|
Updated March10
| Introduction
to Tax Credits
|
|
Working Families’ Tax Credit; | |
|
Disabled Person’s Tax Credit; | |
|
personal allowances and premiums for children and young people on Income Support and Income-based Jobseeker’s Allowance (JSA(IB)) including the disabled child premium and the enhanced disability premium for a child; | |
|
the family premium for Income Support and JSA(IB); | |
|
increases for child dependants for people on Incapacity Benefit, Carer's Allowance (CA), Severe Disablement Allowance (SDA), Retirement Pension and bereavement benefits. |
From 5 April 2004, new Income Support and JSA(IB) claims do not include personal allowances and premiums for children. Her Majesty’s Revenue & Customs (HMRC) intends to transfer all personal allowances and premiums for children included in claims for Income Support and JSA(IB) to CTC at some point in the future.
Transitional rules also allow claims which already included child dependant additions on 5 April 2003 to retain them. This transitional protection is lost if entitlement to the addition ceases or stops due to exceeding the earnings limit and this occurs for more than eight weeks.
Claims for tax credits are decided by HMRC. A tax credit award usually starts on the date of claim (the date it is received by HMRC) and runs to the end of the tax year. If the date of claim is the beginning of the tax year, the award period is 365 days (366 if a leap year). Otherwise the award period is less than a year. However, HMRC can terminate an award immediately if a person ceases to be entitled. In addition, changes in circumstances mean that awards can be changed during the award period.
Claims for tax credits can be automatically backdated for up to 93 days providing all the conditions of entitlement are met throughout the backdated period.
WTC is a means-tested tax credit paid to certain groups of people who are on low income and in full time work. You do not have to have paid national insurance contributions to qualify for WTC. Entitlement to WTC is based on income and not capital, but actual income from capital counts as income.
A person and, where appropriate, her/his partner must be aged sixteen or over to make a claim. There is no upper age limit.
Families, couples without children and single people who are at a disadvantage of getting a job or are aged 25 or over can all claim. There is also an additional route to entitlement for people over 50 who satisfy specific rules.
A claim for tax credit must be made jointly by members of a couple, ie married or civil partners or living together as a couple.
To claim WTC, a person must be aged sixteen or over and:
|
s/he and or his/her partner must be in remunerative work of sixteen hours or more a week; and
| |||||||
|
in remunerative work of 30 hours a week or more and aged 25 or over; and | |||||||
|
living and/or working in the United Kingdom; and | |||||||
|
not subject to immigration control. |
A person must be working the required number of hours or more per week and be expected to continue to do so for at least four weeks after claiming. A person can be employed or self-employed and can have more than one job. In calculating hours worked, any customary or paid holidays are ignored as well as meals and tea breaks unless these are paid breaks.
Work carried out by prisoners is not qualifying remunerative work. However, a prisoner’s income from work will be included in any claim by her/his partner for tax credits.
The work must be paid or done in expectation of payment. Work done for a charitable or voluntary organisation or as a volunteer where payment is made for expenses is not considered to be remunerative work.
The requirement to work the required number of hours is ongoing. A person should keep a careful record of hours worked. S/he is also required to notify HMRC of changes in her/his working hours.
A person on sick leave or ordinary maternity leave, paternity leave, adoption leave or sick leave from a job or self employment where s/he worked at least sixteen hours a week before going on leave will be considered to be in remunerative work.
A person is also treated as being engaged in remunerative work during the first thirteen weeks of an additional maternity or adoption leave period provided s/he worked at least sixteen hours a week before the initial period of ordinary maternity or adoption leave began.
A person must also be working at the date of claim or have an offer of work which is due to start within seven days of the claim. Modified rules apply to term time and seasonal workers not working at the date of claim.
A person will be entitled to the 50 plus element if s/he:
|
is aged at least 50; and | |||||||||||||||||||
|
starts remunerative work for at least sixteen hours a week; and | |||||||||||||||||||
|
for at least six months prior to starting work (or for periods separated by no more than twelve weeks which add up to at least six months) was receiving any of the following benefits:
|
As an alternative, a person’s partner could have been getting one of the above benefits and claiming for the person.
A person who was in receipt of CA, Bereavement Allowance or Widowed Parent’s Allowance immediately before receiving one of the above benefits or national insurance credits can count time in receipt of any of these three benefits towards the six month period.
A person claiming is treated as having a disability which puts her/him at a disadvantage in getting a job if:
|
s/he is working at least sixteen hours per week; | |||||||||||||||||||||||||||||||||||||
|
has one of the disabilities listed in the schedule to the regulations (see A7 Appendix 1: Tax Credits Schedule 1); and | |||||||||||||||||||||||||||||||||||||
|
one of the following conditions applies:
|
A child is a person who is under sixteen and s/he will continue to be treated as a child until 1 September following her/his sixteenth birthday.
A qualifying young person is:
|
a person over sixteen and under nineteen and in full time non-advanced education or who is registered for work or training (for no longer than 20 weeks) with the Department for Employment and Learning; or | |
|
a person over nineteen but under 20 in full time non-advanced education or approved training. This training or education must have started before the person turned nineteen, or the person must have been accepted or enrolled on the course prior to reaching nineteen. |
A person will be deemed responsible for a child/qualifying young person where the child or young person normally lives with her/him. Where a child/qualifying young person normally lives with two or more persons in different households and two or more claims are made, only one person will be deemed as responsible. Where there is disagreement as to who is responsible, HMRC will make a determination.
A person claiming is required to notify HMRC when a child or young person is no longer included in a claim.
WTC
has eight elements.
|
Element
of WTC |
Annual
rate |
Daily
rate |
|
Adult element |
£1,890 |
£5.18 |
|
Second adult element |
£1,860 |
£5.10 |
|
Lone parent element |
£1,860 |
£5.10 |
|
Disabled worker element |
£2,530 |
£6.94 |
|
30 hour element |
£775 |
£2.13 |
|
Severe disability element |
£1075 |
£2.95 |
|
50 plus element 16 + hours 30 + hours |
£1,300 £1,935 |
£3.57 £5.31 |
|
Child-care element |
Weekly
rate |
Daily
rate |
|
80% of weekly charges up to maximum one child |
£175.00 |
£25.00 |
|
max 2 children or more |
£300.00 |
£42.86 |
Note: The daily rate of the childcare element is calculated by dividing the weekly rate by 7 and rounding up to the nearest penny. The daily rate of all other elements is calculated by dividing the annual rate by 365 (366 for a leap year) and rounding up to the nearest penny.
The elements (other than the childcare element) are calculated on a pro rata basis. This involves taking the annual rate for the relevant element, dividing it by the number of days in the tax year, rounding up to the nearest penny and multiplying it by the number of days in the relevant period. The relevant period is the number of days during the period of an award where:
|
a person’s entitlement to the elements of tax credits (other than the childcare element) remains the same; |
and, where the award includes WTC,
|
childcare remains the same; and | |
|
her/his average weekly childcare charge does not change by £10 or more or reduce to nil. |
Therefore an award period can be made up of one or more relevant periods.
For example, a lone parent working 20 hours a week with one child aged fifteen claims on 31 December 2009 (ie 95 days before the end of the tax year). Her circumstances are unlikely to change. Her award period is made up of one relevant period of 95 days and she will be entitled to the following elements:
|
WTC |
|
|
Adult element |
£492.10 |
|
(£1890 ÷ 365 = £5.18 X 95) |
|
|
Lone parent element |
£484.50 |
|
(£1860 ÷ 365 = £5.10 X 95) |
|
|
CTC |
|
|
Child element |
£582.35 |
|
(£2235 ÷ 365 = £6.13 X 95) |
|
|
Family element |
£142.50 |
|
(£545 ÷ 365 = £1.50 X 95) |
|
Amount paid
£1,890 (£5.18 per day)
There is one rate payable per claim.
