Toolkit

Reference materials: Tax credits 'Inside track'

Entitlement and income

Child Tax Credit & EC regulations: HMRC became aware of a differentiation between a family allowance under Article 1(u)(ii) of Council Regulation (EEC) 1408/71 and a family benefit as defined at Article 1(u)(i) of the same Regulation. Representatives asked for further clarification on HMRC's approach to this.

HMRC stated that Article 77 of Council Regulation (EEC) 1408/71 provides for the payment of family allowances in respect of the dependent children of pensioners. A family allowance is defined at Article 1(u)(ii) of the Regulation as a periodical cash benefit granted exclusively by reference to the number and, where appropriate, the age of the members of the family. Child Tax Credit is granted by reference to the number and ages of the children, but also by reference to the income of the claimant or claimants. Therefore Child Tax Credit is not a benefit granted exclusively by reference to the number and ages of the children, and so not a family allowance. Rather, Child Tax Credit falls within the definition of family benefits at Article 1(u)(i) of the Regulation – a benefit in kind or in cash intended to meet family expenses, excluding certain special childbirth or adoption allowances.
Until last year, HMRC made awards of Child Tax Credit under Article 77 in the belief that they were 'family allowances'. However, upon receiving legal advice to the effect that Child Tax Credit does not fall within the definition of a 'family allowance' because it also takes account of the income of the claimants, HMRC needed to reject any future claims for Child Tax Credit made by virtue of Article 77 and to terminate such awards in payment. This does not affect the award of UK Child Benefit as they continue to regard it as a 'family allowance' on the grounds that it is based solely on the number and age of the children.
This only relates to those cases previously awarded Child Tax Credit under Article 77, HMRC have said that they believe this only involves a small number of customers. HMRC say it was proper for them to take action to stop payment to those customers who are not entitled under this Article but were being paid, and to let them know, but confirm that they will not seek to recover any Child Tax Credit already paid as a result of our incorrect previous interpretation of Article 77 of EC Regulation 1408/71.
HMRC hope to shortly provide details of changes they expect once EC Regulation 1408/71 is replaced by the new co-ordinating Regulation 883/2004 next year. They are keeping a list of those cases that they have terminated, so that when this new regulation comes into effect, HMRC can invite them to make a new claim for CTC.
[Victoria Todd, LITRG, response 29 July 2009]

Extension of the four week run-on: Budget 2009 announced that the four week run-on would be extended to cover people who lose their entitlement to Working Tax Credit due a move to part time working. Representatives sought clarification of who HMRC considered as 'part time’' HMRC confirmed that the extension would apply from July 31 2009 and would cover those who fall below 30 hours per week, but at 16 hours or above.

[Victoria Todd, LITRG, response 24 April 2009]

Working Hours: Representatives asked for clarification about the working hours text that recently appeared on the HMRC website @ http://www.hmrc.gov.uk/taxcredits/changes-work.htm. In particular representatives stated that although the text mentions reduction in hours, it gives no further indication how these will be treated. If a 'temporary' reduction in hours of up to 4 weeks does not disturb the normal pattern, then it would be helpful to include examples of this as well as lay offs. Reps asked HMRC for clarification on our understanding that it seems an individual needing 30 hours work to qualify for WTC would find their claim terminated with no 4 week run on if, for instance, they were informed that their hours for the foreseeable future would be cut to 26. But if the hours were cut for 4 weeks but with expectation of being restored, the claim would continue for that time.

HMRC confirmed that this understanding was correct and that the person who needs to work 30+ hours in order to be eligible for Working Tax Credit can have a period of up to 4 weeks of working for less than 30 hours without losing entitlement. However, if the reduced hours last longer than 4 weeks, entitlement will cease as soon as the employer tells the employee that there is no prospect of increasing the hours to 30+ for the foreseeable future.
[Frances Corrie, TaxAid, response 5 March 2009]

Fostering/Residence Orders/Adoption etc: HMRC held a one off meeting with representatives to look at many of the issues for those who look after children in different capacities. The issues raised and updates from HMRC are set out below. Some of the answers focus on a mystery shopping exercise that HMRC will be carrying out internally to look at helpline advice in certain areas.

