a weekly basis.

The daily rates for 2015/16 and 2016/17 (as well as earlier years) are shown in this table. Note that 2015/16 was a leap year.

Maximum entitlement for people on certain benefits

TCA 2002, Section 7(2) states that the income test explained at the start of this section does not apply to people in receipt of certain means-tested benefits. Those benefits are:

During any period that a person is in receipt of one of these benefits, they are automatically entitled to maximum tax credits. There is no tapering away of entitlement, nor counting of relevant periods. Section 7(2) makes it clear that the income test is suspended for the period during which they are receiving any of the above benefits.

The only exception to this rule is during the four-week run-on when the income test will be applied as normal even if the person is receiving one of the benefits listed above.

Important definitions

In order to understand how to calculate tax credits, it is important to understand some of the key concepts used in the legislation.

Award period

TCA 2002, Section 5 defines an award period as the ‘date on which the claim is made and ending at the end of the tax year in which the date falls’.

This is normally the same as the tax year, 6 April to the following 5 April. When a claim is made at the beginning of the year, or is backdated to the start of the tax year via the renewals process, that is when the award period also begins. It lasts until the end of the tax year unless it is terminated earlier. This will also happen when tax credit claims are finalised in-year because the claimant is included in a claim for Universal Credit. See our stopping tax credits section for more information.

If an application for tax credits is made part way through a tax year, the award may only run for the remaining part of the year. If a claim is backdated, the award period will cover the first day of entitlement to the following 5 April and not just the period from the date the actual claim form is submitted.

Relevant period

This is a period during the award period in which the rate of tax credit a person is entitled to remains the same. A relevant period ends with a change of circumstances which changes the amount of tax credits they are entitled to.

Specifically, this means any change in the elements of WTC (other than childcare) and CTC to which the claimant is entitled. In the case of the childcare element of WTC, a relevant period comes to an end if there is a change of more than £10 in their average weekly childcare charges, or they cease paying childcare charges altogether.

Legislation vs. practice

The Tax Credits (Income Thresholds and Determination of Rates) Regulations 2002 (SI 2002/2008) set out a very detailed step by step process for calculating entitlement to WTC and CTC. Although referred to as ‘tax credits’, strictly WTC and CTC are two separate tax credits and the legislation requires that each one is calculated separately.

In practice, most tax credits calculations shown in books, on websites and even in some HMRC materials calculate WTC and CTC together. This is because the rules in the regulations work together in such a way that once WTC is tapered away, any remaining income is used to taper away CTC and therefore the same answer is obtained.

A similar situation occurs with the use of daily rates. The legislation states that both WTC and CTC are to be calculated using daily rates. However it is quite common to see calculations of tax credits done on an annual rather than daily basis. As long as advisers are aware that this may result in a figure that is not quite accurate, it is a perfectly acceptable practice. We show examples of both daily and annual calculations in the following sections.

For advisers who would like to understand the calculation of tax credits following the strict format in the legislation, we have included a detailed explanation at the end of this section. A detailed calculation can also be seen in the HMRC manual at TCTM07APPX2 . The remainder of this section will follow the simpler method by combining the calculation of WTC and CTC.

Thresholds

These thresholds are an important part of the tax credits calculation because if a claimant’s income is above the relevant threshold their tax credits will start to be reduced (referred to as ‘tapering’). Consequently, the calculation will only be correct if the correct threshold is used.

WTC only or WTC and CTC claims

The first income threshold for WTC only, and combined WTC and CTC claims, is £6,420. One area of confusion here is around claims for both WTC and CTC. Claimants often think that the CTC only threshold applies to them because they are not getting any WTC. However a distinction must be made between a claimant entitled to WTC who doesn’t actually receive any because their income is too high versus a claimant who doesn’t have any entitlement to WTC. Where a person’s circumstances are such that they qualify for the basic element of WTC, that element along with any other elements of WTC that their circumstances dictate, should be included in the calculation and the £6,420 threshold used.

CTC only claims

Where a claimant (or their partner) has no entitlement to the basic element of WTC, but they are responsible for a child or qualifying young person, the CTC only threshold should be used. For 2016/17 it remains ast £16,105.

