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tax credit system
The Tax Credit System
Added: 22 June 2007
updated : 4 January 2008
Introduction
This guide to Tax Credits will set out the background to the system, explain the process and entitlement and the common problems that are encountered.
The information used in this guide is written from experience of MPs' staff dealing with the Tax Credit system; if you have any further information that you would like to add or if you see something here that is wrong or needs updating let us know, using the Feedback Form. Bear in mind that this guide is written in June 2007 and may not take account of subsequent changes.
We are unable to answer detailed questions about the working of the Tax Credit Office (TCO). If you work for an MP and need specific advice about casework you are handling, use our List of MP's Hotlines to contact their helpline.
Index (click on the section you want):
- Jargon
- Background to system
- Entitlement rules
- Stages of the process
- Your role
- Common problems
- Further help
- Useful websites
Tax Credits
These are payments made to give extra financial support for everyday costs. The amounts change depending on lifestyle (e.g. Changes to salary, working hours, childcare costs).
Child Tax Credits (CTC)
Created to support families or individuals with responsibility for looking after a child. Payments are made in addition to Child Benefit. The customer does not have to be working in order to be entitled to CTC. They may still be entitled to claim even if they only have part-time care of a child. However, CTC can be paid to only one of the parents, not both. It is usually paid to the parent who is in receipt of the Child Benefit.
Working Tax Credits (WTC)
Additional financial support for workers on a low income (even without children).
The Tax Credit system was introduced in 2003 to encourage low income families off benefits and into work. It was intended to help six million families, but initial problems with the IT system, and other complications in the process, have caused nearly half of these families to be either over or under paid.
The Inland Revenue has now made assurances that these initial IT problems were ‘teething errors’ which would be resolved as staff became more experienced in operating the new system, and as both they and customers became familiar with the new rules.
The initial IT system failures left a lot of customers not receiving automated payments and the Inland Revenue having to make manual giro payments. This caused a lot of subsequent errors when automated payments restarted and led to a lot of overpayments. These giro-related problems do now seem to have passed but can sometimes still be in the background of an overpayments case.
The majority of problems arising now appear to have two key origins:
- The design of the tax credits system itself. Awards are annual and the system has an element of financial uncertainty built into it, sometimes causing significant problems for people who have to plan carefully to manage their family budgets;
- The delivery of tax credits has been designed to be wholly IT based and does not take proper account of the needs of customers.
Child Tax Credits
In order to receive CTC, the claimant does not necessarily have to be a parent, but must be over 16 years of age and must have main responsibility for:
- a child under 16 years, or
- a child aged from 16 but under 20 in full-time education, or
- a child aged 16-17, not in full-time education, but that works less than 24 hours a week
Entitlement depends on other factors such as income, number of children living with you, and if any of the children have disabilities.
Lone parents must work 16 hours a week or more. Claimants in a couple must both work 16 hours a week or more, unless one partner is incapacitated, an in-patient in hospital, or in prison (whether serving a custodial sentence or remanded in custody awaiting trial or sentence).
The amount of the entitlement will depend upon income and whether either they or their children have disabilities. There are two elements to this award:
- Family element (must have at least one child) up to £545 per annum (07/08 tax year)
- Child element (amount paid per child in family) up to £1845 per annum (07/08 tax year)
Civil partners who have joint responsibility for a child should claim as though they are married.
Receipt of Child Tax Credit will not affect a claimant’s Child Benefit.
Child care element for any child can be claimed up to 1 September following his or her 15th birthday, or 1 September following their 16th birthday if the child is registered blind or has been taken off the blind register in the 28 weeks before the date of claim, or if the claimant receives Disability Living Allowance for the child.
Child Care
The child care must be provided by one of the following:
- Registered childminders, nurseries and playschemes.
- Out-of-hours clubs run by a school on the school premises or by a local authority.
- Childcare schemes run by approved providers, for example, an out-of-school-hours scheme.
- A provider approved under a Ministry of Defence accreditation scheme abroad.
- An approved foster carer. (The care must be for a child who is not a foster carer's foster child.)
- In England only, a childcarer who is approved by Ofsted to care for a child or children in the claimant’s own home.
- In England only, a childcarer approved under the Childcare Approval Scheme.
- In England and Wales only, childcare provided in the claimant’s own home by a domiciliary worker or nurse from a registered agency.
Childcare will not be eligible care for help within the Working Tax Credit childcare element if it is provided by:
- a relative of a child caring for that child in the child's home even if the relative is registered or approved, or
- a childcarer approved under the Childcare Approval Scheme, who is caring for a child, or children, away from the child’s, or children's, home and who is only caring for a child, or children, to whom he or she is related.
A relative of the child means a parent, grandparent, aunt, uncle, brother or sister whether by blood, half-blood, marriage or affinity.
Childcare costs cannot be claimed if the carer is not registered or approved.