(a) HMRC to look at the issue of the helpline refusing to send claim forms where they think there is no entitlement (even though there is an actual entitlement).
HMRC have said that reminders have been issued to Helpline staff around the problems raised about ‘gatekeeping’ of claim forms. There is also further work ongoing looking at availability of claim forms and verifying the identity of callers to the Helpline.
(b) HMRC to investigate if the lack of a Child Benefit reference number causes a verification failure for tax credits and and what happens thereafter.
HMRC replied that this issue also arose at the main TCCG meeting on 4/12/08. The lack of a Child Benefit reference number does lead to a verification failure, but in such instances the Tax Credits Office can contact the claimant directly to verify the child’s details, if necessary.
(c) HMRC agreed to add questions to their internal mystery shopping exercise around this area. Representatives agreed to send suggestions.
(d) Review and amend where relevant scripts for Helpline/intranet information/guidance/website in consultation with reps. In particular, to aim for clearer technical guidance.
HMRC have said that 'Our internal guidance authors are aware of the issues being tested as part of the Mystery Shopping exercise, and we have asked that any appropriate changes / improvements identified as part of the Mystery Shopping are considered at the earliest possible opportunity'.
(e) Investigate how queries can be escalated swiftly (ie make use of the technical section more effectively to minimise extra work and delay for all).
HMRC have said that 'As well as having local assistance available to assist with technical queries, Helpline staff also have access to our internal Technical Advice Line and queries made via that route can be escalated to the Technical Team, if necessary. Our aim is that the Mystery Shopping exercise will further test this system, and we will work with our Helpline Quality Managers to seek further appropriate improvements informed by the results'.
(f) Talk to tax colleagues about whether the foster care allowance can be increased.
HMRC confirmed that they forwarded these comments to tax colleagues.
(g) Look at Helpline scripts and the handover process where foster carers are transferred to the newly self-employed Helpline.
HMRC have said that they are currently clarifying the interaction between the Tax Credits and Newly Self-employed Helplines, and the guidance they use.
(h) Include a definition of private foster carers in relevant scripts/documentation to avoid confusion between private fostering arrangements and foster carers who work for private agencies placing looked after children.
HMRC have said 'As we explained above, we are currently considering how to make best use of the definitions supplied by representatives. This may include adding the definition of Private Foster Carers to certain parts of the guidance, as part of the overall package'.
(i) Investigate option of having a specialist team to deal with types of cases discussed at the meeting.
HMRC have said that they will be considering the best options for resolving any issues once the results of the Mystery Shopping exercise are known.
[Jane Hayball, LGA, response 11 February 2009]

Reducing hours/being laid off work: HMRC have added new material to their website for people who have changes to working hours or who are laid off from work @ http://www.hmrc.gov.uk/taxcredits/changes-work.htm. Representatives are considering this new information and some additional questions.

[TCCG, response 9 February 2009]

Exchange Rates: HMRC confirmed that their website holds rates for average exchange rates, which are used where claimants have come from overseas and need to convert their previous year income.

The link is: http://www.hmrc.gov.uk/exrate/index.htm
[TCCG, response 14 January 2009]

Backdating (non-automatic): Representatives raised the issue of backdating for those who do not receive this automatically. The claim form does not allow backdating to be requested and the claim form notes contain no information on who is entitled to backdating or how to request it. HMRC agreed that this was deficient and will come back to representatives with information on this issue once they have looked at it more closely.

[Victoria Todd, LITRG, response 4 December 2008 (Operational group meeting)]

Backdating requests: Representatives reported problems for claimants trying to request 3 months backdating. HMRC confirmed that the helpline can make a referral for backdating and should not tell claimants that they have to write for this (although they can if they want to). As of December 2008, backdating requests are being processed fairly quickly (within 2 weeks based on the timescales given).