This threshold has slowly increased since tax credits began in 2003-2004. It was not until 2011-2012 that there was a reduction in the CTC threshold. The reason for this is that the threshold is set by determining the income level at which the WTC basic element and WTC couple/lone parent elements are reduced to Nil. Above this point, CTC will start to be reduced. In 2011-2012 these elements were frozen and the taper rate was increased from 39% to 41%, thus causing a reduction in the CTC only threshold. The threshold remained the same 2012-2013 because the WTC basic and couple/lone parent elements were frozen at the 2011-2012 rates. The threshold increased from April 2013 and April 2014 due to up-rating of the couple/lone parent element. It has remained the same for 2015/16 and 2016/17 due to a further freeze on the basic and couple/lone parent elements.

Second income threshold (2011-2012 and earlier years)

Calculating tax credits in 2011-2012 and earlier years was different to the current calculation. This is because in earlier years there were two income thresholds for WTC and CTC or CTC only claims. The first income threshold (either £6,420 or £15,860 in 2011-2012) was used to calculate entitlement to all elements except for the family element of CTC. The second income threshold was only used for the family element, which remained protected until income reached that second income threshold. From April 2012, this second income threshold was removed which means the calculation is slightly different.

The second income threshold is not a fixed figure, it depends on circumstances. However for the majority of claimants the threshold was £40,000 in 2011-2012 (£50,000 in 2010-2011 and earlier years) and it is often this figure that has been quoted. Above this threshold the family element was tapered away.

Some people had a higher second income threshold. This is because the other elements of tax credits are not tapered away fully by the time their income reaches £40,000. This is normally because they have more than two children, childcare costs or qualify for the disability elements. In such cases their individual threshold had to be calculated.

Calculating tax credits 2012-2013 and later years

Each calculation of tax credits involves a series of steps which in brief are:

  1. Determine the number of relevant periods
  2. Calculate maximum entitlement for each relevant period by adding together the WTC and CTC elements that are applicable to the claimant’s circumstances.
  3. Apportion the income figure and the relevant threshold for each relevant period on a daily basis.
  4. Calculate the ‘excess income’ figure (the amount that the person’s income exceeds the threshold for that relevant period).
  5. Calculate the ‘reduction due to income’ by multiplying the ‘excess income’ figure by the first taper percentage (currently 41%).
  6. Take Step 5 away from the figure in Step 2 to find the tax credits for the relevant period.
  7. Add the amount due for each relevant period to find the entitlement for the tax year.

The income figure referred to in Step 3 is the figure determined after applying the income tests set out at the start of this section . This may be previous year income or current year income (actual or estimated) depending on the circumstances.

Daily vs. annual figures

Many tax credits calculations are done using annual rates whereas the legislation (and the tax credits computer system) requires a daily rate calculation.

The simplest calculation is where there is only one relevant period, with no changes to the maximum rate throughout the year. Example 1 shows the same award calculated using both daily and annual rates.

In this example, using daily rates results in a slightly higher entitlement. This is a result of rounding up daily rates to the nearest penny. As long as advisers are aware of the differences that may arise when calculating using annual figures, it is a perfectly acceptable method.

More than one relevant period

The last example involved a very simple set of circumstances with no change of circumstances during the year, so that tax credits entitlement remained the same and the whole tax year was the ‘relevant period’. Where there is a change in circumstances which alters the rate of tax credits or the elements to which a claimant is entitled, then the calculations must be done for each relevant period as Example 2 shows.

Separating WTC and CTC

When HMRC pay tax credits, they normally pay WTC to the person who is working (where both members of a couple work they can chose who receives payment) and CTC to the main carer. The childcare element is normally paid with CTC to the main carer even though it is an element of WTC.
The examples in this section have all calculated a total tax credits figure. However in order to check HMRC calculations, it is important to be able to work out how much of the total figure is WTC and how much is CTC.

To do this, an understanding of how the elements are tapered away is crucial. In Step 6 of the calculation summary at the start of this section, we said that the ‘reduction due to income’ figure (calculated under Step 5) should be deducted from the ‘maximum entitlement’ figure (calculated under Step 2) to find the amount of tax credits due for that relevant period. Whilst doing this does give the correct total figure, it doesn’t enable a breakdown of WTC and CTC to be calculated.

