CPAG in Scotland Tax Credits Project: Factsheet 11

Tax Credits – Reporting Changes of Circumstances

Tax credits – reporting changes of circumstances is one of a series of Child Poverty Action Group in Scotland leaflets giving guidance to advisers and those working with families in Scotland about aspects of the tax credit system of particular concern. Child Poverty Action Group promotes action for the prevention and relief of poverty among children and families with children.

The tax credit system
Changes which must be reported
Changes which should be reported when they happen
Changes in income
How to notify a change of circumstance
Further information and advice

The tax credit system
Tax credits are calculated on an annual basis and an award is made for the tax year (6 April to 5 April) or from the point that you claim up to the end of the tax year. For example, if you claim on 24 October, your award will be from 24 October up to 5 April of the following year. The award will be based on your circumstances at the time of the claim. If your circumstances then change, it may affect the amount of tax credits you are entitled to.

Some changes of circumstances must be reported to the Revenue within 1 month. Failure to report these can result in a penalty of £300 being applied. Other changes do not have to be reported until after the end of the tax year (in the annual review process), but it is advisable to do so to avoid being overpaid or underpaid. This leaflet explains which changes you must report and which you should report.

Changes which must be reported
The following changes must be reported to the Revenue within 1 month:

• You cease to be part of a couple or became part of a couple
  In this situation your claim stops and you must make a new claim.
• Your childcare costs stop or go down by £10 or more per week for 4 weeks in a row
  The obligation to report this change starts at the end of the 4 week period.
• You stop working at least 16 hours per week*
  If you have been working at least 16 hours per week and receiving tax credits you must tell the Revenue if your hours fall below 16 or you stop work. If you are claiming as a couple, have a child or children and you are both working at least 16 hours per week you may be getting help with childcare costs (the ‘childcare element’). If one partner’s hours fall below 16 per week you must inform the Revenue.
• You stop working at least 30 hours per week*
  If you have been working at least 30 hours per week and receiving tax credits you must tell the Revenue if your hours fall below 30. Couples with children must tell the Revenue if their combined working hours fall below 30.
• You stop ‘being responsible’ for a child or young person
  You are treated as responsible for a child or young person if they normally live with you. You stop being responsible for a child or young person if, for example, the child goes to live in another household.
• A young person dies or stops qualifying for support
  A young person who has reached 16 still qualifies for support in your tax credit claim in various situations, for example, if they are still in non-advanced education or in some types of training. They can, in certain situations, still be treated as a dependant up to the age of 20. You must tell the Revenue if a young person ceases to qualify for support. For example, if they leave school and start working, or leave school and go to university. For more details of when you can claim for a 16 to 19-year-old and when they stop qualifying for support, see CPAG in Scotland’s leaflet Parents claiming for young people in further education or training.
• You leave the UK permanently or for more than 8 (or sometimes 12) weeks
  The 12 week rule applies if the reason you have to leave the UK is that you are ill, or a member of your family is ill or has died.
• For child tax credit, you lose the right to reside in the UK

*In certain situations you count as still working your normal hours even though you are not actually at work, for example, if you are within the first 28 weeks of a period of sickness, or are on ordinary maternity leave. See the notes that go with the tax credit claim form (TC600 Notes How to complete your tax credits claim form).

Penalty – failure to report any of these changes within the time limit can result in a penalty of up to £300 as well as potentially causing an overpayment.

Time limit – the 1 month time limit for reporting a change runs from the date the change occurs or, except where the change is that a young person ceases to qualify for support, from the date you first become aware of the change – if that is later.

Changes which should be reported when they happen
There are many changes which may happen in the course of the tax year which you are not obliged to report to the Revenue but, nevertheless, you should do so. The sorts of changes which should be reported are those which affect the basic tax credits calculation. These are examples of this kind of change:

• You have a new baby, or a new child joins your household
• You, or a dependent child, are awarded a disability benefit, or cease to be entitled to a disability benefit
• You, or a dependent child, are registered blind, or cease to be registered blind
• An award of highest rate care component of DLA is made, or lost
• Childcare costs go up
• Your working hours increase from less than 30 to 30 or more per week

Although there will be no penalty applied if you don’t tell the Revenue about these sorts of changes, you run the risk of being underpaid or overpaid.

