New claims for tax credits – legislation vs practice

The information on this page is intended for Advisers to highlight areas of the existing legislation that lack clarity. No-one should take any action, or refrain from any action, using this information without consulting a welfare rights specialist for advice based on individual circumstances.

HMRC’s position

HMRC’s position is that from 1 February 2019 the only people who can make a brand new claim for tax credits, now that UC is available across the UK, are those who are under state pension credit age (or for couples where one person is under and one over that age):

Who are entitled to the severe disability premium in certain benefits (or have been in the past month but although the benefit has ended, they continue to meet the eligibility conditions for the severe disability premium)
Who are 'frontier workers'. Frontier workers are people who are 'in Great Britain' (under Section 4(1)(c) Welfare Reform Act 2012) or 'in Northern Ireland' (under Article 9(1)(c) of Welfare Reform (Northern Ireland) Order 2015) but do not reside in either GB or NI. Crown servants or members of HM Forces who are posted overseas (as defined under the UC Regulations 2013) are not frontier workers.

HMRC also say that claimants renewing their tax credit claims within the respective time limits as part of the annual renewal cycle and claimants who receive either working tax credit (WTC) only and are adding child tax credit to their award (or vice versa) can continue to do this under the current legislation.

HMRC have withdrawn their paper tax credit claim form. Anyone who wishes to make a brand new claim for tax credits must contact HMRC’s tax credits helpline in the first instance. During the call, the HMRC adviser assesses whether or not the caller meets the SDP exception criteria, mentioned above, and if they do and they wish to make a brand new tax credit claim, the adviser arranges for the claim to be taken by telephone. HMRC say that anyone who believes they meet the frontier worker exception criteria must initially approach UC and attempt to make their claim. Once DWP/DfC establish they’ve met their provisions there’s a process in place to pass details to HMRC for HMRC to capture a new claim. Once the claim is made, HMRC will process the claim in the usual way and issue an initial decision whether to award, which carries appeal rights (s.14 decision) and the normal claim process continues from then on.

Our understanding is that where the adviser assesses that the caller doesn’t appear to meet any of the exception criteria, they advise the caller that they can’t claim tax credits and mention that information about UC is available on the GOV.UK website. No tax credit claim is taken and no formal decision is issued by HMRC in these circumstances (see below for further commentary on this).

The legislation

Abolition of tax credits

Commencement Order 32 effectively triggers Section 33(1)(f) of the Welfare Reform Act 2012 which abolishes tax credits from 1 February 2019.  Abolishment of tax credits means that tax credits legislation ceases to have effect and tax credits, in cases where abolishment applies, can no longer continue under a legislative framework. However, HMRC still need to administer the claims already in the system and the intention is for some people to be able to continue to make new tax credit claims. For that reason, Commencement Order 32 creates a number of exceptions to abolishment of tax credits – called savings – which means that tax credits are abolished in some cases but not others. So, the starting point of any consideration whether someone can claim tax credits is to check Commencement Order 32 to ensure the person falls under a saved situation.

Notably amongst the savings, articles 3(2) and 3(5) set out that tax credits are not abolished in the following circumstances:

(2) The case referred to is the case of an award of a tax credit that has effect for a period that includes 31st January 2019.

(5) The case referred to is a case, not falling within paragraph (3) or (4), of—

(a)an award of child tax credit where the period for which it has effect begins on or after 1st February 2019 and where, on the day on which the claimant or claimants of the award makes or make the claim for it, he or she (or they) has or have an award of working tax credit;

(b)an award of working tax credit where the period for which it has effect begins on or after 1st February 2019 and where, on the day on which the claimant or claimants of the award makes or make the claim for it, he or she (or they) has or have an award of child tax credit;

(c) an award of child tax credit or working tax credit where the period for which it has effect begins on or after 1st February 2019 and where the claimant or claimants who makes or make the claim for the award had an award of the same type of tax credit for the previous tax year to the tax year for which the award is made.