The legislation actually specifies that the elements that make up the ‘maximum entitlement’ figure are to be tapered away by income in a certain order. That order is:

Using Example 1 again: Joyce’s original maximum entitlement was:

 

£

£

WTC basic

5.37 x 365

1,960.05

WTC lone parent

5.51 x 365

2,011.15

WTC 30 hour

2.22 x 365

810.30

CTC child element

7.62 x 365

2,781.30

CTC family element

1.50 x 365

547.50

MAXIMUM CREDITS

22.22 x 365 days

8,110.30

This time the amount of each element is included for the relevant period. These figures are shown in italics and are needed in order to breakdown WTC and CTC payments.

The ‘reduction due to income’ figure in Joyce’s case is £2,492.80.

This figure is deducted from the maximum entitlement figure to tell us Joyce’s entitlement for the year but it doesn’t tell us how much WTC she will get and how much CTC which is useful to know in order to check the award notice from HMRC.

This amount is first of all deducted from the WTC basic element. As her income is fairly low, this only reduces her WTC, it doesn’t take it away fully. Joyce’s WTC is, therefore (£1,960.05 + £2,011.15 + £810.30) - £2,492.80 which is £2,288.70. Because there is some entitlement to WTC, it means Joyce receives the maximum of her CTC elements of £2,781.30 + £547.50 which is a total of £3,328.80 CTC.

If Joyce had an income of £25,000, her reduction due to income would be £7,617.80 (income less threshold x 41%). Her tax credits entitlement would be reduced as follows:

 

£

£

£ reduction remaining

Reduction due to income

   

(7,617.80)

WTC basic element

1,960.05

Nil

(5,657.75)

WTC lone parent

2,011.15

Nil

(3,646.60)

WTC 30 hr

810.30

Nil

(2,836.30)

CTC child element

2,781.30

Nil

(55.00)

CTC family element

547.50

492.50

(Nil)

Joyce’s total tax credit entitlement is £492.50 for the year and that is a payment of the family element of CTC. Entitlement to all other elements has been reduced to Nil because of Joyce’s income.

One other point which this demonstrates is the importance of including all elements in a calculation. Even though a claimant might not actually receive a payment of WTC because their income is too high, including additional elements in the calculation (such as the childcare or disability elements) means that the person may receive more CTC because it won’t start to be reduced until much higher up the income scale.

The childcare element

As explained in our ‘understanding childcare’ section, the childcare element is calculated on a weekly basis rather than daily.

Technically, the legislation requires two small calculations to be done in order to determine the childcare figure to use in the calculation.

Calculation 1

The actual ‘average weekly childcare costs’ for the relevant period should be calculated.

This involves multiplying the ‘average weekly childcare costs’ (see ‘understanding childcare’ on how to calculate this figure) by:

(52 / N1) x N2

N1= Number of days in the tax year
N2= Number of days in the relevant period.

Calculation 2

The second step involves calculating the ‘prescribed maximum childcare costs’ for the relevant period. The maximum childcare costs that can be claimed are 70% of the prescribed maximums which are £175 for one child and £300 for two or more children.

This involves taking whichever maximum amount applies (£175 or £300) and dividing it by 7, rounding the result up to the nearest penny before multiplying by the number of days in the relevant period.

Once you have calculated both figures (the actual costs and the prescribed maximum costs), the lower figure is taken and multiplied by 70% (the answer then being rounded up to the nearest penny).

Where average weekly childcare costs exceed the maximum rate, then the steps above need to be followed as shown by Example 3.

In practice, if average weekly childcare costs are less than or equal to £175 or £300 there is no need to do both calculations (because the actual costs will always be lower than the prescribed maximum). The actual costs figure can simply be used in the calculation of maximum rate as Example 4 shows.

Calculating income cut off points

Sometimes it is useful for advisers to be able to calculate the cut-off point for a specific group of tax credits claimants, and as the family element of tax credits is no longer protected until income reaches a certain level, every claimant will have a different income level at which their tax credits will reduce to Nil.

The calculation of this income level for WTC only or WTC and CTC claimants (those who are on the 1st income threshold) is shown in Example 5.

Calculating tax credits 2011-2012 and earlier years

For WTC only claimants, the calculation of tax credits in 2011-2012 and earlier years was as outlined in the previous section and for that group nothing has changed calculation wise (although thresholds and taper percentages have changed over the years).

The main change is for claimants who are entitled to CTC. In 2011-2012 and earlier years there was a second income threshold. For most claimants this threshold was £40,000 in 2011-2012 and £50,000 in 2010-2011 and earlier years. The second income threshold was only relevant to the family element of tax credits and meant that families were guaranteed at least £545 until income exceeded the second income threshold.