Amount paid
£1,860 (£5.10 per day)
A second adult element is payable in joint claims. This will not be paid where:
|
the 50 plus element is payable and neither member of the couple is working at least 30 hours (except where at least one of the couple is responsible for a child or young person or treated as having a disability which puts her/him at a disadvantage in getting a job); or | |
|
one member of a couple is serving a custodial sentence of more than twelve months and neither partner has responsibility for a child or young person. |
Amount paid £1,860 (£5.10 per day)
A lone parent element is payable where the person claiming is single and responsible for a child or qualifying young person.
Amount paid
£775 (£2.13 per day)
A 30 hour element is payable where:
|
the person claiming is single and working at least 30 hours a week; or | |||||
|
in a joint claim, one of the couple is working at least 30 hours a week; or | |||||
|
in a joint claim, the partners are working a total of at least 30 hours between them, and:
|
Amount paid
£2,530 (£6.94 per day)
A disabled worker element is payable where:
|
the person claiming is working at least sixteen hours per week; | |
|
s/he is treated as having a disability which puts her/him at a disadvantage in getting a job; and | |
|
the conditions outlined in 1.2.3 are satisfied. |
Where both members of a couple each satisfy this condition, two elements will be paid.
Amount paid
£1,075 (£2.95 per day)
A severe disability element is payable if the person claiming or, in the case of a joint claim, one of the people claiming receives:
|
DLA highest rate care component; or | |
|
Attendance Allowance high rate; or | |
|
would receive these benefits but for being in hospital. |
Where both members of a joint claim couple each satisfy any of these conditions, two awards are payable.
Amount paid
16+ hours
£1,300 (£3.57 per day)
30+ hours
£1,935 (£5.31 per day)
A 50 plus element is payable for twelve months if the person claiming, or in the case of a joint claim, at least one person claiming:
|
is aged at least 50; and | |||||||||||||||||||||
|
starts working at least sixteen hours per week; and | |||||||||||||||||||||
|
started work within the preceding three months but on or after 6 April 2003; and | |||||||||||||||||||||
|
for at least six months before starting work:
| |||||||||||||||||||||
|
was in receipt of a combination of any of the above benefits. |
A person who was in receipt of CA, Bereavement Allowance or Widowed Parent’s Allowance immediately before receiving one of the above benefits or national insurance credits can count time in receipt of any of these three benefits towards the six month period.
Entitlement is limited to a continuous period of twelve months. However, two or more periods of entitlement separated by 26 weeks or less are linked together to form one period of entitlement.
Where both members of a joint claim couple each satisfy the required conditions, two awards will be paid.
A childcare element is payable at the rate of 80% of eligible childcare costs up to a maximum figure (see 3.3 for full details of how the childcare element is calculated).
Child Tax Credit (CTC) is a means-tested tax credit paid to people who have responsibility for a child or qualifying young person.
To claim CTC, the person or couple claiming must be:
|
sixteen or over. If under sixteen, her/his parent(s) or an adult who is responsible for her/him may be able to claim CTC for her/him and the child. There is no upper age limit for claiming CTC; and | |
|
o | |
|
| |
|
present, and ordinarily resident and have a legal right to
reside in the United Kingdom. | |
|
|
A person will be entitled to CTC where s/he is responsible for a child or a qualifying young person whether working or not.
A child is a person under sixteen years of age. A person who has turned sixteen is treated as a child up until 1 September after her/his sixteenth birthday.
A qualifying young person is:
|
a person aged between sixteen and nineteen who is in full time education (but not advanced education eg a degree) or who is registered for work or training (for no longer than 20 weeks) with the Department for Employment and Learning; or | |
|
a person over nineteen but under 20 in full time non-advanced education or approved training. This training must have started before the person turned nineteen, or the person must have been accepted or enrolled on the course prior to reaching nineteen; or | |
|
a person aged under eighteen who has ceased full time education or ‘approved training’ and it is not more that 20 weeks since s/he did so. |
To be in full time education, a young person must be studying more than twelve hours a week.
A person is not treated as responsible for a child or a qualifying young person who claims and is awarded Incapacity Benefit or ESA in her/his own right.
CTC has five elements:
|
Elements of CTC |
Annual Rate |
Daily Rate |
|
Family element |
£545 |
£1.50 |
|
Family element baby addition |
£545 |
£1.50 |
|
Child element (per child) |
£2,235 |
£6.13 |
|
Disabled child addition |
£2,670 |
£7.32 |
|
Severely disabled child addition |
£1,075 |
£2.95 |
The amounts above are per year and per day.
The elements are calculated on a pro-rata basis by taking the annual rate for the relevant element, dividing it by the number of days in the tax year (366 in a leap year) and multiplying it by the number of days in the relevant period.
The relevant period is worked out as outlined in 1.3.
Amount paid
£545 (£1.50 per day)
The family element is payable to all families who have responsibility for a child or young person and have an income of less than £50,000. Where the household income is more than £50,000, the family element is reduced by £1 for every £15 of excess income ie at a rate of 6.67 per cent. Only one family element is payable and the amount is the same for a single or joint claim.
Amount paid
£545 (£1.50 per day)
The family element baby addition is payable where there is a child under twelve months in the family. Only one baby addition is payable per family, even where there is more than one child under twelve months in the family.
Amount paid
£2,235 (£6.13 per day)
One child element is payable for each child or qualifying young person in the family.
Amount paid £2,670
(£7.32 per day)
A disabled child element is payable for each child in the family who:
|
is in receipt of DLA; or | |
|
is registered blind; or | |
|
has been removed from the blind register in the last 28 weeks. |
This element still applies if DLA has stopped because the child is in hospital.
This is paid on top of the child element.
Amount paid £1,075 (£2.95 per day)
The severely disabled child element will be paid where there is a child entitled to DLA highest rate care component. It is paid on top of the child element and the disabled child element.
Step 1: work out the relevant period;
Step 2: calculate maximum tax credits;
Step 3: calculate childcare element;
Step 4: calculate income;
Step 5: calculate the threshold amount;
Step 6: compare income with threshold amount;
Step 7: apply reductions;
Step 8: calculate entitlement to tax credits.
Each of the stages must be calculated on a pro rata basis. This is done, for example, by taking the annual rate of the relevant tax credit elements (other than the childcare element), dividing by the number of days in the tax year and multiplying by the number of days in the relevant period.
Pro-rata calculations apply to tax credit elements, income and threshold figures for both WTC and CTC.
The number of days in a relevant period is needed to work out the maximum amount of tax credits. To work out a relevant period calculate the number of days during the period of an award where a person’s:
|
entitlement to the elements of tax credits (other than the child-care element) remains the same; |
and, where the award includes WTC,
|
childcare remains the same; and | |
|
her/his average weekly childcare charge does not change by £10 or more or reduce to nil. |
Calculate the maximum tax credits for the relevant period. This is done by adding together:
|
the relevant CTC elements (maximum CTC) excluding the family element; and | |
|
the relevant elements of WTC (maximum WTC) excluding the childcare element. If the claim is for less than a year, calculate the maximum amount for the relevant period pro rata. |
The childcare element of WTC is payable at the rate of 80 per cent of eligible childcare costs up to a maximum figure. Where costs are paid for only one child, the maximum amount is £175 a week. Where they are paid for two or more children, the maximum amount is £300 per week. These figures represent the maximum amount of eligible childcare costs to which the taper is applied to calculate the childcare element.
|
Eligible
children in eligible paid childcare |
Maximum eligible childcare costs (A) |
Maximum weekly childcare element (i.e. 80% of (A)) |
|
One |
£175 per week |
£140 per week |
|
Two or more |
£300 per week |
£240 per week |
To calculate maximum amounts for a relevant period, divide the weekly maximum by seven, round up to the nearest penny and then multiply by the number of days in the relevant period.