Article 3(6) explains when, for the purposes of Article 3(5), a person is treated as having an award of WTC or CTC

(6) For the purposes of paragraph (5)(a) and (b)—

(a)a person is to be treated as having an award of working tax credit with effect from the start of a tax year (“current tax year”) even though a decision has not been made under section 14 of the 2002 Act in respect of a claim for that tax credit for that tax year, if the person had an award of working tax credit for the previous tax year and any of the cases specified in paragraph (7) applies; and

(b)a person is to be treated as having an award of child tax credit with effect from the start of a tax year (“current tax year”) even though a decision has not been made under section 14 of the 2002 Act in respect of a claim for that tax credit for that tax year, if the person had an award of child tax credit for the previous tax year and any of the cases specified in paragraph (7) applies.

In other words, tax credits are not abolished where someone had a tax credit award that included 31 January 2019; or someone has an award of WTC and additionally claims CTC for a period that started on or after 1 February 2019 (and vice versa); and also where someone has a tax credit award that begins on or after 1 February 2019 and they had an award of the same type of tax credit for the previous year.

New tax credit claims

However, even if tax credits are not abolished for a particular person or group of people, it doesn’t mean they can make a new claim.

Commencement Order 23 sets out who can make a claim for tax credits. Art. 7(1) sets out the broad rule that no-one can make a claim for tax credits and subsequent paragraphs (art.7 paras 2 to 6) set out the specific circumstances where that basic rule does not apply – in other words it covers those who can make new claims for tax credits.

Those who can definitely claim are :

People in receipt of a severe disability premium, or have been in the past month but although the benefit has ended, they continue to meet the eligibility conditions for the severe disability premium
Frontier workers, as defined in legislative provisions
A person who makes a claim for CTC or WTC and on the date they claim the person already has an award of WTC or CTC, respectively
A person who has or had or persons who had or have an award of CTC or WTC in respect of a tax year and that person makes or those persons make or is/are treated as making a claim for that tax credit for the next year

Renewal claims

In normal tax credits legislation, there is no technical distinction between a brand new claim and a renewal claim. All tax credit awards last a maximum of one tax year and so a new claim is needed each year. The s17 declaration (the renewals declaration, whether reply-required or auto-renew) is treated as a claim for tax credits for the following year and commonly referred to as the renewal claim but it is, simply, a claim. The date of that ‘renewal’ claim is determined by the timing of the s17 declaration.

The tax credits claims and notifications rules state clearly that the s17 declaration is to be treated as a claim for tax credits for the current tax year. If it is received by the first specified date; within 30 days of the statement of account; or by 31 January (following the year to which the s17 notice relates) where the claimant can show good cause for their late declaration, then the date of claim will be the 6 April. Where the declaration is received on any other date, then the date of claim is the date the declaration is received.

In the latter case, it is our understanding that HMRC have always advised people who have missed the renewals deadline, the extension periods and who don’t have good cause, to submit a new claim under the usual claim process. In fact, that has never been a legislative requirement – the legislation allows HMRC to treat the renewal response as a claim - and the point may well become relevant again now that HMRC have stopped issuing paper claim forms.

Other claim types

So far, the legislation set out matches HMRC’s stated position with regards to who can make new tax credit claims (both brand new claims and renewals). However, this is where things become more complicated as it appears the legislation (specifically Commencement Order 23) is open to interpretation and one interpretation of it would allow new claims from a much wider range of people – which is clearly not HMRC’s intention.

We know that HMRC are allowing existing tax credit claimants to renew their claims – which means that tax credits must not be abolished for those people under Commencement Order 32 and that Commencement Order 23 must contain a provision that allows them to make a (renewal) claim. The most likely provision is Article 7 (6) which says:-

(6) Paragraph (1) does not apply to a claim for a tax credit where a person has or had, or persons have or had, an award of] child tax credit or working tax credit in respect of a tax year and that person or those persons makes or make (or is or are treated as making) a claim for that tax credit for the next tax year.

So, someone claiming tax credits in 2018/19 would have received a Section 17 renewal notice around May 2019. That notice (whether auto-renewal or reply required) allowed HMRC to finalise the claim for 2018/19 and acts as a new claim for the 2019/20 tax year. So, the test in Article 7(6) is met because they had a claim for 2018/19 (a tax year) and they have, through the renewal, made a claim for 2019/20 (for the next tax year).

However, what is notable about the wording in Article 7(6) is that it isn’t specifically linked to renewal situations nor does it state that the new claim has to run from the start of the next tax year or be for the complete tax year, simply that it has to be for the next tax year.