[Victoria Todd, LITRG, response 4 December 2008 (Operational group meeting)]

Working hours: Representatives asked HMRC for guidance around working hours for those claimants who find themselves told to leave work early or not to come into work at all because, due to the current economic climate, there is no work for them. An example was given of a night-shift worker who was sent home half way through her shift on more than one occasion in a short period meaning her hours would fall below 30 for that period.

HMRC confirmed that the regulations outlining the remunerative work condition for Working Tax Credit allow for temporary lay-offs or reductions of hours to be disregarded from the calculation of the hours worked, because we are looking at the number of hours that the claimant normally works. So in the case where a member of staff is told not to come in to work or is told to reduce their hours for any particular week, this should have no impact on entitlement to tax credits or the 30 hour element.
The question then arises about when such a reduction in hours should be considered normal if it is expected to continue for some time. HMRC state their view is that a break or reduction in hours of up to 4 weeks does not disturb the claimant’s normal working pattern; provided the claimant returns to work or to their normal hours after 4 weeks, their entitlement to WTC will not be interrupted. If not and the reduction/break in hours is set to continue, then WTC will be affected – either entitlement would end or, for example, entitlement to the 30 hour element would cease.
Where the claimant has stopped work or their hours have dropped below 16, they would then, in addition, be entitled to the 4 week run on under Regulation 7D of the WTC (Entitlement and Maximum Rates) Regs. The wording of regulation 21(2)(c) of the Claims & Notification Regulations to which you refer show that we are still concerned with the number of hours normally performed. HMRC provided a link to their guidance on working hours @ www.hmrc.gov.uk/taxcredits/usual-working-hours.htm
[Beth Lakhani, CPAG, response 19 November 2008]

Cross border issues: Representatives sought clarification about issues relating to cross border workers. Particularly for those who are resident in the Republic of Ireland, but employed in Northern Ireland. HMRC confirmed the position to representatives as follows:

'Working Tax Credit (WTC) is a payment to top up the earnings of low-paid working people and helps to make work pay for low income workers. WTC can be claimed by nationals of the European Economic Area (EEA) who cross the border to work in the UK. However, where a couple is living in another EEA country and only one member of a couple is working in the UK, they cannot make a joint claim for WTC.
Council Regulation (EEC) 1612/68 guarantees migrant workers equality of treatment with nationals of the host country. Articles 7(1) and 7(2) of Regulation1612/68 provide that (a) a worker who is a national of a Member State may not, in the territory of another Member State, be treated differently from national workers by reason of his nationality in respect of any conditions of employment and work, in particular as regards remuneration, dismissal and should he become unemployed, reinstatement or re-employment; and (b) he shall enjoy the same social and tax advantages as national workers.
For entitlement to WTC (a social advantage), where we have an EEA cross-border worker working in the UK and exercising their rights as a migrant worker under the provisions in Council Regulation 1612/68, or 1251/70 or has a right to reside in the UK under Council Regulation 2004/38, then we will treat them as if they are ordinarily resident in the UK. In other words, legislation makes provision to allow an EEA cross-border worker to meet the residence conditions for entitlement to WTC so that they receive equal treatment. Helpline advisers should be aware that special residence rules apply where an EEA cross-border worker comes to the UK. However, please let us know if you are aware of examples where incorrect advice may have been given, and we will arrange for a reminder to be issued to Helpline staff on this issue.
When looking at the entitlement conditions for WTC, a cross-border worker will be entitled to WTC on the same basis as a UK national. To be entitled to the basic element, they must be either at least 25 years old and working at least 30 hours a week; or they must work for at least 16 hours per week and either have a physical or mental disability which puts them at a disadvantage in getting a job and satisfies the disability conditions (ie they are entitled to or have been receiving one of the listed qualifying disability benefits), or they must work at least 16 hours per week and they (or their partner on the WTC claim) must be responsible for a child or qualifying young person (QYP).
It is important to note that, to meet the criteria to be responsible for a child/QYP, the child or QYP must normally live with the claimant. It follows then that in a case where our worker regularly travels from home to work, the child would indeed normally live with them. If they are not responsible for a child, as defined in the domestic legislation which covers WTC, or meet the domestic disability conditions, then they will need to be 25 years old or over and work at least 30 hours per week to qualify for WTC.
Looking at the different elements of WTC, the disability element and severe disability element will only be included where the worker meets the domestic conditions, which are outlined in the Tax Credits Technical Manual (available via the HMRC website) under paragraphs TCTM2500 et seq.
The childcare element is also part of WTC. For a joint WTC claim, both claimants need to be working at least 16 hours per week or one be working 16 hours and the other either incapacitated (receiving relevant domestic disability payments) or in hospital or in prison (domestic). On a single WTC claim, the worker needs to be working at least 16 hours per week. Whether joint or single, the workers in the UK need to be responsible for a child (ie the child normally lives with them) and incur and pay for relevant childcare costs. The types of childcare which are considered relevant are listed in Tax Credits Technical Manual under paragraphs TCTM2600 et seq.
The second adult element of WTC will be payable on a joint WTC claim, unless neither are responsible for a child/QYP and one of the claimants is serving a sentence of more than 12 months; or the 50+ element is payable and neither claimant is working at least 30 hours per week.
The lone parent element will be payable on a single WTC claim where the worker is responsible for a child/QYP.
The 30-hour element where the worker works at least 30 hours per week, or if you have a joint WTC claim and either worker is responsible for a child/QYP they can add their hours together to make 30 hours providing one of them works at least 16 hours.The 50+ element will be payable where the worker is at least 50, works at least 16 hours per week and has been in receipt of domestic out of work benefits for at least 6 months prior to him starting his work.'
[Siobhan Harding, Citizens Advice NI, response 6 November 2008]

Maternity leave leading to sick leave: Representatives queried what happens when a claimant who has been on maternity leave and in receipt of WTC comes to the end of maternity leave and then goes on sick leave.

HMRC confirmed that Regulation 5 of the Working Tax Credit (Entitlement and maximum Rate) Regulations 2002 allows for people to continue to be treated as being in qualifying remunerative for up to 39 weeks whilst they are on maternity leave/additional maternity leave. Regulation 6 of the same regulations allows people to continue to be treated as being in qualifying remunerative work whilst absent from work due to illness or incapacity for work and in receipt of certain sickness/disability benefits.(More information on this is available via the HMRC website under paragraphs TCTM02420 TCTM02421 of the Tax Credits Technical Manual).
In both cases, in order to continue to be treated as being in qualifying remunerative work, the claimant must have been engaged in qualifying remunerative work immediately before the beginning of the period. For the purposes of entitlement to WTC the fact that the claimant was ’treated as being engaged’ in qualifying remunerative work satisfies this condition, and therefore a claimant can continue to be entitled to WTC when moving from maternity to sick leave. However, in order to qualify, the claimant must also be in receipt of statutory sick pay, short-term incapacity benefit at the lower rate, or income support or national insurance credits on the grounds of incapacity for work whilst they are of work. If the claimant doesn’t get any of these benefits/credits, then they won’t be able to continue to receive WTC.
[Siobhan Harding, Citizens Advice NI, response 20 October 2008]

Claiming WTC during period of sickness: Representatives asked HMRC for confirmation of claiming WTC during a period of sickness. HMRC confirmed that Regulation 6 of the Working Tax Credit (Entitlement & Maximum Rate) Regulations states that, providing that the person was engaged in qualifying remunerative work immediately before the period of sickness, they are considered to be in qualifying remunerative work when making the claim for the purposes of the conditions in Regulation 4. Reference was given to section 02402 of the Tax Credit Technical Manual.