For this reason, the calculation separated out the family element from all other elements.

Earlier in this section we calculated that Joyce, would be entitled to only £492.50 if her income was £25,000. If those circumstances had applied in 2010-2011, the calculation would have been as set out in Example 6.

As can be seen in Example 6, Joyce would have received the full amount of the family element because her income was below the second income threshold (in her case £50,000)

Calculating the second income threshold

For most people the second income threshold was £40,000 in 2011-2012 (£50,000 in 2010-2011 and earlier years). The one notable exception to this was for families whose elements of tax credits other than the family element had not been tapered away by the time income reached £40,000. Such families would have a higher second income threshold that needed to be individually calculated.

This was a complicated part of the system, not helped by HMRC who often quoted the £40,000 as an absolute cut-off point when in fact, as the examples below show, families with incomes much higher up the scale could still qualify because their second income threshold was higher than £40,000. Example 7 shows how this second income threshold was calculated.

Tax Credits: Current policy

This section of the website gives information about some of HMRC’s current tax credits policies with links to further information. This material was written by the Low Incomes Tax Reform Group.

Changes to the system – Introduction

A series of fundamental changes to the tax credit system were announced in the June 2010 emergency Budget and the October 2010 Comprehensive Spending Review. Some of these changes were introduced from April 2011, the remainder from April 2012. One final change, the lowering of the disregard for rises in income, is due to start from April 2013 (see further our future changes – tax credits section ).

The original budget and Comprehensive Spending Review documents contain basic information about the changes as well as statistics modelling what impact the changes may have. HMRC also published a summary of the main changes on their website.

Some further changes were announced in the Autumn Statement 2011.

A useful table, summarising the changes and when each began, can be downloaded here.

Changes from April 2011

Lowering of the second income threshold

In 2010-2011 and earlier years, CTC claimants received the full family element (£545) until their income reached ‘the second income threshold’. For most people this was an annual income of £50,000 (although for some it may have been higher).Above that amount the family element was withdrawn at 6.67%, or £1 in each £15 by which income exceeded that figure. Changing the second income threshold to £40,000 in 2011/12 meant that the withdrawal started at lower income levels, and the rate of withdrawal was changed to 41% not 6.67% meaning once it reached the second income threshold it was withdrawn much quicker.

Some families who were receiving the family element of £545 in 2010/11 had their tax credits reduced to Nil from April 2011, whilst other families on higher incomes had a reduction in the amount they received as a result of this change. As explained below, the second income threshold was completely removed from April 2012.

Main taper rate increased from 39% to 41%

From 6 April 2011, the withdrawal (or ‘taper’) rate increased from 39% to 41%.

The first step in a tax credit calculation is to work out the maximum possible entitlement. This maximum (not including the family and baby elements) was then reduced when household income started to go above certain thresholds. In 2010/2011 it meant that if a claim for working tax credit (WTC) or both WTC and CTC was made, entitlement was progressively reduced by 39p for each £1 by which income goes above £6,420 a year. If the claim was CTC only, that income threshold was £16,190 a year.

The change to the withdrawal rate meant that from 2011/2012, claimants will lose 41p instead of 39p for each £1 of income above those thresholds. The 41% taper remains in place for 2012/2013.

Family element withdrawal rate increased

Prior to 6 April 2011, the family element (£545) was protected until income reached at least £50,000 (the second income threshold). Once income reached the second income threshold it was tapered away at a rate of 6.67%.

The 6.67% taper rate gives an income range of approximately £8,170 which is added to the second income threshold (whether it is £50,000 or higher) before the family element disappears completely. Therefore, a family whose second income threshold was £50,000 could continue to get at least some family element until their income reached £58,170.

From 6 April 2011, the taper was increased from 6.67% to 41%. The second income threshold was also lowered so that family element was only protected up to an income of £40,000. With an increase of the taper to 41%, the income range reduced to approximately £1,329. Consequently, in 2011/12, a family with a second income threshold of £40,000 would have had their family element disappear at an income of £41,329.

Families with household income above £40,000 will start to have their family element of £545 a year tapered away from 6 April 2011 at a rate of 41%. The current rate is 6.67%.

Abolition of the baby element

The baby element of child tax credit was payable to families with a child under one in addition to the family element (making a total of £1090). This was abolished for all claimants on 6 April 2011, including those families who had received it for less than 12 months.