In order to qualify for a childcare element, a person must be:
|
responsible for at least one child; or | |
|
a lone parent in remunerative work of sixteen hours or more per week; or | |
|
a member of a couple where both partners are in remunerative work of sixteen hours or more per week; or | |
|
a member of a couple where the person claiming is in remunerative work of sixteen hours or more per week and her/his partner is incapacitated (see 3.3.2), or is in hospital or prison. |
In addition, the child or children cared for must be:
|
of qualifying age (see 3.3.3); and | |
|
in eligible childcare (see 3.3.4). |
A member of a couple is treated as incapacitated if:
|
the applicable amount for Housing Benefit | |||||||||
|
for Housing Benefit | |||||||||
|
s/he
| |||||||||
|
s/he is a | |||||||||
|
s/he receives | |||||||||
|
s/he | |||||||||
|
s/he has |
Qualifying age is from birth to:
|
the last day of the week in which 1 September falls following the child’s fifteenth birthday; or | |
|
her/his sixteenth birthday if that child is in receipt of DLA, is registered blind or has been taken off the blind register within the previous 28 weeks. |
Eligible childcare includes the following:
|
a registered child minder; | |
|
other | |
|
schools | |
|
an | |
|
a childcare scheme run by an approved supplier for children aged seven or over (organisations such as breakfast clubs, after school clubs and holiday play schemes can be approved by an accredited organisation); | |
|
a foster parent or foster carer who provides childcare for someone other than her/his foster child; | |
|
childcare provided in a child’s own home by a person approved by a health care trust under The Home Care Provider’s Scheme. Childcare provided by a parent or relative in the home of the child or relative is excluded. Relative means grandparent, aunt, uncle, brother, sister (whether related by blood, marriage, civil partnership or affinity) or a step-parent. |
The Homecare Providers Scheme which came into force on 6 April 2006 expands the category of eligible childcare to include non-registered child minders in the child’s home who are approved by a health and social services trust. Under this scheme, the child minder must make an application for approval to a health care trust. In order to be approved, the applicant must:
|
be aged eighteen or over; and | |
|
have obtained a relevant childcare qualification or attended an approved induction course in childcare; and | |
|
have a relevant certificate in first aid; and | |
|
not be considered unsuitable to work with children. |
The method for calculating childcare costs depends on whether charges are paid weekly or monthly.
|
Weekly |
For charges paid weekly, the relevant charge is the average weekly amount paid in the four most recent complete weeks. Round this figure up to the nearest pound.
Where the weekly charge varies, the relevant charge is 1/52 of the total of charges over the previous 52 weeks (rounded up to the nearest pound).
|
Monthly |
Where the charge is for a fixed monthly amount, the relevant charge is that amount multiplied by twelve and divided by 52 (rounded up to the nearest pound).
Where the monthly charge varies, the relevant charge is 1/52 of the total of charges over the previous twelve months (rounded up to the nearest pound).
|
Relevant period |
The actual childcare costs for the relevant period are calculated by multiplying the relevant weekly charge by 52, dividing by 365 (366 for a leap year) and multiplying by the number of days in the relevant period. To work out the childcare element, calculate 80 per cent of this figure or of the maximum eligible childcare cost for the relevant period, whichever is the lowest. Round the amount up to the nearest penny.
|
Example |
A lone parent has started full time work (40 hours per week) and makes a claim for tax credits on 31 December 2009. Her current year income is £10,430, an increase of £3,000 from last year. She has two children, aged six and five, and pays a registered child minder £150 to look after her children. Her circumstances are unlikely to change in the current year.
|
Number of days in relevant period |
95 |
|
Relevant weekly charge |
£150 |
|
Actual childcare costs |
£150 x 52 = £7,800/365 x 95 = £2,030.15 |
|
Maximum childcare costs |
£300 ÷ 7 = £42.86 X 95 = £4,071.70 |
|
Childcare element |
80% of £2,030.15 = £1,624.12 (i.e. 80% of lowest figure) |
|
|
|
|
Estimates |
Where there is insufficient information available in order to calculate childcare costs in any of these ways, an officer of HMRC will estimate the charge. It will be calculated by any reasonable method, taking into account any information already provided.
Relevant childcare charges can be calculated where an agreement for childcare has been made but charges for that care have not yet been incurred. The calculation of relevant future charges is based on an estimate provided by the child minder or childcare provider.
|
Changes of circumstances |
The childcare element will be recalculated where HMRC is notified of:
|
childcare cost increases or decreases of £10 a week or more; | |
|
childcare costs ceasing; | |
|
a change in childcare provider to one that is not eligible. |
Where weekly childcare costs cease or decrease by at least £10 for at least four consecutive weeks, the person claiming WTC is required to notify HMRC within one month of her/him becoming aware of the change.
3.4 Step 4: Calculate income
To calculate tax credits, an assessment is made of a person (and any partner’s) income. The calculation is the same for both WTC and CTC.
The income test does not apply to a person who is entitled to Income Support, JSA (IB) or PC guarantee credit. In these circumstances, the person will receive her/his maximum tax credits for as long as s/he is entitled to the relevant benefits.
For tax credit purposes, income is calculated for the relevant period.
The income is calculated on a pro-rata basis by taking the income relating to the relevant tax year, dividing it by the number of days in the tax year (normally 365 but 366 in a leap year), and multiplying it by the number of days in the relevant period. Round this figure down to the nearest penny.
A person’s entitlement to tax credits depends on her/his relevant income. In the case of joint claims, the aggregate income of the couple is calculated.
The person will have to provide evidence of her/his income to make a claim. Records of all income and any childcare costs will need to be maintained. Evidence such as a P60 will be relevant when making a claim.
The claim form only asks for previous year’s income. This income will normally be used to calculate the award (although see section 3.4.4).
In most instances, the income from the previous year will be used to calculate an award. The previous year’s income refers to the income earned in the last tax year (ie a claim made in September 2009 will normally be based on income for the period 6 April 2008 to 5 April 2009).
The previous year’s income will be used to calculate an award even where a person volunteers current year income details at the date of claim.
The assessment will be made on the previous year’s income and then, where appropriate (see 3.4.4) revised using current year income, providing HMRC has been informed of the changes in income.
Where there has been any decrease or increase above a certain limit on the previous year’s income, the current year’s income will be used to calculate the award.
The current year’s income refers to the current tax year. For example, a claim made in September 2009 may be based on the projected income for the current year, ie the period 6 April 2009 to 5 April 2010.
The current year’s income may be used where:
|
the previous year's
| |
|
the current
| |
|
the current
|
As previously stated, the claim form only asks for previous year’s income. However, it is important to notify any increase or decrease in income in the current year as failure to do so could result in overpayment or underpayment of tax credits.
As a general rule, income is taken into account if it is taxable (there are exceptions) and taxable income includes:
|
earnings; | |
|
taxable profits from self-employment; | |
|
taxable social security benefits; | |
|
certain pensions; | |
|
income from capital; | |
|
income from property; | |
|
foreign income; | |
|
notional income; | |
|
miscellaneous income. |
Income for tax credits can be calculated in four stages.
Calculate and add together:
|
pension income; | |
|
investment income; | |
|
property income; | |
|
foreign income; | |
|
notional income; |
and apply disregard.
Pension income |
This includes all state pensions, occupational pensions, personal and private pensions, Widow’s Pension, Widowed Mother’s and Widowed Parent’s Allowance, Industrial Death Benefit and Survivor’s Guaranteed income payment and child’s payment under the Armed Forces Compensation Scheme.
