Universal credit: Making a universal credit claim
This page looks at what happens if an existing tax credits claimant makes a claim for Universal Credit (UC). This is often referred to as 'natural migration'.
- What is natural migration?
- Choosing to claim universal credit
- What happens if a tax credit claimant makes a UC claim?
- What if the UC claim was made accidentally or by mistake?
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 and processes to move them across to UC under the 'managed migration' process (sometimes referred to as ‘Move to UC’. This managed process was expected to be tested with up to 10,000 claimants between July 2019 and July 2020, with remaining tax credit claimants going through the managed process from November 2020 to December 2023. However, as well as pushing back the planned completion date of the full migration exercise to September 2024, the pilot itself has been suspended from March 2020 due to the impacts of the coronavirus outbreak in the UK. The longer term impact on the migration timetable is currently unclear.
In the meantime, existing tax credit claimants will only be affected by UC if they choose to claim UC, if they have a change of circumstances that ends their tax credits claim and they still need to claim some support or if they need to make a claim for another legacy benefit (one of the other benefits that UC is replacing). The general rule is that you cannot claim tax credits and UC at the same time. Tax credit claimants who move to UC in any of these three situations are said to be 'naturally' migrating.
Existing tax credit claimants can choose to claim UC voluntarily. Some people will be better off under UC rules than under tax credits and some people will be worse off under UC than tax credits. If a tax credit claimant is likely to be worse off under UC, then it is in their interests to try and remain in the tax credit system for as long as possible. If they are likely to be better off under UC, then they may wish to move across now.
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. For example, under UC people may be required to look for work as a condition of receiving the benefit, which is not required for tax credits.
The mechanism for terminating the tax credits claim
Broadly, where a claim for UC is made and the Secretary of State is satisfied that the claimant meets the basic conditions for UC (except for the claimant commitment requirement and any others the claimant is not required to meet) then all awards of tax credits for which there is entitlement (on the date of the UC claim) will terminate.
The tax credit award will terminate the day before the first day of UC entitlement. If the person is not entitled to UC, then it will terminate on the day before the first date they would have been entitled if they had met all of the UC conditions (both basic and financial conditions).
It should be noted that no decision notice or indeed any written notification will be issued by HMRC at the point the tax credit claim is terminated. Therefore, it is seemingly not possible to appeal the termination of the tax credit claim at that point. The claimant will, at some later point, receive an in-year finalisation pack which will seek to finalise the tax credit claim between 6 April and the date of termination. A final award notice (Section 18) will then be issued which carries the usual appeal rights.
As with other parts of UC legislation, the legislation refers to awards of tax credits ending where there is 'entitlement'. In some cases, tax credit payments may be made before entitlement is established - for example, between 6 April and the date a person renews their claim for the current tax year. The legislation includes a provision to treat people as entitled to tax credits in certain cases. We explain where this is the case in our tax credits and UC section.
How does the process work in practice?
In practice, our understanding is that as soon as a UC claim is validly completed online and the submit button pressed, an electronic notification (called a 'stop notice') is sent from DWP to HMRC to end the tax credits claim. As noted above, the rules suggest that the making of a UC claim isn't enough by itself to trigger termination of a tax credits claim. The legislation requires the Secretary of State to be satisfied that the claimant meets the basic conditions of UC (except for the claimant commitment and any others the claimant is not required to meet). The way the process works in practice suggests DWP believe that the information given by a claimant during the online UC claims process is enough to satisfy that requirement. We understand that the UC on-line claim system will not allow a claim to go through as complete/accepted, and therefore issue the 'stop notice' to HMRC, where the claimant inputs age information suggesting they have (both, in a joint claim) reached their qualifying state pension credit age or where they input address information which gives an abroad address, although it is unclear how reliable such checks may be in practice.
In such cases, the claimant will be expected to provide supplementary information before their UC claim can proceed in those circumstances. However, it does leave questions about how the Secretary of State can be satisfied that the claimant meets all the basic conditions of entitlement just on the basis that the on-line process has accepted the UC claim based on the information provided by the claimant.
Potential challenges to the stop notice period
In an Upper Tribunal case (LH - 2018 UKUT 306 AC) a tax credit claimant mistakenly made a claim for UC when trying to make a claim for personal independence payment. The UC claim was subsequently withdrawn/closed at the claimant's request. However, the tax credit claim had already been terminated and HMRC finalised the claim under the in-year finalisation process. The claimant appealed the decision to end the tax credit claim. The First-tier Tribunal found that the DWP had issued a stop notice in respect of the tax credit award, but found that there was no evidence (in the notice or elsewhere) that the Secretary of State was satisfied that the basic conditions had been met.
The Upper Tribunal rejected HMRC's submission that all that mattered was the existence of a stop notice, not its content. What was required was some evidence to link the stop notice itself to the Secretary of State being satisfied about the basic conditions. On this point, the Upper Tribunal said, 'All that was required was an explanation of the system that led to the notice being issued. Mr Eland has provided that'. Unfortunately, that explanation is not contained in the decision.
