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.
Since the initial version of this page was published, the Upper Tribunal has issued a decision which explores the legislation in this area. It is not yet known if leave will be sought to appeal the decision further. We explain the case and how it impacts things below.
- HMRC’s position
- The legislation
- Case law
- What does this mean in practice?
According to HMRC, now that UC is available across the UK, no-one can now make a brand new claim for tax credits (the rules permitting claims from frontier workers were withdrawn from 30 March 2022). The only exception to this is certain people who are granted refugee status.
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HMRC have withdrawn their paper tax credit claim form.
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), 3(3) 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.
(3) The case referred to is the case of an award of a tax credit where the period for which it has effect begins on or after 1st February 2019 and where the claim for the award is made by—
(a) a single claimant who is, or a couple both members of which are, aged under the qualifying age on the day that the claim is made;
(b) a mixed-age couple which is also a UC couple on that day; or
(c) a polygamous unit which on that day consists wholly of persons who, ignoring any restrictions on claiming universal credit in the UC transitional provisions, could claim universal credit, and meet the UC age condition, as— (i) UC joint claimants and one or more UC single claimants; or (ii) a number of UC single claimants
(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; someone had an award for a period which began on or after 1 February 2019 and they fell into a certain group 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.
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 including:
- 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
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 tax credits claims and notifications rules state that the s17 declaration is to be treated as a claim for tax credits for the current tax year (e.g. for the tax year following that to which the s17 notice relates). 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. From 9 June 2022, late s17 declarations are no longer treated as new claims. Late for this purpose means after 30 days from the statement of account where the claimant has no good cause or after 31 January (following the year to which the s.17 notice relates) where the claimant has good cause for their late declaration.
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 one of the exceptions above applied) 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.
In December 2021, an Upper Tribunal decision (The RS case) was published which explores this issue and in particular Article 7(6). The claimant in that case received tax credits in 2018/19 had their tax credit award renewed for 2019/20 through the normal renewals process. In June 2019, they applied for tax-free childcare which terminated their tax credit award. For some unknown reason, their tax-free childcare claim was refused. They attempted to make a new claim for tax credits in August 2019 using the arguments above.
The First-tier Tribunal found in their favour. However the Upper Tribunal did not and found in HMRC’s favour. The decision centered around what is meant in Article 7(6) by a claim ‘for the next tax year’ (shown in bold below):
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.
UT Judge Poynter decided that the claim made on 1 August 2019 was made during the 2019/20 tax year but that it wasn’t for that tax year. This is because a tax year runs from 6 April in one year to 5 April the next and article 7(6) itself draws a distinction between the earlier award which must be ‘in respect of a tax year’ and the subsequent claim which must have been ‘for the next tax year’. He therefore decided that ‘for the next tax year’ refers to the next tax year as a whole.
Judge Poynter stated that the renewal claim for 2019/20 met the requirements of Article 7(6) because it was for the whole 2019/20 tax year initially and would have lasted for the whole tax year, had there not been grounds to terminate it earlier. The fact it was a nil award is irrelevant.
However, he said that the claim made on 1 August 2019 was not for the next year as it was not made for the full period from 6 April 2019 to 5 April 2020, but for the period from 1 August 2019 to 5 April 2020.
It is important to note that Judge Poynter did refer to HMRC’s submission that the policy in Article 7(6) applies only to renewal claims. He noted those submissions were short on analysis as to why and he stressed that his decision did not decide that the article only applies to renewal cases only that it does not apply in this particular case.
Although he did not need to decide it, he analysed some of the potential problems with the wording of Article 7(6) in this respect including pointing out that if in respect of a tax year covers part of a tax year, someone with an award for only one day of a tax year would seem to be eligible to make a fresh claim on the first day of the next tax year, even though that would not be a renewal claim.
It is also worth noting an earlier case with some relevance here. In CTC/1221/2019), 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.’
Prior to the RS case, it appeared that it was 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. The number of people that this argument may work for appears to have been significantly reduced following the decision in RS (subject to any further appeal) .
However, RS still leaves it open to argue that new claims for tax credits are possible in some cases where they are for the whole tax year. For example, someone in a similar situation as the claimant in RS – who (say) claimed tax credits in 2021/22, who then claimed TFC in (say) August 2022 (which terminates their tax credit claim) – it could be argued that the RS decision would support a new claim for tax credits made on 6 April 2023; and indeed the same principle would follow in subsequent years, providing the new claim is made on 6 April. If this is correct, it leaves a rather illogical position in that a new claim made in August 2022 would fail (as it did in RS) but a claim on 6 April 2023 could succeed.
Furthermore, Judge Poynter’s reasoning seems to suggest that the usual 31 day backdating provisions are relevant to whether the claim is made for the full year (see paragraph 37e of the decision). It follows that it could therefore be argued that the longer backdating rules (in cases involving the disability element) would mean new claims ‘treated as made’ from 6 April could meet the requirement to be ‘for the next tax year’ in Article 7(6). (On the subject of backdated claims, the ruling in a recent Judicial Review, confirms that provisions that enable refugees to make backdated child tax credit claims from the date they sought asylum continue to apply where that date was before the introduction of full service universal credit).
There is also the possibility that Judge Poynter’s decision in RS will be appealed to a higher court by the appellant. There are a number of elements that raise questions such as whether claims for tax credits are made for specific periods within a tax year or whether they are always made for a particular tax year. In addition, the decision to read ‘for the next tax year’ as meaning the whole of the next year could also be challenged – interestingly there are parts of tax credits legislation where reference to a tax year is also referring to part of a tax year.
The decision in RS seems to add a challenge to HMRC’s position that no new claims for tax credit can be made (other than tax credit renewals, adding WTC to existing CTC and vice versa). It is possible that the RS decision may be appealed to a higher court, even if it is not, it still leaves many unanswered questions on this part of the legislation. It is likely that further challenges will follow in this area.
There are some important warnings that must be considered if a claimant wishes to try to make a similar argument:
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). The impact of the RS also needs to be considered if any case is going to Tribunal.
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. That leaves the claimant without a decision to appeal.
If the claimant cannot convince HMRC to accept a claim and issue an appealable decision, 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).
In the RS case discussed above, the claimant attempted to claim by telephone. HMRC refused to accept a claim because tax credits had been abolished and it was not possible for him to claim them. Following a review under s.21A of the Act, the claimant then appealed to the First-tier Tribunal. HMRC resisted the appeal and further asserted that the claimant had no right of appeal against a decision not to accept a claim. The First-tier Tribunal allowed the claimant’s appeal and held it did have jurisdiction. However, that does not mean all cases will be able to proceed in that way.
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 20 May 2022