Working Tax Credit
In order to be entitled to WTC the customer must:
- be aged 25 or above (if they have no children, or do not have a disability), and work 30 hours or more a week
OR
- be aged 16 or above, with at least one child, and work 16 or more hours a week, or
- be aged 16 or above, work 16 or more hours a week, and have a disability that puts them at a disadvantage of getting a job, or
- be aged 50 or above and are returning to work after a period of receiving one of the qualifying out-of-work benefits (Income Support, Jobseeker's Allowance, Incapacity Benefit, Severe Disablement Allowance, State Pension Credit or a training allowance paid while they were undertaking government-run training such as Work-based Learning for Adults or Training for Work.).
The amount of WTC they are entitled to depend on various elements including income, disability and childcare costs.
Initial Application
Claim packs can be requested from the Tax Credit helpline on 0845 300 3900. Initial applications must be made by post but any subsequent changes can be made over the telephone. However, given that many claimants have had problems with changes not being made in accordance with their instructions, it is advisable that all changes be confirmed in writing.
The information that customers are asked to provide is based on their current employment details and the income they have earned, or benefits received, over the previous financial year.
Award Notice
Following the initial application, or at the end of each tax year, an award notice is sent which details their estimated entitlement for the forthcoming year. The figure is based on information they have provided about their personal circumstances and it is imperative that the customer checks what is on this notice. As the initial application forms are often ‘computer-read’, mistakes are made and incorrect information is often submitted on their file.
The claimant must check the award notice thoroughly and sign it to confirm that the contents are correct. A new award notice will also be sent each time customers advise the Tax Credit Office of a change in their circumstances.
Annual Declaration
This form is sent at the end of every tax year. It allows customers to provide their exact earning details for the previous year (from P60) as opposed to the estimated ones that their entitlement was based on.
The information on this form is used to calculate the final award and whether the customer has been over or under paid. The details will then be used as the basis for their claim the following year.
When a constituent comes to an MP about problems they are having with the Tax Credit Office it is usually because they are not being given the information they have requested and, more often than not, this relates to overpayments.
For those cases where overpayments are not an issue, and where your constituent has had problems either changing personal details or making a claim to begin with, a letter from an MP will often get the reply or details they needed and can be dealt with quite easily.
However with over a million overpayments each year, it is likely that this is the reason for your involvement. It is very easy to listen to a constituent’s case and agree that it was the TCO’s fault that this occurred and that they should not have to repay the overpayment, but there is a Code of Practice which sets out when an overpayment will not need to be repaid:
- If it was caused by their (TCO) mistake, and
- the customer could reasonably have thought their payments were right
This would mean, for example, if a customer submitted their application form and started receiving payments and then realised that on the award notice they had the wrong income details therefore they were receiving more money than they were entitled to, this would make them liable for the overpayment. Even if they had contacted the TCO on numerous occasions, by phone and letter, trying to stop this, they would still be liable. By receiving the money in their bank accounts and knowing that it is too much means that your constituent must pay it back.
If your constituent finds themselves in this position the best advice to give them would be not to spend the money that they are not entitled to. This means that eventually when the TCO come to ask for the money back (which won’t be until the end of the tax year) they have it sitting to one side and have earned interest on it in the meantime.
Another example is for a joint claim, if one person moves out and the other doesn’t inform the TCO immediately, they are then liable. If they do not notice their payments changing accordingly then they are assumed to ‘reasonably know’ that they are not entitled to that money.
When writing to the TCO, if you are making a complaint rather than just asking for information, it is very important that you put the heading ‘Official Complaint’ on your letter. This will may improve the chances that the TCO does actually register it as a complaint and not an enquiry.
If the claimant is unhappy with the TCO’s response to their complaints, the case may then be referred up to The Adjudicator’s Office. However, the Adjudicator’s Office will not investigate any cases where an official complaint to the TCO has not been made, nor will the Adjudicator’s Office investigate any complaints which are currently being investigated by, or have already been investigated by the Parliamentary Commissioner for Administration (also known as the Parliamentary Ombudsman). For more on this see Section 7 (Further Help) below.
Finding out how the overpayment occurred is often the biggest problem. Regardless of whether or not it needs overpaying, the constituent will want to know how much they owe and how it happened. A simple letter to the Tax Credit Office asking for an explanation of how it occurred is a good first step.
Inevitably the reply will be brief and simple as they have a range of ‘standard sentences’ that they can use. You then need to write back querying specific points e.g. the exact amount of the overpayment or the dates of telephone calls or recordings of conversations. This second letter will be passed to a ‘tier 2’ section who have more authority to release information. This process can be repeated if further information is needed up to ‘tier 3’.
If necessary, you can ask HMRC to supply you with copies of all of the documentation relating to a particular claimant, including the original application forms and even transcripts of telephone conversations (although these are usually sent separately, on a CD-ROM).
