Transcript Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and.

Tax Credit Update
Migration to Child Tax Credit for IS and
JSA claimants by April 2006
Finalising awards for 2003/4 and Renewals
Overpayments and “eliminations”.
Housing Benefit and tax credits
Migration from Income Support/JSA
 Child personal allowances and premiums will have
disappeared from Income Support/JSA by April 2006
 They have already gone for over 60s on Pension
Credit. They will remain as part of HB/CTB
Claiming CTC while on IS/JSA
 In 2003/4, IS/JSA claimants who claimed CTC had the
normal applicable amount. CTC counted as income.
 From April 2004, their IS/JSA became “adult only”.
CTC is now ignored as income.
Migration from Income Support/JSA
What happens now?
 New IS/JSA claimants with children claim CTC for the
children and receive “adult-only” IS/JSA.
 Existing IS/JSA claimants who have not yet claimed CTC
carry on with “adult and child” applicable amounts
 At some point in next year they will be contacted by
Inland Revenue and notified when CTC will start. Their
iS/JSA will then become “adult only”
 This process has been delayed – new aim is for process to
be completed by April 2006.
Old versus new system
Angharad is a lone parent with two kids (one aged 6 - on DLA - one aged
6 months). She gets Income Support, Child Benefit and £30 maintenance.
Old system (from April 2004):
On switching to CTC:
 Income Support……£ 151.58
 Income Support…£ 25.65
Applicable Amount: Adult £55.65 + 2
child@£42.27 + Family Premium
£15.95 + Disabled Child Premium
£42.49 = £198.63
less Child Benefit (after baby disregard)
and maintenance
 Child Benefit………£ 27.55
 Maintenance…….. £ 30.00
Total Income £209.13
(Applicable amount: adult £55.65
less maintenance)
 Child Benefit…… £ 27.55
 Maintenance…….£ 30.00
 Maximum CTC….£125.93
(Family element £10.50+ Baby
addition £10.50 + 2 child @£31.22
+ disabled child £42.49 _________
Total Income £209.13
Effects for Angharad
 Angharad is no longer obliged to authorise CSA to act.
 Angharad’s income rises to £209.13 from £171.20 in
2002 –3 as a result of:
 The extra £10.50 baby addition
 A general above inflation increase in amounts
for children – an extra £27.43 since 2002/3
 Maintenance still counts as income against
“adult only” IS/JSA, although all other
child income is ignored.
Floating off Income Support
 Angharad’s “adult only” Income Support is £25.65.
 If Angharad started to claim Incapacity Benefit
(£55.90) – her IS would cease on switching to the
new system.
 She would gain by
 The difference between her IB and IS (£30.45)
 keeping all her maintenance (£30.00)
 She would lose by:
 a fall off in any HB/CTB – up to 85% of her
gains (after a £15 maintenance disregard)  losing access to discretionary Social Fund
CTC take-up opportunities
 Many people – whether on IS or not – may
not be affected by complications of tax
credit assessment.
 Will get maximum CTC as income well
below £258 a week.
 A couple on Incapacity Benefit of £147.00, Child
Benefit £27.55 and a works pension of £80 are well
over their Income Support level, even after a DLA
claim for one of the children.
 They can now get maximum CTC of £107.90
CTC take-up opportunities
 Grandparents on a retirement income of £250 a
week couldn’t get any more than £16 Child Benefit
and £9.90 child addition to Retirement Pension
 They can now get £41.72 Child Tax Credit.
 A lone parent student could only get Income
Support during Summer (due to grant/loan income)
 Can now get maximum CTC of £41.72 all year.
 An ex-miner still had £10,000 of redundancy so
couldn’t get IS, despite low income and 3 kids
 Can now get £104.16 maximum CTC.
Protective claims
 Some people may feel they won’t get anything
now, but might be advised to make a “protective
claim” – if any doubt about future circumstances
 They might well get a nil “provisional award” now

But if income changes by end of the year they
can have the nil award revised.

New calculation will include all elements for the
year.

