The Chancellor of the Exchequer, Alistair Darling, announced the following changes affecting tax credits in the Pre-Budget Report:

• Offsetting notional entitlement
From January 2010, single/couple overpayments are to be reduced by the amount the claimant would have been entitled to if they had claimed correctly. This is a significant change in policy which will alleviate one of the biggest causes of tax credits overpayments. The Report states:

HMRC will also improve its service to people who start livingtogether, or who separate. Where customers report these changes late, this results in an overpayment on their previous tax credits award. In January 2010, HMRC will reduce this overpayment by the amount customers would have been entitled to receive had they reported the change promptly.

Further details will be set out in the Revenue’s guidance. It is still mandatory to report these changes within one month. This will remain very important to avoid any outstanding overpayment or underpayment.  There is also a risk of a penalty of up to £300 for failure to report a mandatory change of circumstances, although such a decision does carry a right of appeal. It is not clear how this policy change will affect overpayments prior to January 2010, but it will certainly strengthen the case for any ongoing complaint or challenge as it implicitly acknowledges the previous policy was unfair.

• Working tax credit (WTC) for people aged 65 and over
From April 2011, a new category will be added to the groups of people who are entitled to WTC. People aged 65 and over will be eligible for WTC if working at least 16 hours a week. They will no longer have to fit into the 50+ category, which depends on starting work after 6 months on benefits, and is only payable for one year. Currently, a person aged 65 or over who works 16-29 hours a week would otherwise only be entitled if they are responsible for children or fit into the disabled worker category, or they would have to work at least 30 hours a week to qualify for WTC. The details of the change will have to be set out in regulations. Note that this change will not be introduced until 2011, so there is plenty of time to plan a take-up campaign for older people in part-time work.

Tax credits rates from April 2010

The Pre-Budget Report also announced increases in the rates of some benefits and credits from April 2010.  The increase to the child element of child tax credit (CTC) expected in April 2011 has been brought forward to April 2010. The exact amounts from April 2010 have now been published on the Revenue’s website, including the following: