Tax credits – election special
The tax credits system may be subject to significant changes in the near future, depending on the outcome of the general election. The main parties have set out their plans for tax credits in their manifestos as follows:
Labour:
- tax credits will be increased not cut;
- guarantee that when someone who has found it difficult to get into work comes off benefits, their family will be at least £40 a week better off (the National Minimum Wage and tax credits should always make work pay);
- the child element of the Child Tax Credit will be increased by £4 a week for families with children aged one and two from 2012, paid regardless of the marital status of the parents;
- will enable people aged 60 and over to claim Working Tax Credit if they work at least 16 hours a week, rather than 30 hours as at present.
Conservatives:
- support tax credits and will continue to provide the range of tax credits to families, although will stop paying tax credits to better-off families with incomes over £50,000;
- will reform the administration of tax credits to reduce fraud and overpayments, which hit the poorest families hardest;
- will cut government contributions to Child Trust Funds for all but the poorest third of families and families with disabled children;
- will end the ‘couple penalty’ for all couples in the tax credit system.
Liberal Democrats:
- will restrict tax credits;
- will end the rollercoaster of tax credit overpayments by fixing payments for six months at a time;
- will also target payments towards those who need them most;
- will put in place cuts which could be realised within the financial year, such as scrapping the Child Trust Fund or restricting tax credits.
The manifestos can be viewed in full on each party’s website via the links above.
Recovery of overpayments from benefits
From May 2010, the Revenue is trialling recovery of tax credit overpayments by making deductions from social security benefits. The trial will involve 5,000 tax credit claimants, who will receive a letter from the Revenue asking if they want to participate. Regulations have been amended to allow amounts to be deducted from the following benefits:
- income support
- income-based jobseeker’s allowance
- income-related employment and support allowance
- pension credit
The maximum rate of the deduction is £9.75 a week and tax credits debt will be at the bottom of the current priority list of deductions. If a claimant is already repaying a benefit overpayment then no tax credit recovery will be taken until that debt has been cleared. Participation will be on a voluntary basis and the claimant can withdraw from the agreement at any time. If a claimant does not agree to deductions or does not respond to the letter, there will be no further action regarding recovery from benefits and the debt will be pursued by other methods.
Child tax credit in another EEA country
A recent Upper Tribunal decision concerned a UK family living in another European Economic Area (EEA) country, Sweden in this case. The couple had never worked in any country other than the UK, and were retired due to ill-health. Child benefit was still in payment, but child tax credit had been stopped. The judge held that this was the correct approach under UK and European law in these circumstances at the time. However, it was noted that the European law affecting pensioners is changing from 10 May, as stated by the Revenue’s Solicitor:
“It is accepted that from that date UK state pensioners living elsewhere in the EEA will be able to claim the child tax credit.”
This change will not affect people who are working in another EEA country; generally, they can claim the equivalent family benefits of the country in which they are working.
Appeals
The Work and Pensions Committee report on decision making contains some interesting statistics on tax credits appeals, and allows comparison with social security benefits. The number of tax credit appeals that make it to tribunals has increased but is still relatively low. The percentage of cases that are decided in favour of the appellant is also consistently lower than in most other benefits.
- 637 CTC appeals decided in 2008-09 (453 in 2007-08)
- 15% of CTC appeals were successful (10% in 2007-08)
- 79 WTC appeals decided in 2008-09 (78 in 2007-08)
- 18% of WTC appeals were successful (17% in 2007-08)
Comparing this with the overall total of 165,865 appeals in 2008-09 (42.07% successful) it is apparent that tax credits still make up a very small part of tribunals’ work. This drew the following comment by MPs and Upper Tribunal judges (Annex C):
The number of tax credit appeals that reached tribunals was tiny compared to the number of social security appeals. There was no suggestion that this was because the standard of decision-making was better with regard to tax credits; rather, it raised concerns that disputes were getting lost in the tax credit reconsideration process.
The report also shows that over half of tax credit appeals were decided at a hearing (rather than on the papers alone), and the success rate was significantly higher in these cases.
Renewals
It’s that time of year again, when the Revenue writes to all tax credit claimants to finalise claims for 2009/10 and renew their claims for 2010/11. The Revenue has produced a new help sheet for advisers to help their clients to take the right action at the right time. This includes information on the option of withdrawing claims, as mentioned in the March e-bulletin. Importantly, this states that any provisional payments made after the date the claim is ceased will be recoverable, so this may not mean an end to the problems of overpayment recovery, making it seem an even less attractive option to anyone who is entitled to an award.