If they leave claiming until it happens, tax credits
will only go back 3 months.
Renewing your claim
From 5th April 2004:
 “provisional” awards for 2004/5 are made, continuing
old award at 2003/4 rates. Any reductions to eliminate
likely overpayments cease
Between April and July 2004,
 renewal forms go out:
 Annual Review Form (TC603R) to all claimants
– may or may not need to be returned
 Annual Declaration Form (TC603D) to some
claimants which must be returned by 30/9/04
Renewing your claim
IR will then check your actual income in 2003/4 and:
confirm a final award for 2003/4, and
an ongoing award for 2004/5 at the new rates,
(backdating the difference to April 2004)
Time limits
 First limit September 2004: If forms not returned, all
payments stopped, but can then be fully backdated
 Final limit 31st January 2005: if not returned, claim
ceases. All payments since April 2004 are
recoverable. Can make a new claim, but can only
only backdates 3 months.
Overpayment of the new Tax Credits
 Tax credits lead to routine under and over
payments, as award not finalised until end of year
reconciliation completed.
 Underpayments lead to a nice arrears cheque.
 Overpayments are recovered by reduction of
future tax credits, adjustment of income tax
code or a payment demand.
 Couples are jointly liable for overpayments,
whether WTC or CTC, whoever it was paid to.
Recoverability of Overpayment
 Overpayments are routine for IR rather than
exceptional (as in DWP)
 No appeals. Are generally recoverable unless IR
accepts “official error” or “hardship”
 “Official error” – caused by the Inland Revenue
and you could not have reasonably known that
you were being overpaid at the time
 “Hardship” – looking at income, expenditure,
inability to afford essentials, savings, incapacity
or disability, children under 5, time to repay,
other debts to IR, previous payment history
Rate of recovery
 Payments are recovered at a rate of:
 10% of tax credits if on maximum award
 100% if entitled to CTC family element
only.
 25% of next years award in all other cases
In-year eliminations of overpayments.
 If IR suspect an overpayment could arise they can act
to recover the likely overpayment by the end of the
current year. This could mean severe cuts or stopping
of tax credits.
 IR can make additional payments for hardship if asked:
 90% if on IS/JSA and
 75% if award of tax credit includes a disability
element or maximum WTC or maximum CTC
(without any WTC)
 50% in other cases
 These payments will be recovered next year as part of
any overpayment recovery.
In-year eliminations of overpayments.
Eliminations have had effect of:
 By-passing issues of “official error” recoverability
 Destabilising incomes and taking families below IS
level.
Housing Benefit and tax credits
Underpayments of Tax Credit
 HB/CTB continue to be worked out weekly.
 They will continue to have child personal
allowances and premiums
 HB/CTB has an extra Family Premium Baby Addition of
£10.50, but counts Child benefit in full as income
 WTC and CTC count in full as income – broadly the
amount actually received each week, not any
adjusted award
 So can be worthwhile being underpaid tax credits
during year to get more HB/CTB.
Housing Benefit and overpayments
Underpayments of Tax Credit
 HB/CTB are based on actual tax credits paid in
each benefit week. Arrears of tax credit do not
retrospectively affect HB/CTB
 So can be worthwhile being underpaid tax
credits during year to get more HB/CTB.
Overpayments of Tax Credit
 Income for HB is the amount of WTC/CTC
awarded less the amount of the deduction for
previous overpayments.
 Does not include additional payments e.g
compensation or hardship payments .
Changes in circumstances
 Awards are not fixed like the old tax credits.
 Three different categories of changes:
 changes which end your award
 changes in entitlement to tax credit elements
 changes in income
Changes which end your award
 If a partner leaves or comes to live with you make a new single or joint claim.
 You get Working Tax Credit only and stop work
 Your average childcare costs change by more than
£10 a week.
Changes that affect tax credit elements
Changes in entitlement to elements
 The Inland Revenue work out your tax credits over
a relevant period. If nothing changes in the year, the
tax year will be your relevant period.
 Anything which changes your entitlement to a tax
credit element (e.g. a new child, an award of DLA
etc) will trigger a new relevant period.
 Your tax credit will then be recalculated according
to the new elements.
If you delay reporting these changes:
 arrears can be backdated for up to 3 months.
 any overpaid tax credit can be recovered.
Changes in relevant income (1)
 Relevant income is income in the whole tax year,
not income in any relevant period.
 Initial awards are made using previous year’s
income. Final awards (at year end) will still be
based on previous year’s income, unless relevant
income in current year has:
 gone up by more than £2,500 this year
 fallen in the current year.
 If your income is less than last year, you will
initially be underpaid tax credits.
 Arrears can be backdated for the full 12 months.
Changes in relevant income (2)
 If you have more than one relevant period in a year
(because of a change in your entitlement to tax credit
elements), then a separate tax credit calculation is made
for each period
 BUT relevant income is not income earned during each
relevant period.
 It is the proportion of the overall annual income
(divided up according to the number of days in each
relevant period).
 This can make a big difference to tax credits during your
first year of working or on moving to a higher paid job.
With income unchanged in year
Bethan Steadystate has been in work continuously for the
last couple of years. So she has one relevant period. Her
relevant annual income is £15,060 a year.
 Bethans maximum tax credit will be reduced by
37% of her excess income: £15,060 -- £5,060
threshold = £10,000
 Reduction is £3,700 over the year (c. £71 a week)
With income changing during year
 Angharad Newdeal is offered an identical job, exactly
midway through the tax year.
 Her relevant income and reduction will be very different
at first.
 Angharad has two identical length relevant periods:
 First 6 months on Income Support/CTC - when
her income for tax credits was £0
 Second 6 months on becoming entitled to
elements of WTC – when her income will be half
a year’s salary - £7,530.
Changing income (2)
 Angharads’ relevant income is based on her income over the
whole year:
£0 (1st period) + £7,530 (2nd period) = £7,530
£7,530 -- first £2,500 of increase over last year = £5,030
 So initially Angharad will qualify for maximum Tax Credit.
 Her reduction from maximum tax credit is £71 less than
Bethan’s
 In 2005/6, Angharad will earn the same £15,060 as Bethan
BUT the first £2,500 of increase from previous year is ignored
– her relevant income will be £12,560 (or £249 pw).
Angharad will get a reduction, but still £925 less than Bethan’s
(£18 a week)
 It is only in 2006/7 that relevant income catches up with
actual earnings (assuming no pay increase in meantime!!)
Protecting out of work benefits
A big issue for people on sickness or disability benefits.
What if you have to give up work?
Protecting incapacity rates

Your rate of Incapacity Benefit and SDA are protected for up
to 2 years after starting work with WTC.

IS disability premium - for long term sickness - is not
automatically protected beyond the basic 8 weeks but you
may be eligible for the 52 week linking rule

The protection applies to the rates only and is not a
guarantee that you will be accepted as unfit for work.)
52 week linking rule
This applies when:
Someone has been incapable of work for more than 196 days,
and
They start work or training within one week of entitlement
to their relevant benefit for incapacity ends.
They notify the DWP within one month of benefit ending that
they have started work or training
If these conditions are met, someone is classed as a
‘Welfare to work’ beneficiary
This lasts for a period of 52 weeks starting from the day
after the last day of incapacity.
A letter should be received from the DWP stating when this
protection will end.
Disability Living Allowance
 DLA entitlement is not affected in law by capacity for work
 BUT DLA have suspended awards pending investigation in case move
to work indicative of reduced care/mobility needs. Reverse may well
be true e.g. support to work.