The risk of overpayment arises because if the change means that you are entitled to less tax credit, the effect will be backdated to the point the change occurred.

The risk of underpayment arises because if the change means that you are entitled to more tax credits it can only be backdated for 3 months from the date the change is reported.

Changes in income
When deciding how much tax credit you are entitled to the Revenue looks at either your income from the previous year or your income from the current year, depending on the following:

• If your current year’s income is lower than the previous year’s, your award is based on the current year’s income
• If your current year’s income is higher than the previous year’s, but not by more than £25,000, your award is based on the previous year’s income
• If your current year’s income is more than £25,000 higher than the previous year’s, your award is based on the current year’s income less £25,000

Usually during the course of the tax year your tax credit award is based on the previous year’s income. There is no obligation to tell the Revenue about increases or decreases in your income at the point they happen – during the annual review process, after the end of the tax year, a final assessment is made and any changes in income taken into account.

However, it is often a good idea to let the Revenue know immediately if your income changes.

Income goes down
If your income goes down in comparison to the previous year you may be due more tax credits. If you tell the Revenue at the point this happens your award will be adjusted. If you wait until the end of the tax year you will get any money owed to you as a lump sum. Some people may prefer to wait until the end of the tax year and receive a lump sum. This can be beneficial if you are in receipt of housing benefit/council tax benefit as these benefits are based on the amount of tax credits you actually receive.

Income goes up
If your income goes up by more than £25,000 in comparison with the previous year you should let the Revenue know as your award will then be based on your new, higher income (less £25,000).

If your income goes up, but by less than £25,000, it will not affect the current year’s award. However, it will start affecting your entitlement at the beginning of the next tax year and it is important that the Revenue is aware of your income by that stage to avoid the risk of overpayment.

If you have told the Revenue that your current year income is going to be lower than the previous year your award will be based on that information. If your income then turns out to be more than you thought (even if it is still lower than the previous year’s) you should let the Revenue know as soon as you can to avoid potential overpayment.

How to notify a change of circumstance
You can tell the Revenue about a change in your circumstances by writing, phoning or going into a Revenue Enquiry Centre. Writing is usually best because that way you can keep a copy of your letter as proof that you have advised the Revenue of the change.

Certain changes can be notified up to a week in advance. These are:

• You have accepted an offer of work and are going to start within a week
• There is going to be a change in your childcare costs of £10 or more per week
• You have arranged childcare

You can also notify in advance that your child will be staying on in non-advanced, full-time education or approved training beyond the time that tax credits for that child would normally stop, e.g. beyond 31 August following the child’s 16th birthday.

Further information and advice

CPAG in Scotland Tax Credits Project summary webpages

Child Poverty Action Group in Scotland
0141 552 0552 advice line for advisers on benefits and tax credits,
Monday, Tuesday, Wednesday and Thursday 10am to 12 noon

Email: advice@cpagscotland.org.uk
email advice for advisers on benefits and tax credits

Website: www.cpag.org.uk
for more tax credit leaflets from CPAG in Scotland

CPAG publishes the Welfare Benefits and Tax Credits Handbook, a comprehensive guide to benefits and tax credits for claimants and advisers.

CPAG in Scotland’s advice line is only for advisers. If you are having problems with your own tax credit or benefit claim and are in need of advice you should contact your citizens advice bureau or other local welfare rights service.

HM Revenue and Customs (formerly the Inland Revenue)
Tax Credit Helpline 0845 300 3900
(textphone 0845 300 3909)

For more information and guidance on changes you should report please see the Revenue’s checklist, Check your tax credits award (TC602(SN)) and the guidance How to complete your tax credits form (TC600 Notes). Both are available at www.hmrc.gov.uk

© Child Poverty Action Group, April 2008
CPAG in Scotland’s Tax Credit Project is funded by the Scottish Government.