It does not include any:
|
pension or part of a pension paid to a member of the forces as a result of a wound or disability; | |
|
pension or annuity paid because the person is a holder of the Victoria Cross or George Cross and other awards (for full list see Section 638 Income Tax (Earnings and Pensions) Act 2003 (ITEPA); | |
|
war widow/ers or war disablement pension; | |
|
mobility supplement or attendance allowance paid as part of a war pension; | |
|
naval, military or air force disablement or death pension; | |
|
pension paid as the result of an industrial injury which exceeds the normal retirement pension payable on grounds of ill health; | |
|
increase for a non-family dependant paid with a pension under the Services Pension Order. |
Investment income |
Investment income includes interest on investments, including government stocks and bonds, discounts on securities, income from securities payable out of public revenues in the UK, share dividends, payments from the estate of a deceased person, payments from a trust, taxable payments from a life assurance policy, life annuity contract or capital redemption policy, and interest arising from a debt owed to the person.
There are no capital limits for CTC and WTC. Instead, the actual income received from capital (before tax is deducted) is taken into account.
It does not include:
|
interest or dividends from a Personal Equity Plan (PEP) or Individual Savings Account or Tessa which attract tax relief. If a person has cash (rather than shares) held in a PEP, up to £180 interest can be withdrawn and disregarded; | |
|
any winnings from betting, lotteries or games with prizes; | |
|
interest on a payment of £10,000 paid to a person (or partner) who was held prisoner by the Japanese during the second world war if it is held in a distinct account and no payment other than interest has been added to the account; | |
|
interest paid on compensation for victims of National Socialist persecution where held in a distinct account and no payment other than interest has been added to the account; | |
|
annuity payments on compensation payments under the Criminal Injuries Compensation Scheme; | |
|
interest eligible for tax relief on a payment under a life annuity; | |
|
interest on compensation paid to a person under eighteen in respect of the death of one or both parents; | |
|
investment income from tax exempt annual payments, for example a covenant; | |
|
trust payments for a person who suffers from Creutzfeldt-Jakob disease or haemophilia. These are disregarded for the lifetime of the recipient or for two years if paid to the disabled person’s parent (or someone acting in place of the parent). If inheriting money from an estate of a disabled person, the money is ignored up to the value of the original trust: if a partner, for her/his lifetime; or, if a parent of the disabled person, for two years; | |
|
interest or interest payments which are disregarded for income tax purposes on damages for personal injuries including periodical payments from such damages; | |
|
income from savings certificate and tax certificates and tax reserve certificates; | |
|
£70 interest per tax year on deposits with national savings and investments; | |
|
interest on the first £30,000 of a loan taken out before 9 March 1999 under a Home Income Plan to buy a life annuity; | |
|
certain compensation payments relating to an unclaimed bank or building society account of a holocaust victim; | |
|
interest from a certified save as you earn scheme; | |
|
capital element of a purchase life annuity; | |
|
tax free health and employment insurance or immediate needs annuity payment. |
Property income |
Property income includes any taxable profits derived from rent or other receipts in respect of land or property.
Foreign income |
Foreign income is any income arising from possessions (including property), pension or investments coming from outside the UK. This covers most overseas income. It does not include:
|
employment income; | |
|
trading income; | |
|
a banking charge or commission for converting currency into pounds sterling; | |
|
any annuity or pension paid to victims of National Socialist persecution or any interest on an unclaimed bank account; | |
|
lump sum payments by overseas pension schemes which attract tax exemption; | |
|
ten per cent of a foreign pension; | |
|
foreign social security payments which attract tax exemption, for example, any equivalent to short term Incapacity Benefit plus any child dependant addition, any equivalent of Invalidity Benefit providing it was payable prior to 13 April 1995 and it continues in payment and any equivalent of Child Benefit; | |
|
interest on awards for personal injuries made by a court outside the UK; | |
|
educational allowances paid by overseas authorities to public officials of overseas territories; | |
|
property losses in one tax year that can be offset against property income in the following year; | |
|
income that cannot be transferred to the UK by law or is not permitted by the government of the country where the income arises or where foreign currency is not available in the country. |
Notional income |
A person will be treated as possessing income which s/he has deprived her/himself of for the purposes of securing or increasing entitlement to tax credits. A person can also be treated as having income available to her/him at the date of application, even if s/he does not in fact have it. This could include insurance policies and investments that can be turned into cash.
This does not apply to income from:
|
a trust set up as a consequence of a personal injury; | |
|
a personal pension scheme or retirement annuity contract; | |
|
personal injuries compensation administered by the court; | |
|
rehabilitation allowance (under Section 2 of the Employment Act); | |
|
category A or B retirement pension, graduated pension or deferred shared additional pension. |
Notional income can also include assumed income where a person provides a service for which s/he does not receive payment, or the payment is insufficient for the services provided. The income assumed will be a comparable amount for the service provided.
This does not apply where a person is:
|
engaged in charitable or voluntary work where it is reasonable to provide the service free of charge; or | |
|
on an employment or training programme and no payment is made in connection with the programme. |
Disregard |
The pension, investment, property, foreign and notional income of a person, and where appropriate her/his partner, is added together. If the annual amount is less than £300, it is disregarded. If the annual total is more than £300, only the amount in excess of £300 is taken into account as annual income.
Calculate and add together:
|
earnings; | |
|
social security income; | |
|
student income; | |
|
miscellaneous income; | |
|
trading income. |
Earnings |
Employment income is the gross income received from an employer (including taxable expenses) less any contributions to a personal or occupational pension (approved by HMRC) and/or certain deductions.
To calculate annual earnings from a fixed gross weekly earnings figure, divide gross weekly earnings (minus relevant deductions) by 7 and multiply by 365 (or 366 in a leap year).
Earnings include:
|
strike pay and Statutory Sick Pay; | |||||||
|
Statutory Maternity Pay, Statutory Paternity Pay or Statutory Adoption Pay in excess of £100 per week; | |||||||
|
tips or gratuities, bonuses, commission and overtime payments and payments made on an employee’s behalf by an employer, for example rent paid by an employer direct to a landlord; | |||||||
|
taxable payments in connection with termination of employment or with change in duties or wages including:
| |||||||
|
payments for work done while in prison. |
Deductions can be made for the following in accordance with amounts allowed under relevant sections of the Income Tax (Earnings and Pensions) Act 2003, (ITEPA):
|
fees and subscriptions to professional bodies; | |
|
employee liability and indemnity insurance; | |
|
entertainers expenses; | |
|
payments to charities under payroll deduction scheme. |
The following are not considered as earnings where they attract tax relief under the ITEPA or HMRC Concessionary Schemes:
|
the first £8,000 of qualifying removal expenses; | |
|
expenses paid which are wholly, exclusively and necessarily incurred in the performance of employment; | |
|
travel expenses which qualify for tax relief; | |
|
travel expenses for home leave for naval, military or air force personnel; | |
|
reimbursement for car parking space; | |
|
incidental overnight expenses up to a maximum of £5 per night in the UK or £10 overseas; | |
|
value of a meal voucher reduced by fifteen pence a day; | |
|
the use of vouchers for sports or recreational facilities; | |
|
long service non-cash award (limited to £50 per year of service); | |
|
daily subsistence allowance; | |
|
payment under staff suggestion scheme below the taxable limit; | |
|
travel and subsistence allowances payable due to public transport disruption; | |
|
one tax free mobile phone; | |
|
gifts consisting of goods, voucher or token below £250. This does not apply to gifts from the employer; | |
|
childcare vouchers or credit tokens providing they are used for childcare treated as relevant childcare for WTC purposes; | |
|
home worker’s additional household expenses; | |
|
travel, accommodation and subsistence costs for work outside the UK including travel for a spouse and child where absence lasts at least 60 days; | |
|
travel expenses for work in the UK if living outside the UK; | |
|
payment for work related or individual learning account training; | |
|
payment of retraining course expenses for a person leaving employment; | |
|
expenses of a religious minister including rent deduction; | |
|
amount of salary given up under the Home Computer Initiative Scheme (from April 2004); | |
|
expenses for personal security; | |
|
fixed sum deductions for repairing and maintaining work equipment. |
Social security income |
Social security income includes:
|
Contributory JSA; | |
|
Incapacity Benefit (short term higher rate and long term rate); | |
|
Contributory ESA; | |
|
Bereavement benefits (except bereavement payment); | |
|
CA; | |
|
child dependant increases payable with Incapacity Benefit, CA, Retirement Pensions and bereavement benefits; | |
|
ex gratia payments in respect of any of the above. | |
|
Social security income does not include the following: | |
|
Attendance Allowance; | |
|
back to work bonus; | |
|
bereavement payment; | |
|
Child Benefit; | |
|
Christmas bonus; | |
|
DLA; | |
|
Discretionary Housing payment; | |
|
ex gratia payment by the Department for Social Development to a person over pensionable age to supplement Incapacity Benefit; | |
|
Guardians Allowance; | |
|
Housing Benefit; | |
|
Income Support (except for strikers); | |
|
short term lower rate of Incapacity Benefit; | |
|
Income-related ESA; | |
|
industrial injuries benefit (except industrial death benefit); | |
|
JSA(IB); | |
|
Maternity Allowance; | |
|
SDA; | |
|
Social Fund payments; | |
|
Statutory Maternity Pay; | |
|
Statutory Paternity Pay; | |
|
Statutory Adoption Pay; | |
|
Statutory Sick Pay; | |
|
extra statutory payments for non-payment or loss of Income Support, JSA, Housing Benefit or in lieu of milk tokens or vitamins; | |
|
PC; | |
|
any child or adult dependant addition paid with any of the above benefits; | |
|
jury or witness payments (but not compensation for loss of earnings or benefits); | |
|
any contribution to an approved personal or occupational pension scheme. |
Student income |
Student grants and loans are ignored except for grants for dependants which are taken into account.