WTC for those aged 60 or over

From 6 April 2011, those aged 60 or over can qualify for working tax credit by working at least 16 hours a week. Previously they were required to work at least 30 hours unless they were responsible for a child or children or qualified for the disability or 50+ elements.

Childcare element percentage reduced from 80% to 70%

From 6 April 2011, the childcare element will provide help with only 70% of eligible costs as opposed to the current 80%.

Couples who both work at least 16 hours per week (unless one is incapacitated, in prison or hospital) and lone parents who work at least 16 hours per week can claim the childcare element. From 6 April 2006 until 5 April 2011, this element provides help with the costs of registered or approved childcare of up to 80% of the maximum set amounts which was £175 a week for one child (80% of which is £140) and £300 a week for two or more children (80% of which is £240).

From April 2011, claimants will only receive up to 70% of the maximum amounts which means up to £122.50 for one child and up to £210 for two or more children. The childcare element also paid 70% of costs in the early years of the system before increasing to 80% from 6 April 2006.

Most families who claim the childcare element are affected by the change. For those who received the full 80% of their costs, they had to pay the 10% differences themselves. Even though claimants may not have been paid any childcare element (because their income was high enough to see it tapered away), they may have received more child tax credit than they would have done as a result of including childcare in the calculation. Families who receive less than 80% of their costs would also have seen a reduction in their award.

One important point to note is the interaction with childcare vouchers. The reduction from 80% to 70% means that the calculation used to determine whether someone is better off receiving the childcare element of WTC or taking childcare vouchers has also changed. There will be a group of people who were better off with WTC in 2010/2011 who may find they will be better off taking vouchers in 2011/2012 and future years. Advice should be sought in these cases to ensure a full better off calculation can be done.

Decrease in the income disregard

The tax credit income disregard changed from £25,000 to £10,000 from 6 April 2011. From 6 April 2013, this will decrease again from £10,000 to £5,000.

The disregard is one of most complex parts of the tax credit system. We explain the disregard in detail in our 'understanding the disregards’ section. Tax credits are paid based on current circumstances and household income from the previous tax year.

After the tax year ends, HMRC compare actual income for the year just ended with income for the previous year. Provided the income for the year just ended is no more than £10,000 higher than in the previous year, the award will be unaffected and there will be no overpayment. Hence the term ‘disregard’, because the first £10,000 of any income increase is disregarded when calculating your award.

The £25,000 disregard was very generous. Replacement by a reasonable disregard of £10,000 will not affect most people on lower incomes. It may however impact those moving from benefits into work and reduce the level of credits in the first year of employment. However, once the disregard is lowered to £5,000 in 2013, we may see a return of problems which plagued the earlier years of the system when many people were left with overpayments where they had a rise in income of more than £2,500 (as the disregard was originally).

The lowering of the disregard will make it even more crucial to inform HMRC of changes to income as soon as they happen. As our ‘understanding the disregards’ section explains in detail, even if income changes are reported as they happen, because of the way the system spreads income across a year overpayments can still occur. HMRC will need to ensure that these changes are well communicated to both claimants and advisers.

Up-rating using Consumer Price Index

Each year, the rates of tax credits and other benefits are increased. Normally this is in the form of a percentage, linked to the Retail Price Index. However, the change means that from 6 April 2011, the percentage increases will now be decided using the CPI index.

Freeze on up-rating of basic and 30 hr WTC elements

Each April, the elements of tax credits are increased. As explained above, hitherto this has been done by reference to the retail prices index but from April 2011 will be done by reference to the consumer prices index (which has tended to be less generous). From April 2011, the basic and 30 hour elements of WTC will be frozen and will not be up-rated at all for 3 years.

Increase to the child element of CTC above indexation

The child elements of CTC (not including the family element) were increased by more than indexation which offset some of the losses caused to families with children from the other changes which affect the taper. As a consequence of changes to the taper rate, the income threshold for people claiming CTC only dropped in 2011-12 to £15,860 and so did the income levels at which CTC was progressively withdrawn. This was the first such fall in CTC entitlement since tax credits were introduced in 2003.

Changes from April 2012

Removal of the second income threshold

Prior to April 2012, the family element of CTC (£545) was protected until income reached the second income threshold. For most people in 2011-2012 this was £40,000. It was then reduced at a rate of 41% for every £1 of income above the second income threshold.