So, what about a person who misses the renewal deadline and the 30 day grace period. Assuming they have no good cause for missing the deadline – can they make a new claim for tax credits? HMRC’s position is no – they would have to claim UC instead. But one interpretation of Article 7(6) is that they could make a new claim because they had a claim for 2018/19 (which will be finalised even if they fail to return the renewal papers) and the are making a claim for the next tax year. As noted above, the existing tax credit legislation states that a late renewal is to be treated as a claim for the new tax year. In other words – Article 7(6) is arguably not limited to people who renew through the normal renewals process (or the 30 day grace period or with good cause by 31 January).

What about other groups of people? For example, a single person who moves in with their partner in mid February 2019 (important as it ensures tax credits are not abolished in such a case under Order 32). As a result their single tax credit claim ends and they would, if they wanted to continue getting support, have to make a joint claim for either tax credits or UC. Let’s assume that after 6 months, the couple separate and the single claimant needs to make a new claim. Again, HMRC’s position is that they would (unless they fall into the severe disability premium or frontier worker exceptions) have to claim UC. But again, it is arguable that they meet the wording set out in Article 7(6). Similar arguments can be advanced for those who accidentally claim Tax-free Childcare which automatically terminates their tax credit award (depending on the relevant dates) and possibly other groups. Or those who have mistakenly claimed UC during the coronavirus pandemic which terminated their tax credits.

What does this mean in practice?

It appears that it is possible to argue that so long as tax credits are not abolished under Commencement Order 32 for a particular person or group of people, Order 23 allows claims from a larger number of people than HMRC allow/or intend to allow.

There is some support for this approach in case law (CTC/1221/2019). In that particular case, Mr W was part of a joint tax credit claim with his wife who unfortunately passed away. He attempted to make a single claim which was refused by HMRC who said that he must claim universal credit instead. Mr W lost his appeal because his reliance on Article 7(6) was based on his former joint claim in the previous year whereas the new claim he was trying to make was as a single claimant. In his reasoning, Judge Mitchell quotes and supports HMRC’s argument that ‘ Article 7(6) of the No.23 Order could not have applied because Mr W sought to make a new claim in the 2017/18 year in a different capacity and ‘therefore the ‘persons’ referred to in article 7(6) were unable to make or be treated as making a claim for the next tax year.’ However, turning this around, it could be interpreted as suggesting that if Mr W had been seeking to make a new claim in the same capacity as his previous claim (i.e. jointly), article 7(6) would have applied and his claim would have succeeded. It is likely that this issue will be tested in future cases before the Upper Tribunal.

There are some important warnings that must be considered alongside this possibility:

1.This is exceptionally complicated and based on one possible interpretation of the wording in the legislation. It does not align with HMRC’s intended position nor the way they are operating in practice and therefore to advance the argument would most likely require a Tribunal to consider the issue (or potentially a Judicial Review action).

2.If a case was taken to Tribunal, it may take a considerable amount of time and in the meantime there will some difficult decisions to make about claiming UC in the interim. If a UC claim is made, any successful Tribunal challenge would only have effect up until the date of the UC claim. However, if no UC claim is made and the challenge is not successful, then the individual may well have missed out on financial support for a long period of time – UC claims can only be backdated up to a month in limited circumstances. Of course, this may not be relevant if there is no entitlement to UC anyway (for example because the individual has capital in excess of £16,000.

3.It is crucial to get specialist welfare rights advice about this issue due to the complexity and the potential risks involved around any challenge.

The other practical point to note is that in order to pursue a case to Tribunal, there needs to be an appealable decision made. It is possible that HMRC will simply refuse to accept a claim if they do not think the person is eligible to make a claim. In our view, this would be contrary to the legislation, they should allow a claim if someone insists and issue a decision which carries appeal rights. This is important not only for this particular issue, but also in situations where there may be some doubt for other eligibility groups – for example whether someone is a frontier worker or not.

Due to the potential difficulties claiming and persuading HMRC to take and process a claim, the claimant may need to try and convince a First-tier Tribunal to accept that in fact a claim has been made (by virtue of the person attempting to claim) and HMRC have made a decision whether (or not) to award tax credits for an appeal to proceed (by virtue of the HMRC adviser saying the person cannot claim).

If this was not accepted by the First-tier Tribunal, a Judicial Review may well be necessary and again specialist legal advice will be needed.

Last reviewed/updated 28 October 2020 Published 28 October 2020