The grant for dependants is taken into account except for the additional allowance payable for a student eligible for a childcare grant and the allowance for books, travel and equipment.
Miscellaneous income |
Any income not included above but subject to taxation is taken into account.
Income from self employment |
A self employed person will have her/his income assessed on the basis of taxable profits for the relevant period. This includes trading outside the UK and profit from renting out property if this is counted as a business. The gross amount of any contributions to an approved personal pension scheme or retirement pension can be ignored.
Add together all the income from steps 1 and 2 to find the total income and apply any disregards.
Income disregarded in full for the purposes of tax credits includes:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
The amount of tax credits a person will receive is calculated by comparing income to an income threshold amount.
The income threshold figures for 2009/2010 are:
|
£6,420 if a person is entitled to WTC; and | |
|
£16,040 if a person is entitled to CTC only. |
If a person’s income does not exceed the income threshold, the maximum tax credit is awarded.
Where income exceeds the income threshold, a taper is applied to reduce entitlement below the maximum.
The above are annual rates. The threshold amount is calculated on a pro rata basis by taking the relevant threshold figure, dividing it by the number of days in the tax year and multiplying it by the number of days in the relevant period. Round this figure up to the nearest penny.
If income is the same as or less than the threshold amount, maximum tax credits, the childcare element and the family element are paid.
If income exceeds the threshold amount, calculate 39 per cent of the excess. This is known as the reduction figure.
The reduction figure should be rounded down to the nearest penny.
The amount of tax credits is calculated by applying the following reductions.
|
| |
|
| |
|
|
The family element is reduced separately, and only where income is more than £50,000. The family element is reduced by £1 for every £15 of income over £50,000.
Entitlement to tax credits will be:
|
if the reduction figure is less than maximum WTC:
| |||||||||
|
if the reduction figure is less than maximum WTC and childcare element (if payable):
| |||||||||
|
|
The family element is paid to all families with income of less than £50,000 a year, with no reduction applied. Where income exceeds £50,000, the family element of CTC is reduced at the rate of £1 in every £15 in excess of £50,000. For example, a couple with a fifteen year old child and a yearly income of £50,120 will receive a family element of £537.00 per year (£545 - £8) or £10.32 weekly.
Jane, who is 29, is a lone parent with one child aged four. She works 25 hours a week. Her current year income is £7,800 which is the same as last year. She pays £135 per week to a registered child minder who looks after her child. Her circumstances are unlikely to change in the current year. She is claiming at the start of the tax year.
|
Step 1: work out the relevant period |
Jane’s relevant period is 365 days.
|
Step
2: calculate maximum tax credits |
|
WTC |
|
|
Adult element |
£1,890 |
|
Lone
parent element |
£1,860 |
|
Max
WTC |
£3,750 |
|
CTC |
|
|
Child
element |
£2,5 |
|
Family
element |
£545
|
|
Step
3: calculate the childcare element |
|
Weekly childcare cost |
£135.00 |
|
80% of weekly cost |
£108.00 |
|
Actual childcare costs |
£135 x 52 = £7,020.00 |
|
Childcare element |
80% of £7,020 = £5,616.00
|
|
Step
4: calculate income |
|
Current year income |
£7,800.00 |
|
Previous
year income |
£7,800.00 |
|
Relevant
income |
£7,800.00 (previous year income) |
|
Step
5: calculate the threshold amount |
As Jane is entitled to WTC, the threshold amount is £6,420.
|
Step
6: compare income with threshold |
|
Income |
£7,800.00 |
|
Threshold amount |
£6,420.00 |
|
Excess income |
£1,380.00 |
|
Income exceeds threshold by |
£1,380.00 |
|
39%
of £1,380.00 |
£538.20 |
|
Reduction
figure |
£538.20 |
|
Step
7: apply reductions |
Reduce
maximum WTC by the reduction figure.
|
Maximum WTC |
£3,750.00 |
|
Less reduction figure of |
£538.20 |
|
Equals |
£3,211.80 |
|
Step
8: calculate entitlement |
|
WTC after reduction |
£3,211.80 |
|
Plus childcare element (WTC) |
£5,616.00 |
|
Plus max CTC (other elements) |
2,235.00 |
|
Plus family element (CTC) |
£545.00 |
|
Entitlement to tax credits |
£11,607.80 |
|
Weekly entitlement |
£222.60 (£11,607.80 ÷ 365 X 7) |
Liz and Mark, both aged 35, are married with one child aged fourteen. Mark works 35 hours per week. Their current year income is the same as last year at £18,500. Their circumstances are unlikely to change in the near future. The claim is made at the start of the tax year.
|
Step
1: work out the relevant period |
Their relevant period is 365 days.
|
Step 2: calculate maximum tax credits |
|
WTC |
|
|
Adult element |
£1,890.00 |
|
Couple element |
£1,860.00 |
|
30 hour element |
£775.00 |
|
max WTC |
£4,525.00 |
|
CTC |
|
|
Child element |
£2,235.00 |
|
Family
element |
£545.00 |
|
Step
3: calculate the childcare element |
Not applicable as there are no eligible childcare costs.
|
Step
4: calculate income |
|
Current year income |
£18,500.00 |
|
Previous
year income |
£18,500.00 |
|
Relevant income |
£18,500.00 (previous
year income)
|
|
Step
5:
calculate threshold amount |
|
Threshold figure |
£6,420.00
|
|
Step
6:
compare income to threshold |
|
Income |
£18,500 |
|
Threshold |
£6,420.00 |
|
Excess |
£12,080.00 |
|
Income exceeds threshold by |
£12,080.00 |
|
39%
of £13,280 |
£5,179.20 |
|
Reduction figure
|
£5,179.20 |
|
Step
7:
apply reductions |
Reduce maximum WTC by the reduction figure.
|
Maximum WTC |
£4,525.00 |
|
Less
reduction figure of |
£5,179.20 |
|
Equals |
Nil with £654.20 still remaining |
Reduce maximum CTC by the income remaining.
|
Maximum CTC |
£2,235.00 |
|
Less
income remaining |
£654.20 |
|
Equals |
£1,580.80 |
|
Step
8:
calculate entitlement |
|
Plus family element (CTC) |
£545.00 |
|
Entitlement to tax credits |
£2,125.80 |
|
Weekly
entitlement |
£40.74 (£2,125.80 ÷ 365 X 7) = £40.74 |
Mary and Ruth, both aged 49, are civil partners with two children aged sixteen and seventeen who are still at school. They both work 35 hours a week. Their current year income is £36,500, an increase of £26,500 from last year as Ruth has just started work. Their other circumstances are unlikely to change in the current year. They make a claim for tax credits at the start of the tax year and also provide details of current year’s income.