We explain in detail how to the second income threshold was calculated in our ‘calculating tax credits’ section. It may still be necessary to calculate this in overpayment cases.
From 6 April 2012, the second income threshold has been removed and so the family element is no longer protected. Instead, the family element will be reduced at a rate of 41% immediately after all other credits have been withdrawn. This means that some people who received the family element in 2011-2012 may receive nothing in 2012-2013.

HMRC wrote to 1.3 million of these claimants advising them that their claim would not be renewed for 2012-2013 unless they contacted HMRC by 31st March 2012. The letter that was sent stated that the income limit for CTC is £26,000 which is incorrect and only applies to couples with one child and no disabilities or childcare costs. For some families the cut-off will be much higher, whilst for some (lone parents working less than 30 hours) the cut-off may be lower. See our blog for further details of the letter.

Example

Derek and Eileen have two children. Derek works 30 hours a week. Eileen works 16 hours a week. Their income is £35,000.

In 2011-2012, the received the family element of CTC worth £545. This is because that element was protected until income reached £40,000 (or higher in certain circumstances). The removal of the second income threshold means that their family element is tapered away immediately after the other elements. Their tax credits are tapered away by the time income reaches £32,264.

50+ element withdrawn

The 50+ element of tax credits ceased from 6 April 2012. Prior to that date, people aged 50 or over who returned to work after a period claiming certain benefits, were eligible to claim tax credits by working at least 16 hours a week. They received the 50+ element for one year from when they return to work. The element was removed from all claims on 6 April 2012, even those where the claimant had not received it for a full 12 months.

Once the element is removed, unless the claimant has responsibility for a child , qualifies for the disability element or is aged 60 or over, they will need to work at least 30 hours a week to claim. Those who do qualify by working at least 30 hours will no longer receive as much WTC as the 50+ element will not be included in their award for the first year. Thus, the additional incentive to move into work provided by the 50+ element is lost.

Backdating reduced to 31 days

Prior to 6 April 2012, initial claims for tax credits could be backdated for up to 93 days if the qualifying conditions were met during that period. You can find out more about backdating in our ‘making a claim section’ . Similarly, changes of circumstances could be backdated up to 3 months, claimants of the disability element were given up to 3 months to inform HMRC of an award of a qualifying benefit and asylum seekers were given 3 months to inform HMRC of a grant of refugee status.

From 6 April 2012, maximum backdating periods have been reduced as follows:

Initial claims – 31 days
Changes of circumstances – 1 month
Reporting qualifying benefit for the disability element – 1 month
Reporting grant of refugee status – 1 month
 

Income disregard for falls in income introduced

HMRC have always had a power to introduce an income disregard for falls in income, but have never used it. Prior to 6 April 2012, if income fell as compared to the previous year, tax credits were adjusted so that the claimant received an amount based on their new (lower) income. Claimants did not need to wait until the end of the tax year to report a fall in income, they could inform HMRC of an estimated income at any point during the year and tax credits would be revised to be based on this new lower income.
From 6 April 2012, the new disregard means that tax credits will not be adjusted until income falls by more than £2500 as compared to previous tax year income. This will be a particular hardship for families on low incomes.
We explain how this disregard works in practice in our ‘understanding the disregards’ section.

Freeze on up-rating second adult element of WTC

As explained above, from April 2011 the basic and 30 hr elements of WTC were frozen for three years. In the 2011 Autumn statement it was announced that from 6 April 2012 the second adult element of tax credits would also be frozen.

The freeze on the second adult element of WTC means that the CTC threshold is also be frozen at £15,860 from April 2012. This is because the CTC threshold is set by calculating the income point at which the basic and second adult elements of WTC are tapered away. 2011-2012 was the first year that the CTC threshold fell since the introduction of tax credits. This was due to the freeze on the basic element of WTC and the increase in taper from 39% to 41%.

Couples with children required to work 24 hours

Prior to 6 April 2012, couples with children needed to work at least 16 hours per week in order to qualify for tax credits. From April 2012, this was increased to a requirement to work at least 24 hours between them with one person working at least 16 hours a week.

For couples who worked above 16 hours, but under 24 hours in 2011-2012 meant that one person needed to increase their hours to at least 24 per week or the other needed to start working so that their combined hours increased to 24 (but with one partner working at least 16).