In this particular case, the Upper Tribunal decided that both conditions (a UC claim being made and the Secretary of State being satisfied that the basic conditions had been met) were met.
It may well be, particularly in cases involving questions about whether the person is 'in Great Britain', that there will be further challenges to this at Tribunal or via Judicial Review (see below for one case that has reached Tribunal). The legislation certainly suggests that the DWP should consider the basic conditions in every case (rather than use an automatic process) and 'satisfied' suggests that it may require more questions to be asked than are contained in the basic claim form. It is therefore questionable whether the current process is sufficient to allow for the termination of a tax credit award in every case.
In the case discussed above, a tax credit claimant mistakenly claimed UC when trying to make a claim for personal independence payment. It is perhaps not surprising that this is a possibility as long as the two systems exist alongside. The financial consequences may be significant and tax credit claimants may be worse off if they claim UC before transitional protection is in place.
So what happens if a UC claim is made accidentally or by mistake? The Upper Tribunal case of LT discussed above suggests that if those two requirements are met (a UC claim being made and the Secretary of State being satisfied that the basic conditions had been met) then the tax credits claim will be terminated and there is no way for it to be reinstated, even if the UC was made by mistake. Unless they are a frontier worker, most claimants will not be able to submit a brand new tax credits claim either.
NOTE: HMRC’s position is that no brand new tax credit claims are possible unless the person is a frontier worker, is already claiming either WTC or CTC and wants to claim the other tax credits or they are renewing their claim. However, the legislation is not clear on this point and one interpretation of the current legislation is that other people may be able to make new claims for tax credits. We have written some guidance for advisers which provides further information about this – however, it is extremely complex and should not be followed without speaking to a welfare rights specialist
The Upper Tribunal in the case referred to above did open up the possibility that it 'may' be possible that the claimant could withdraw the UC claim before the stop notice was sent by DWP to HMRC - however, they did not have to decide that point in the actual case and so it was not discussed further. It is difficult to see how this would be possible if the stop notice is sent automatically at the point that the UC claim is submitted, such action would only be possible if there was a delay between submitting the UC claim and the stop notice going to HMRC.
The other point considered by the Upper Tribunal in the LT case was whether the withdrawal of the UC claim could have retrospective effect so that there never was a claim. In cases where a UC claim has not yet been decided, it is possible for the claim to be withdrawn (Regulation 31 Universal Credit Claims and Payments Regulations 2013). Withdrawals take effect by the operation of law as soon as they are received by the DWP and no decision is needed by someone within DWP. However, in this case, the Tribunal decided that the subsequent withdrawal of the claimant cannot rewrite history by pretending that the claim was never submitted in the first place.
Judge Jacobs noted that Regulation 8 (UC Transitional Provisions Regulations 2014), which allows the termination of a tax credit award when a UC claim is made, takes the form that is sometimes known as 'sudden death' and that reflects Parliament's intention. It therefore seems that there is no obvious way to reverse a situation where a UC claim has been made accidentally or mistakenly by a tax credit claimant. The tax credit award will be terminated and there will be appeal rights attached to the final section 18 decision.
The only possibility of further challenge is likely to involve further examination of whether the Secretary of State can indeed be satisfied that the basic conditions have been met based on the online claim form above.
The Coronavirus pandemic has led to a significant increase in claims for UC. At times, there have been some confusing Government communications (for example, suggesting the self-employed can access a statutory sick pay equivalent via UC) which led to some people claiming UC without realising their legacy benefits, including tax credits, will terminate.
The situation has brought attention to the issue of accidental/mistaken UC claims. As a result, the Secretary of State for Work and Pensions said, on 4 May 2020, that she wouldn't actively look at what can be done for tax credit claimant who have lost their entitlement due to apply for UC. We are not aware of any change in policy as a result of this consideration but she said that the website has been updated so that people are clearer what might happen when they apply for UC. The full statement can be found in a COVID-19 DWP update from Hansard.
It is worth noting that there may be recourse to financial compensation if a tax credit claimant makes a UC claim based on incorrect advice from HMRC or DWP and the UC award is less than the tax credits award. For example, where a tax credit claimant who is off work with illness is advised to claim UC instead of New-Style Employment and Support Allowance.
In addition to taking any action outlined above to try and get the tax credits award reinstated, a complaint should be submitted to either HMRC or DWP (whoever gave the wrong advice) with a request for financial compensation to cover the amount lost by the claimant as a result.
NOTE: We recommend that any adviser supporting a tax credit claimant who has mistakenly or accidentally made a UC claim which has led to termination of the tax credit award seek specialist advice from Child Poverty Action Group or a welfare rights solicitor immediately and before any further steps are taken (for example, to withdraw the UC claim). This is a very complex area and taking the wrong steps can have serious financial implications for claimants.
Last reviewed/updated 24 May 2021