The initial claim will be assessed on their previous year’s income of £10,000 and then revised using current year income of £36,500 minus £25,000, therefore £11,500.
The revised assessment will therefore be as follows.
|
Step
1: work out the relevant period |
Mary’s relevant period is 365 days.
|
Step
2: Calculate maximum tax credits |
|
WTC |
|
|
Adult element |
£1,890.00 |
|
Couple
element |
£1,860.00 |
|
30
hour element |
£775.00 |
|
Max
WTC |
£4,525.00 |
|
CTC |
|
|
Child
element (16 year old) |
£2,235.00 |
|
Child
element (17year old) |
£2,235.00 |
|
Max
CTC |
£4,470.00
plus |
|
Family
element |
£545.00 |
|
Step
3: calculate the childcare element |
Not
applicable as there are no eligible childcare costs.
|
Step
4: calculate income |
|
Current year income |
£36,500 (increase of £26,500 from previous year) |
|
Previous
year income |
£10,000 |
|
Relevant
income |
£11,500 (current
year’s income minus £25,000)
|
|
Step
5: calculate threshold amount |
|
Threshold figure |
£6,420.00
|
|
Step
6: compare income to threshold |
|
Income |
£11,500 |
|
Threshold |
£6,420.00 |
|
Excess |
£5,080.00 |
|
Income exceeds threshold amount by |
£5,080.00 |
|
39%
of £5,080 |
£1,981.20 |
The
reduction figure is £1,981.20.
|
Step
7: |
Reduce maximum WTC by the reduction figure.
|
Maximum WTC |
£4,525.00 |
|
Less
reduction figure |
£1,981.20 |
|
Equals |
£2,543.80 |
|
Step
8: calculate entitlement |
|
WTC remaining after reduction |
£2,543.80 |
|
Plus max CTC (other elements) |
£4,470.00 |
|
Plus family
element (CTC) |
£545.00 |
|
Entitlement to tax credits
|
£7,558.80 |
|
Weekly entitlement |
£144.97 (£7,5588.80 ÷ 365 X 7) |
The following calculation relates to a person claiming CTC who has no entitlement to WTC.
Step 1: work out the relevant period;
Step 2: calculate
maximum CTC;
Step 3: calculate
income;
Step 4: calculate
the threshold amount;
Step 5: compare
income with threshold amount;
Step 6: calculate
entitlement.
The relevant period is worked out as outlined in section 3.1.
In order to calculate the maximum amount of CTC the following elements are added together:
|
| |
|
| |
|
| |
|
|
The family element is not included at this stage.
Calculate the relevant income for the tax year. Income for CTC is calculated in the same way as for WTC.
The threshold figure for April 2009/2010 for those claiming CTC only is £16,040.
If the income is the same as, or less than, the threshold amount, maximum CTC plus the family element is paid.
If income exceeds the maximum amount, calculate 39 per cent of the difference and round down to the nearest penny. This is the reduction amount.
Take the reduction amount away from the maximum CTC. The amount payable will be the difference plus the family element.
The family element is paid to all families with income of less than £50,000 a year, with no reduction applied. Where income exceeds £50,000, the family element of CTC is reduced at the rate of £1 in every £15 in excess of £50,000 (see 3.8).
A claim for tax credits must be made to the appropriate office in writing on an approved form. The same form is issued for both the CTC and the WTC and no distinction is made between the two tax credits on the form. A valid claim in writing includes e-mail through HMRC’s website. A claim made in another way may be treated as sufficient to be considered as a valid claim.
The date of claim will be the date on which the application is received at the appropriate office. However, the claim may be backdated for up to 93 days where a person has qualified for tax credits during this period.
A married couple, a couple living together as husband and wife, civil partners or a same sex couple living together must make a joint claim. A person who is not a member of a couple makes a single claim.
The claim must include all the relevant information. In particular, it must include a national insurance number or information that would enable a national insurance number to be allocated to the person claiming unless there is a reasonable excuse for not providing this information. This requirement does not apply to a person who is subject to immigration control because s/he does not have leave to enter or remain in the UK and who has not been given a National Insurance number. Remember, there is a legal status entitlement attached to tax credits and specific rules for couples where one partner only has legal status. For more details contact the Law Centre.
A claim will normally be made in advance of the tax year with the award period lasting for a year. Where the claim is made during the tax year, the award period will run to the end of the tax year. An award period can be made up of one or more relevant periods. See section 1.3 for further information on a relevant period.
The information given in response to the final notice will be used to calculate the next tax year’s entitlement. Therefore, it is important to respond to the final notice (see 6.4) and ensure that any relevant change of circumstances is notified.
There are different types of decision that can be made on a claim. These are:
|
initial decision; | |
|
revised decision; | |
|
other revised decisions; | |
|
final notice leading to a decision after final notice. |
On receipt of a claim, HMRC is required to notify the person claiming of the award, if any, of tax credit. This is known as the initial decision and will be based on the information on the claim form which asks for previous year’s income.
The notification of award will contain details of the changes of circumstances which the person must report, and the time limits for reporting them. It also gives details of the changes of circumstances which the person should report (see section 7).
Following the initial decision, HMRC will review the claim on the basis of the information supplied, where there has been a change of circumstances which affects the amount of the award.
As the award may be affected by a relevant change of circumstances, it is important that the change of circumstances is reported (see section 7).
HMRC can also review any award of a tax credit at any time where it has reasonable belief that the rate of award is incorrect. This may lead to the award being amended or terminated.
At the end of each tax year (between April and July), HMRC will send out final notices to each person who has been awarded tax credits for the whole or part of the tax year. Each person in a joint claim will receive one. This should be an automatic process and a person claiming should not have to ask for one.
The notices confirm details of each tax credit award, including initial and any revised decisions, for the tax year just ended (ie 2008/2009). They are the process by which both the amount awarded for that year can be checked and finalised and a claim for the new tax year (ie 2009/2010) is renewed (see section 6.5). They take the form of annual review packs.
A pack will be issued with the following details.
|
The annual review form (TC603R) contains details of personal circumstances on which entitlement to tax credit in 2008/2009 was based. This includes:
|
A person will also be asked to confirm that income for the tax year
2009/2010 will be within the range specified on the form. A person claiming is
expected to confirm the details are correct or to notify HMRC of any changes.
|
The annual declaration form (TC603D) seeks details on each person’s relevant income or an estimate of income for the tax year 2008/2009. The form also asks the person to confirm that the circumstances in the annual review form are correct or to set out any changes to the information supplied. The declaration must be signed alongside the notice that this constitutes a claim for tax year 2009/2010. |
In automatic reply cases, (ie where a person has a nil award or is only receiving the family element of Child Tax Credit) only TC603R will be issued. This will tell the person that s/he will automatically be finalised and the entitlement renewed unless the information provided of the previous and current year’s details on the form is incorrect. The person claiming is advised to contact HMRC if the details are wrong. HMRC will accept that the circumstances were as set out in the notice, unless notified of a change.