[Victoria Todd, LITRG, response 14 February 2008]

Children Act payments: Representatives queried whether payments under Section 17 and 24 Children Act 1989 were income for tax credit purposes. HMRC confirmed that there are not provisions under the tax credit legislation to take these payments into account as the claimant's income.

[Victoria Todd, LITRG, response 20 December 2007]

Training allowances: Representatives queried whether a young person who receives a training allowance for the training/education they receive is to be included on a claim for CTC. HMRC confirmed that as long as the young person is undertaking approved training which is not provided by their employer, they can be treated as being a qualifying young person and included on the CTC claim, even if a training allowance is paid to them. The key is the training they are undertaking. See Regulation 5 CTC Regs 2002 and definition of approved training is the same as Regulation 1(3) of the Child Benefit (General) Regulations.

[Lucy Cochrane, Citizens Advice, response 10 Oct 2007]

Disability element: HMRC confirmed that existing claimants must inform HMRC when they initially make a claim for DLA as well as within 3 months of DLA being awarded in order to secure backdating.

[Victoria Todd, LITRG, response 23 August 2007]

Residence Order Allowance: Representatives reported cases of claimants being advised by the helpline that the residence order allowance would count as income. HMRC confirmed that Regulation 19 TC (Definition and Calculation of Income) Regulations 2002 provides for sums to be disregarded. In particular Item 11 in Table 6 of Regulation 19(1) was highlighted.

[Jane Hayball, LGA, response 8 August 2007]

Adoption orders: A case was reported to HMRC where the helpline advised a claimant that she could not claim CTC until an adoption order was in place. HMRC sent links to the guidance in their manuals stating when a person is to be treated as responsible for a child:

www.hmrc.gov.uk/manuals/tctmanual/TCTM02201.htm and www.hmrc.gov.uk/manuals/tctmanual/TCTM02202.htm
[Jane Hayball, LGA, response 8 August 2007]

Maternity, adoption and paternity leave: Representatives expressed concerns about helpline advice on entitlement to tax credits during the maternity period and requested copies of the helpline scripts. These were provided by HMRC.

[Kate Bell, OPF, response 10 July 2007]

Updating income figures prior to renewal: Representatives queried whether claimants could report their actual income for the previous year post 6 April but prior to renewal forms arriving. HMRC confirmed that the helpline should take these new figures, however they should also inform claimants that renewal papers must still be completed.

[Victoria Todd, LITRG, response 10 July 2007]

Prisoners and WTC: Clarification was sought on whether prisoners who have been released into the community to be supervised by probation staff or electronic tag would be eligible for WTC. HMRC confirmed that at that point, they are no longer prisoners but 'citizens under supervision' and, as such, will be entitled to WTC as long as they satisfy the usual criteria.

[Kevin Higgins, Advice NI, response 15 May 2007]

SMP disregard: Representatives queried whether HMRC intended to uprate the £100 per week SMP disregard. HMRC confirmed that there is no plan to do so.

[Katie Lane, Citizens Advice, response 29 March 2007]

Prisoners (remand) and CTC: Clarification was sought regarding CTC payments for mothers on remand. HMRC confirmed that for CTC there are no specific provisions relating to the ongoing entitlement of people in prison. Entitlement to CTC rests on a person being treated as responsible for a child and they satisfy that requirement if the child is normally living with the claimant. So, if the claimant has the child with them in a mother and baby unit, there is entitlement to CTC. If the claimant is detained on remand and is without their child, HMRC will have to determine when the point is reached when the child can no longer be regarded as normally living with the claimant. That will be determined on an individual basis. If another person claims CTC in respect of the child and the child is living with that person, HMRC will determine entitlement in respect of both the mother and the rival claimant to see who has main responsibility.

[Kim Maynard, Citizens Advice, response 28 Feb 2007]