Budget announcement: childcare

It was announced in the Budget that from April 2010 the system for claiming the childcare element of working tax credit for short periods of time will be simplified to ensure that parents receive support when they need it most.  New information on the Revenue’s website clarifies that childcare costs for short periods (such as claims of a few weeks during the school holidays) will be averaged and paid over that fixed period rather than averaged over a year.

Other Budget announcements regarding future tax credits changes include:

• From April 2011, people over 60 will be eligible for working tax credit if working 16 hours a week (as previously announced for people over 65 in the December 2009 Pre-budget report)
• From April 2011, people moving onto working tax credit from employment and support allowance who have limited capability for work will automatically qualify for the disability element. In the longer term, there will also be a review of the criteria for a ‘disability which puts you at a disadvantage in getting a job’.
• From April 2012, there will be an increase of £4 a week in the child element for each child aged one and two.

• Read chapter 5 of the Budget 2010 here 
• View the amending regulations here

New regulations

From 6 April 2010, new regulations come into force to amend the tax credits rules. The main changes are as follows:

• Withdrawing claims

Claimants now have the power to withdraw tax credit claims at the annual review stage if they wish. The claimant can specify that the annual declaration is not to be treated as a renewal claim from 6 April in the new tax year. This may be useful to some higher income groups with nil awards who want to stop receiving paperwork, but anyone else who chooses to do this will be losing money to which they should be entitled. Claimants who have suffered due to overpayments or bad experiences with tax credits should not give up their entitlement just because of the poor administration of the system. An alternative is to provide an over-estimate of current year income and wait until the end of the tax year when actual income is known to receive any tax credits due.

• Annual declarations from either member of a couple

An annual declaration made by either member of a couple can be treated as a renewal. This is already the case where one person can act for both when making a telephone declaration, but only if they are still a couple when the declaration is made. This change will help couples who separate during the renewal period so that if one person makes the declaration, their previous joint claim can be renewed up to the date of separation, thereby reducing the risk of an overpayment. However, final details of both partners’ incomes will still be required after the end of the tax year for the joint claim to be finalised.

• Payments into an account

As revealed in the February e-bulletin, the Revenue announced its intention to increase the number of claimants receiving tax credits into a bank or other account. There has now been a change to the relevant regulations to clarify when claimants may lose entitlement if they do not provide account details. If the Revenue gives written notice that account details are required, payment by other means may be postponed after 8 weeks. If account details are still not provided within three months, or by the start of the next tax year (if this is earlier), entitlement ceases from the date payments were postponed. The claimant may request an authority to open an account from the Revenue within this period and they have 3 weeks from the date this is provided (or until the end of the original period, if this is later). As before, entitlement to tax credits does not cease where the claimant is unable to obtain an account due to exceptional circumstances.

• Postponement of payments after requests for information or evidence

Payments of tax credits may be postponed where the Revenue has asked for further information or evidence in relation to an award. The Revenue already had the power to request information from the claimant, childcare provider or employer.  The request for information must be in writing and specify a date by which it must be provided, but not less than 30 days. Payments may be postponed if the information or evidence has not been provided by the specified date. Failure to respond to a written request for information by the specified date may also lead to a penalty.

• Income-related benefits and the four-week run-on

When someone stops working sufficient hours to qualify for working tax credit (WTC), they are entitled to a four-week run-on of WTC. When they stop work, they may also qualify for income-based jobseeker’s allowance, income-related employment and support allowance, income support or pension credit. Generally, these benefits act as a passport to maximum tax credits, regardless of income in the rest of the year. Claimants will no longer be automatically entitled to maximum WTC due to receipt of these benefits during the four-week run-on after stopping work. Prior to this change, there was a risk that people could be trapped in a vicious circle where receipt of these benefits and WTC were incompatible. WTC is still counted as income for these benefits.

• Revising decisions due to official error

A tax credits decision can be revised in favour of the claimant if it is incorrect due to an official error by the Revenue or DWP. The time limit for doing so has been extended to five years from the date of the decision, rather than five years from the end of the tax year to which the decision relates.

• View the new regulations

Couples where one is subject to immigration control

From 6 April 2010, the couple element in working tax credit (WTC) will be removed from couples without children where one member is subject to immigration control. The definition of who is affected by this rule, which was introduced from April last year (see March 2009 e-bulletin), has been extended to affect a wider group of people from outside the European Economic Area. The rule in force since April 2009 was primarily aimed at illegal immigrants, overstayers and asylum seekers. The amended rule, in force from April 2010, will affect the following groups:

• people who have leave to enter or remain in the United Kingdom which is subject to a condition that they do not have recourse to public funds; e.g. work permit holders
• people who have leave to enter or remain in the United Kingdom given as a result of a maintenance undertaking; e.g. spouses and dependent relatives
• people who have a continuation of leave to enter or remain only as a result of appealing an immigration decision

A joint claim must still be made if one partner is affected by this rule, but the couple element is not payable if there are no dependent children. This is only relevant where the other partner has the required UK status - if both members of a couple are subject to immigration control, they are not entitled to tax credits.

The couple element (annual rate £1890 in 2010-11) will be removed from April 2010 in existing claims where it was previously in payment. The Revenue has undertaken to write to claimants affected by this change (estimated at around 2,500 in total), and to ‘write-off’ any related overpayments which may arise whilst the cases are being worked on. An identification process is being carried out with the Home Office to ensure that it finds, as far as is possible, all cases where the WTC entitlement is likely to be affected by the change. In some cases, the Revenue will write to the claimant to request further information before making a decision. The Revenue has confirmed that any related overpayments which arise between 6 April 2010 and the date the awards are amended will be written-off.

• View the amending regulation 

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