In all other cases, although there may be no changes to report, a person will be asked to respond and confirm that the details are correct, as appropriate. A declaration or statement in response to a final notice must be made:
|
by 31 July 2009; and | |
|
in writing in a form approved by HMRC for that purpose; or | |
|
orally to an officer of HMRC; or | |
|
in other such manner as HMRC may accept as sufficient in the circumstances of any particular case. |
In the case of an existing joint claim and where a response is made orally, one of the couple may act for both.
On return of the final notice form(s), a final decision (decision after final notice) will then be made on entitlement to tax credits for the year just ended (ie 2008/2009) which may include confirmation of the initial decision or detail any overpayment or underpayment. The final decision can be revised if a person makes a new response to the final notice before the final date given for the original response.
The return of the end of the year notice will also be treated as a renewal claim for the tax year 2009/2010. A new initial decision will be made for this year. Until this happens, tax credits will continue to be paid on a provisional basis at the 2008/2009 rate. The initial decision for 2009/2010 can be subsequently revised if HMRC is informed of a relevant change in circumstances.
If the return is made by 31 July 2009, the effective date of the claim will be 6 April 2009 and the award will be automatically backdated. If the return is not made by 31 July 2009, provisional awards will stop and any amount paid as a provisional award after 6 April 2009 will be recovered as an overpayment.
If the return is made after 31 July but before 31 January 2010 and good cause has been established, the effective date of the claim will be 6 April 2009 and the award will be automatically backdated. This does not apply where the person claimed previously as a single person and s/he is now a member of a couple or there was a previous joint claim and s/he is now a single person.
Good cause is not defined in the regulations. If a person cannot establish good cause, the effective date of the claim will be the date the return is received by HMRC and the normal rules for backdating will apply.
If a person fails to respond until after 31 January 2010, a claim cannot be renewed. Instead a fresh claim must be made which can only be backdated for 93 days.
Awards of CTC and WTC will usually run for the whole of the tax year if made in advance, or from the date of claim until the end of the tax year if made during the tax year.
Certain changes of circumstances will affect entitlement to tax credits and must be notified to HMRC within one month of the change or the date the person became aware of the change if this is later.
HMRC may impose a penalty for failure to notify the following changes within one month:
|
a
| |
|
| |
|
| |
|
|
|
childcare costs stop or go down by £10 per week or more over four consecutive weeks; | |
|
a person stops using a relevant childcare provider; |
|
a person stops working; | |
|
her/his hours drop below sixteen hours per week; | |
|
her/his hours drop below 30 hours per week. For couples with children their joint working hours count towards the 30 hours; | |
|
s/he has been on strike for more than ten days; |
|
a child/young person:
| |||||
|
a young person aged between sixteen and 20 leaves full-time education, starts training provided under a contract of employment or starts paid work (usually for more than 24 hours per week). |
A person does not have to notify HMRC of the changes set out in 7.5.1 to 7.5.3 when they occur but can wait until annual renewal.
However, please note that it is in a person’s best interests to notify changes promptly. If the change leads to an increase in entitlement, in most circumstances it can only be backdated to three months from notification. There are a number of exceptions to this:
|
| |
|
| |
|
|
The circumstances which HMRC does not require to be reported until annual renewal are:
|
| |
|
| |
|
|
|
childcare costs go up by more than £10 per week for at least four weeks in a row; |
|
| |
|
|
The claim will then be recalculated and relevant period established and a revised award will be issued.
Where HMRC decides not to make an award or to terminate an award, any entitlement or subsequent entitlement for the same year is dependent on a new claim being made.
A person who has been in remunerative work of sixteen hours or more and:
|
stops work; or | |
|
starts working less than sixteen hours a week |
will be entitled to a four week run-on of WTC.
To qualify, a person must have been in remunerative work immediately before the change in hours worked. Where the run on rule applies, a person's entitlement to WTC will extend to all the elements the individual or couple were formerly entitled to (including the childcare element where the other conditions were met).
A person will still be eligible to claim Income Support, JSA and other income related benefits whilst in receipt of the WTC run-on. WTC run-on will count in full as income for these benefits.
CTC will be paid directly to the main carer of a child or young person. Payment will be made into her/his bank, building society or post office card account on a weekly or four weekly basis in arrears.
WTC will be paid to the person claiming. Where both members of a couple work over sixteen hours a week, either can choose to be paid. Where there is no agreement between a couple as to who should receive WTC or the couple are not resident at the same address, HMRC will decide who gets the payment. Where WTC includes a childcare element, this will be paid with CTC to the main carer through her/his bank or building society account.
A person will be paid WTC directly by credit transfers to her/his bank account or similar type account.
Tax credits can be paid by giro-cheque for up to eight weeks to allow the person claiming to set up a bank, building society or post office card account. Arrangements have also been made to allow a person to open a basic account accessible through the post office. At the end of this eight week period, payment of tax credits will stop if HMRC has not received the account details. No further payment will be issued unless the person claiming can show good reasons as to why more time is needed. Where payments cease and HMRC is later notified of the account details, entitlement is reinstated and can be backdated for three months.
If WTC and/or CTC is calculated to be less than £26 for the year, no payment is made.
If a payment is delayed or some other error occurs leading to a person incurring extra costs, HMRC may make a compensatory payment. For more details, see HMRC Code of Practice number 26, What happens if we have paid you too much tax credit, available from www.hmrc.gov.uk/leaflets/cop26.pdf and Law Centre (NI) Tax Credit Briefing 2 Recovery of Overpayments.
Where the amount of tax credit paid for a tax year exceeds actual entitlement, HMRC may raise an overpayment.
Liability for repayment rests with the person(s) awarded the tax credit. In joint claims, both persons are jointly and severally liable.
The liable person(s) must receive written notification of the amount of overpayments and the required method of recovery. Overpayments will normally be recovered from future awards of tax credits. HMRC may also recover by direct payment within 30 days.
Where an overpayment is likely to arise in an existing claim, HMRC can alter an existing award of tax credit to prevent or reduce this possibility.
There is no provision to allow for an appeal against recovery of overpayment. However, the decision that gave rise to the overpayment can be appealed, ie if the person disputes that there has been any overpayment or disputes the actual amount of the overpayment. Overpayments can be written off. See HMRC Code of Practice 26 ‘What happens if we have paid you too much Tax Credit?’ and also Law Centre (NI) Tax Credit Briefing 2 Recovery of Overpayments.
The Code of Practice sets out the claimant’s and HMRC’s responsibilities in relation to the claim. It then sets out what overpayments will be written off in whole or part or recovered in full. The Revenue has power to give more time for repayment in cases of financial hardship.
If HMRC does not follow its Code of Practice, it is worth pursuing the issue through HMRC’s complaints procedure and on to the independent adjudicator. For more information see HMRC Code of Practice number 26, What happens if we have paid you too much tax credit, available from www.hmrc.gov.uk/leaflets/cop26.pdf and Law Centre (NI) Tax Credit Briefing 2 Recovery of Overpayments or contact Law Centre (NI).
An underpayment can arise:
|
| |
|
|
HMRC must repay the amount of underpayment. It may do so by means of a lump sum at the end of the year. If a person claiming is aware that an underpayment is occurring, s/he should notify HMRC and the award can be adjusted immediately.
The Board of HMRC has the power to determine and impose penalties where a person has been fraudulent, has provided incorrect statements or has failed to comply in the provision of evidence and information.
