The times they are a-changin' – tax credits and changes of circumstances

Issue 195 (December 2006)

Beth Lakhani describes new rules on reporting changes of circumstances for tax credits.

Introduction

New regulations (The Tax Credits (Claims and Notifications) (Amendment) Regulations 2006) came into force from 1 November 2006 which:

  • extend the changes of circumstances that must be reported ('mandatory changes');
  • change the definition of the 'date of change';
  • change the time in which the change must be reported (from 5 April 2007).

The date of change

Claimants will now be required to report the change of circumstances within three months of the date on which the change actually occurred or, if later, a period of three months from the date on which the person becomes aware of the change in circumstances. This more flexible test applies to all changes of circumstances that must be reported subject to a penalty with one exception - where a person ceases to be a 'qualifying young person' (see 'Family composition changes' below).

The time limit for reporting a change will be reduced from three months to one month from 5 April 2007.

Work-related changes

A person is now required to report the following.

For the purposes of entitlement to working tax credit (WTC)
  • A person who is required to work at least 16 hours a week to qualify for WTC must report if they cease to work 16 hours.
  • A person who is required to work at least 30 hours a week to qualify for WTC must report if they cease to work 30 hours.

In addition, claimants must report if their hours fall below 16 or 30 respectively if it affects entitlement regarding the following WTC elements.

30-hour element
  • A single claimant ceases to work 30 hours where they have been working 30 hours a week.
  • A couple cease to qualify for the 30-hour element. In the case of a couple without children, if one or both cease to work 30 hours they must report the change. In the case of a couple with children, they must report if their hours change so that their aggregate hours are less than 30 hours a week or if neither of the couple are now working at least 16 hours a week. (To satisfy the 30-hour aggregate test, one member of the couple must be working at least 16 hours.)
Disability element
  • A person ceases to work at least 16 hours a week who has been working those hours as a 'disabled worker.' If the 'disabled worker' is part of a couple claim then they may as a couple retain their entitlement to WTC but will still lose this element. (The other member of the couple - unless there are children - will need to be working 30 hours a week and be at least 25 to remain entitled to WTC.)
Second adult element
  • One member of the couple stops working 30 hours a week and as a result neither member of the couple work 30 hours a week. This means they cease to qualify for this element unless they are a couple with children.

Deciding whether hours worked have really changed

Other, pre-existing rules 1 provide that hours worked should be calculated with regard to the following:

  • the number of hours 'normally' performed (under a contract, as an agency worker, as a self employed person) and periods of customary holiday or paid holiday;
  • times allowed for meals are excluded unless paid earnings for that time;
  • times allowed for visiting hospital are excluded (to monitor or treat that person's disability).

In addition, the Revenue will take account of the other variations to hours of work which relate to time away for special purposes, for illness or incapacity, term time and seasonal workers rules, etc.

There are also cases when a claimant will cease to be treated as being in work at all for the purposes of WTC - e.g., where they have been sick for a period of 28 weeks or they are away from work but the maternity period or maternity related payments have ended. (In these situations a person is treated as in full time work during the preceding period only if they worked the requisite number of hours before becoming sick or pregnant.)

Family composition changes

A claimant must report:

  • if they cease to be 'treated as responsible' for a child or qualifying young person for the purposes of child tax credit (CTC) and/or WTC;
  • where a parent or the responsible adult has reported in advance that the child intends after they reach the age of 16 to become a 'qualifying young person' by remaining in non-advanced full time education or training and the young person does not do so, the adult must report this change;
  • if a young person ceases to be a 'qualifying young person' - a dependant for the purposes of the tax credit award. This must be reported within three months of the actual change (i.e., not any later). But if this change is due to the young person reaching the age of 20, there is no duty to report.
  • if a child or young qualifying person dies.

The changes relating to family will have the effect of:

  • reducing the amount of CTC (where there are other dependent children);
  • ending the CTC where there are no other children/qualifying young people in the family;
  • taking adults out of entitlement to tax credits where the CTC is the basis on which they qualify for tax credits;
  • there may also be problems where more than one adult claims to be responsible for a child for the same period. This is most likely to occur where children leave the family home on a temporary basis to stay with an absent parent and the temporary absence becomes permanent. There could also be difficulties if both adults claim CTC and child benefit for the same period.

    Please be aware that welfare rights law and guidance change frequently. Therefore older Bulletin articles may be out of date. Use keywords or the search function to find more recent material on this topic.
  • 1. Regs 4-8 Working Tax Credit (Entitlement and Maximum Rate) Regulations 2002.