Couples with children who qualify for WTC in some other way will not be subject to the new hour requirement. This applies to people who qualify for the disability element of WTC or who are aged 60 or over. Both groups will continue to qualify for WTC by working at least 16 hours.

Couples with children where one person is working at least 16 hours and their partner is:

will continue to qualify for WTC by working at least 16 hours (i.e. there is no change from the previous criteria).

HMRC stopped the WTC elements of all couples with children who did not meet the new 24 hour requirement on 6 April 2012. This included claimants who be subject to one of the exceptions as HMRC could not identify these people. Claimants therefore needed to contact HMRC before 6 April to ensure their payments continued. More information about this can be found in an article on our blog.

Childcare element and carers

As explained above, entitlement by one partner in a couple to carer’s allowance exempts them from the new 24 hour rule for couples with children. This exception was announced in the Budget 2012 following a letter sent to Ministers from a coalition of charities led by Low Incomes Tax Reform Group.

The Budget announcement also introduced an exception in the childcare element. Prior to 6 April 2012, couples are required to work at least 16 hours each (combined 32 hours) a week in order to claim help with their childcare costs. The exception to this requirement is where one partner works at least 16 hours a week and the other is incapacitated, in prison or hospital. The Budget announcement means that entitlement to carer’s allowance has been added to the list of exceptions. This means that a couple, where one partner works at least 16 hours a week and the other is entitled to carer’s allowance can claim help with their childcare costs.

Child element of CTC up-rating

It was announced in the June 2010 Budget and the October 2010 Comprehensive Spending Review that the CTC child element would increase by £110 above indexation from 6 April 2012. This planned change was reversed in the Autumn Statement 2011. The CTC element (along with the disability elements of WTC and CTC) increased by CPI of 5.2%.

Changes from April 2013

Income disregard for increases in income reduced

The tax credit income disregard changed from £25,000 to £10,000 from 6 April 2011. From 6 April 2013, this decreased again from £10,000 to £5,000.

The disregard is one of most complex parts of the tax credit system. We explain the disregard in detail in our ‘understanding the disregards’ section.

Autumn Statement 2012

Collection of tax credits debt

Two announcements were made in the Autumn Statement 2012 relating to the collection of tax credits debt. HMRC will be running two pilots in 2013, the first conduting a payment by results pilot on outsourcing tax credits debt to a private debt collection agency and the second working with DWP to look at recovery of overlapping debts (where someone owes money to both HMRC and DWP). You can find out more about these pilots in our pilots being trialled section.

Tax credits error and fraud childcare costs

A pilot will commence during 2013/14 which will require some tax credits claimants who report high childcare costs to provide evidence to HMRC. This is part of the error and fraud programme. You can find out more about calculating childcare costs and particularly the issues that arise in compliance interventions in our understanding childcare section.

Child tax credit payments for 16-19 year olds

The Government will require annual parental certification that child aged over 16 is in full time non-advanced education or approved training. This is part of the error and fraud programme as HMRC believe a high number of overpayments relate to claimants who fail to report that their young person has left FTNAE or training.

Welfare Reform Act 2012

Several changes to tax credits legislation were introduced by the Welfare Reform Act 2012. Many of the changes relate to the transition of tax credits claimants to Universal Credit. You can find more detailed information on each of these provisions in our transition to UC section.

One other major change was the introduction of a ‘loss of tax credits’ provision into the Tax Credits Act 2002. You can find out more about this in our Dealing with mistake and fraud section.

A number of provisions were introduced that relate to tax credits fraud and information sharing. You can find out more about those provisions in our Dealing with mistake and fraud section.

COP 26 - 3 month dispute time limit

Section 28(1) Tax Credit Act 2002 sets out the law on recovery:

‘Where the amount of a tax credit paid for a tax year to a person or persons exceeds the amount of the tax credit to which he is entitled, or they are jointly entitled, for the tax year . . . the Board may decide that the excess, or any part of it, is to be repaid to the Board.’ (italics supplied).

Note that unlike the position on social security benefits, HMRC have the discretion to recovery any overpayment no matter how it was caused. To deal with this discretion HMRC have a policy for overpayment recovery which is set out in COP 26.

The COP 26 policy is often referred to as the ‘dispute process’.

From 6 April 2013, HMRC have introduced a 3 month time limit to the dispute process. This is a major change to the process for claimants and advisers. The time limit is complex in practice. More detail about how it works can be found in the dispute process section.

Notional Offsetting

Sometimes, tax credits 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.

Prior to 17 May 2007, HMRC had a policy of notional offsetting. This policy was suspended on 17 May 2007 and from then 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 January 2010, 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.

To request notional offsetting, 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 three months by which the claimant will be able to backdate their new claim. Normally HMRC will grant the three months backdating automatically, but if that doesn’t happen, they will need to ask for it.

On the whole HMRC policy is to be lenient and not charge a penalty where the failure to report has resulted from a mistake or misunderstanding. If HMRC think the claimant has been negligent in not reporting, and they are left with a net overpayment even after notional entitlement has been applied, they may be charged a penalty against which they can appeal.

If the failure to report is dishonest, the penalty may well be substantial and in extreme cases notional entitlement will not be given.

More information about notional offsetting is available in the HMRC compliance manuals:

These manuals cover notional offsetting from a compliance perspective. It should be noted that notional offsetting applies to non-compliance cases in the same way.

Dual Recovery

This policy is operated by Debt Management and Banking in relation to overpayment 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 HMRC intermediaries guide and in the Debt Management Banking Manual Online.

More information about tax credit debt can be found in our dealing with debt section.

Couples recovery policy

This policy is operated by Debt Management and Banking in relation to 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.

Changes from October 2014

HMRC announced in the Autumn Statement 2012 that they would be introducing cross award recovery from April 2014. It has now been confirmed that this will begin in October 2014. Currently, where an overpayment debt exists on a claim that has ended, it cannot be recovered against a later tax credits claim even if that claim is made by the same person. Instead the debt is passed to Debt Management and Banking for direct recovery.

The legislation has never prevented cross claim recovery, but the HMRC IT system was unable to do this. Given the growing amount of overpayment debt, and the fact it is likely to increase over the next few years, HMRC will introduce a change to their IT to allow cross claim recovery.

We have added some further information about how cross-year recovery will work in our dealing with debt section.

HMRC announced in Autumn Statement 2013 that they would expand the use of private sector debt collection services in tax credits during 2014 and increase the use of private sector firms in carrying out compliance checks. It was also announced that HMRC would use private firms to help with debt recovery in the earlier stages on a payment by results basis.

Changes from April 2015

HMRC announced in the Autumn Statement 2013 that from April 2015 tax credits payments will be stopped in-year where, due to a change in circumstances, a claimant has already received their full entitlement. This is to prevent a build up of overpayments.

In the Autumn Statement in December 2014, it was announced that the rules for self-employed workers claiming tax credit would be tightened. Initially it was suggested that self-employed claimants whose earnings were below 24 hours a week x national minimum wage would be asked to show that their self-employment was genuine and effective.

In responding to the Autumn Statement, LITRG said that the proposed earnings x hours worked test was likely to discriminate unlawfully against disabled self-employed people who may not be able to work 24 hours a week for health reasons and who qualified under existing legislation on the basis of a 16 hour week.

The actual legislation (SI 605/2015), effective from 6 April 2015, delivers a slightly different rule, whereby a claimant must meet the condition of being either employed or self-employed, as defined. And to be self-employed, their activity needs to be undertaken on a commercial basis with a view to making a profit.

The additional conditions from the 2014 Autumn Statement announcement, that a self-employed claimant must register as self-employed with HMRC for self-assessment and provide their unique taxpayer reference number with their claim, have been postponed for introduction at a later date.

HMRC published a briefing paper about the new rules which offers some information about how the new condition will be applied and it still refers to selecting cases on the basis of a minimum earnings threshold equivalent to qualifying working hours x national minimum wage. But it leaves many unanswered questions at this stage, such as how HMRC will determine whether an activity is undertaken on a commercial basis, whether there will be any practical implications for the difference in tax and tax credits interpretation of status and how claimants and prospective claimants will be helped to ensure they claim on the correct basis to avoid unwittingly incurring overpayment.
 

 

 

 

Tax Credits: Policy changes

In this section you will find information about tax credits policy changes.

Tax credits have undergone some fairly major changes in the last couple of years. The current policy section outlines changes to the system that have taken place over the last few years.

Information about changes to the system in 2015/16 and later years can be found in the future policy section.

In October 2010, the Government announced that both working tax credit and child tax credit would be replaced by Universal Credit. You can find out more about the move to UC in our transition to Universal Credit section.