Determinations on penalties will be made by the Board of HMRC. On making a determination to apply the penalty, HMRC must notify the person of the penalty, stating the date of issue and detailing the right to appeal. Once HMRC has made a determination and decided the amount of the penalty, the penalty can only be altered on appeal. The person will have 30 days in which to pay the penalty or lodge the appeal. An appeal must be lodged in writing.
A person will have committed the criminal offence of fraud if s/he knowingly undertakes any fraudulent activity with a view to obtaining payment of tax credits for her/himself or any other person.
HMRC has a wide range of powers to obtain evidence in cases of suspected tax credit fraud. It can obtain orders requiring the production of documents and warrants to enter, search and remove information from premises if there is reasonable grounds for suspecting fraudulent activity.
The penalties for fraud are:
|
| |
|
|
If an overpayment has arisen due to fraud, and it is not repaid within the specified time period, interest may be applied to all or part of the overpayment.
A penalty of up to £3,000 may be imposed on a person who fraudulently or negligently:
|
| |
|
| |
|
| |
|
|
A person will be given 30 days in which to appeal or pay the penalty. Failure to do so may result in interest being applied to the penalties.
In respect of joint claims, a penalty of up to £3,000 may be imposed on the partner unless s/he was not, and could not, have been aware that her/his partner had made an incorrect statement or declaration or given incorrect information or evidence. However, the aggregate of the two penalties must not exceed £3,000.
Penalties may also be imposed on a person who has acted for another person in relation to a claim, notification or notice, where s/he has acted fraudulently or negligently.
HMRC must determine any penalty in respect of incorrect statements within one year of the latest of:
|
| |
|
| |
|
|
Where a person fails to provide relevant information or evidence in relation to a claim or fails to notify a change of circumstances that may affect entitlement to tax credits, a penalty of up to £300 may be imposed. See section 7 for a list of changes or circumstances that must be notified.
Continued failure to provide information or evidence may result in a further penalty of up to £60 for each day that the failure to comply continues. The additional penalty will cease once the evidence or information has been provided.
In respect of joint claims, the penalties can be imposed on both people claiming but the aggregate amount of the initial penalty must not exceed £300 and the aggregate of the continuing fine must not exceed £60 per day.
Failure to pay the penalties by the due date may result in interest being applied.
A person will be exempt from these penalties where:
|
| |
|
| |
|
|
HMRC must determine any penalty in respect of any failure to comply within one year of the latest of:
|
the expiry time for starting an enquiry; or | |
|
the date on which the enquiry is completed. |
Outstanding penalties will be treated as outstanding tax payments and will be recovered through tax codes.
If an overpayment has occurred as a result of fraud or neglect, interest will be charged on the whole or part of the overpayment being recovered.
Where HMRC has revised a decision in the reasonable belief that a person is not entitled to tax credits and as a result the claim is terminated, any overpayment will have interest charged from 30 days after the date of the decision to terminate the award. In most other cases, the interest will be charged from 60 days following the decision that an overpayment has occurred. Interest will also be charged on penalties and will be applied from the date the penalty becomes due.
The method for calculating the percentage interest to be applied is quite complex. It is 6.5 percent per year or, if that is different from the average of the lending rate of six main banks, their lending rate plus 2.5 per cent.
Initially, tax credit appeals will be heard by the Appeals Service, with further right to appeal to the Social Security Commissioner. After what is currently an unspecified period, tax credit appeals will be heard by Tax Appeal Commissioners with a further right to appeal to the High Court.
An appeal can be made against:
|
initial decisions; | |
|
revised decisions; | |
|
decisions taken following an inquiry into entitlement; | |
|
decisions taken after final notice; | |
|
decisions to charge interest on overpayments attributable to fraud or neglect; and | |
|
determinations of penalties. |
There is not a right of appeal against a decision to recover an overpayment as opposed to a dispute as to whether an overpayment has actually occurred.
A person has 30 days in which to lodge an appeal. The appeal must be lodged in writing and must specify the grounds for appeal.
The tribunal is only obliged to consider the grounds stated in the letter of appeal. However, the tribunal may allow a person to put forward grounds not previously specified where it is satisfied that the omission was not wilful or unreasonable.
An appeal must:
|
be in writing (can be e-mail); and | |
|
contain sufficient information to identify the person appealing and the decision against which the appeal is being made; and | |
|
be signed by or on behalf of the person appealing. |
Tax credits replace child dependant additions for certain benefits and personal allowances and premiums for children. This is being introduced in stages.
From 6 April 2004, the child dependant addition included in existing claims for Incapacity Benefit, CA, Retirement Pension and bereavement benefits was abolished.
From 6 April 2004, claims for Income Support and JSA(IB) no longer include personal allowances and premiums for dependent children. People with existing claims will continue to have personal allowances for children included in their benefit until the premiums are replaced by CTC. From the point that CTC is awarded, it ceases to count as income for Income Support, JSA(IB) and PC.
Welfare Benefits and Tax Credits Handbook, 11th Edition, CPAG, 2009/2010, ISBN 978 1 906076 35 1, £37.00.
Social Security Legislation (Vol IV) 7th Edition, 2009/2010 Vol IV: Tax Credits, Child Trust Funds and Employer Paid Social Security Benefits, (Nick Wikeley & David Williams) £144.00* (including updating supplement in March 2010).
*Both these books are available from CPAG, 94 White Lion Street, London N1 9PF.
HMRC’s website has copies of forms, leaflets and answers to
frequently asked questions at www.hmrc.gov.uk.
All rights reserved. No part of
this publication may be reproduced, stored on any retrieval system or
transmitted in any form by any means, including photocopying and recording,
without the prior written permission of Law Centre (NI).
A person will be at a disadvantage in getting a job where s/he:
|
cannot keep her/his balance unless s/he continually holds onto something; | |
|
using crutches, walking frames, walking stick, prosthesis or similar walking aid which s/he habitually uses, cannot walk a continuous distance of 100 metres along level ground without stopping or without suffering severe pain; | |
|
can use neither of her/his hands behind her/his back as in the process of putting on a jacket or of tucking a shirt or blouse into a waistband; | |
|
can extend neither of her/his arms in front of her/him so as to shake hands with another person without difficulty; | |
|
can put neither of her/his hands up to her/his head without difficulty so as to put on a hat; | |
|
cannot, due to lack of manual dexterity, pick up a coin which is not more than two and a half centimetres in diameter with one hand; | |
|
is not able to use her/his hands or arms to pick up a full jug of one litre capacity and pour from it into a cup, without difficulty; | |
|
can turn neither of her/his hands sideways through 180 degrees; | |
|
is registered as blind/or as partially sighted; | |
|
cannot see to read sixteen point print at a distance greater than 20 centimetres, if appropriate, wearing the glasses s/he normally uses; | |
|
cannot hear a telephone ring when s/he is in the same room as the telephone, if appropriate, using a hearing aid s/he normally uses; | |
|
in a quiet room, has difficulty in hearing what someone talking in a loud voice at a distance of two metres says, if appropriate, using a hearing aid s/he normally uses; | |
|
when speaking, has difficulty being understood by people who know her/him well; | |
|
when a person s/he knows well speaks to her/him, has great difficulty in understanding what that person says; | |
|
at least once a year during waking hours, is in a coma or has a fit in which s/he loses consciousness; | |
|
has a mental illness for which s/he receives regular treatment under the supervision of a medically qualified person; | |
|
is often confused or forgetful due to mental disability; | |
|
cannot do the simplest addition and subtraction; | |
|
due to mental disability, strikes people or damages property or is unable to form normal social relationships; | |
|
cannot normally sustain an eight hour working day or a five day working week due to a medical condition or intermittent or continuous severe pain; | |
|
is undergoing a period of habilitation or rehabilitation as a result of an illness or accident (applies to initial claims only). This condition cannot apply where s/he has been getting the disability element of WTC in the last two years. |
|
|