If these have all been exhausted and the information is still not forthcoming asking your Member to put a phone call through to Richard Summersgill, the Director of the Tax Credits Office, who can help things along. After many phone calls and Parliamentary Questions trying to establish why he doesn’t take phone calls all TCO staff have been issued with guidelines that they can put MPs through to his office; so it is worth persevering even if you get stopped by the first set of gate-keepers.
The TCO MPs' hotline is another useful resource, especially if you have a simple query which does not require a written response. However, they are also able to help with more detailed enquiries, if you are able to provide them with sufficient information about the case. However, if the constituent is vague about how a problem with their claim has occurred, these queries are more difficult to untangle and may result in 'telephone ping-pong', where you have to keep phoning the Constituent to ask them further questions.
Another common problem is being given conflicting advice, either in writing, by telephone or information previously given to a constituent. This is an issue we are told is being improved and arises because of the complexity of cases and that problems usually occur for many reasons. It is another reason why putting things in writing is often best practice.
As mentioned earlier, if you have exhausted all avenues trying to resolve your constituents Tax Credit problem then there are further routes to try:
The Adjudicator’s Office
The Adjudicator, Dame Barbara Mills QC, acts as a fair and unbiased referee, investigating complaints about various organisations after their own efforts to resolve matters have failed.
They investigate complaints about the organisations and compare what they have done against their own published standards and Codes of Practice. They look to ensure that, during their handling of your affairs, the organisations have followed their standards and instructions fairly and consistently.
The Parliamentary and Health Service Ombudsman
The Parliamentary Ombudsman can carry out independent investigations into complaints about government departments, agencies and some public bodies.
The Ombudsman will consider each complaint and whether or not they can investigate it. If an investigation is to take place then the Ombudsman’s staff can look through Tax Credit files and interview staff about the case.
Owing to the high number of complaints about Tax Credits, the Ombudsman will not consider a case unless it has been investigated by the Adjudicator's Office first.
Useful Addresses
Parliamentary Correspondence -Customer Support Unit
Tax Credit Office, Preston, PR1 0SB
Data Protection Subject Access Unit
Room BP 4302, Benton Park View, Longbenton, Newcastle Upon Tyne NE98 1ZZ
The Adjudicator's Office
6th Floor, Haymarket House, 28 Haymarket, London SW1Y 4SP
www.adjudicatorsoffice.gov.uk
Tax Credit Office
www.hmrc.gov.uk/menus/credits.htm
Provides basic information on entitlement, how to make an application and
details about your renewal
Direct Government
www.direct.gov.uk
Provides more detailed information about the Tax Credit system and includes
copies of their help leaflets
Treasury
www.hmrc.gov.uk
Policy information
Details of how to make a complaint and what they can to do help
Parliamentary Ombudsman www.ombudsman.org.uk
SG June 2007
Further information on Entitlement Rules (this section is part of Section 3 - Entitlement Rules)
Maternity Leave
Women are entitled to continue to receive Working Tax Credit for the 26 week period of maternity leave, whether or not they are in receipt of Statutory Maternity Pay or Maternity Allowance. However, if they do not return to work after the 26 week period is up, they will no longer be entitled to WTC until they return to work.
Disability Worker Element of Working Tax Credit
The Disabled Worker Element of WTC is available to those who usually work at least 16 hours a week and have a physical or mental disability which puts them at a disadvantage in getting a job, so long as they satisfy either the 'qualifying benefit' test or the special 'fast-track' rules.
If a couple claim WTC together and both are working more than 16 hours per week, and both are entitled to the disability element, they may receive two disability elements. Further information on the disabilities included in this element can be found on the HMRC (her Majesty’s Revenue & Customs) website : http://www.hmrc.gov.uk
The ‘qualifying benefits’ are:
- Disability Living Allowance
- Attendance Allowance
- Industrial Injuries Disablement Benefit (with Constant Attendance Allowance for the claimant)
- War Disablement Pension (with Constant Attendance Allowance or Mobility Supplement for the claimant)
- A vehicle provided under the Invalid Vehicle Scheme.
Alternatively, the claimant must have received one of the following benefits in the six months prior to applying for WTC:
- Incapacity Benefit at the short-term higher rate or the long-term rate
- income-based Jobseeker's Allowance*
- Income Support*
- Severe Disablement Allowance
- Council Tax Benefit*
- Housing Benefit*.
*This must include a Disability Premium or a Higher Pensioner Premium for the claimant.
If the claimant has been engaged in Government-run, work-related training for more than 16 hours per week, they may also be considered to satisfy the 'qualifying benefit' test.
'Fast-track' rules
To qualify for the disability element of Working Tax Credit via the 'fast-track' rules, claimants must have been getting one or more of the following for 20 weeks or more, provided that the last day of receipt was in the last eight weeks:
- Statutory Sick Pay
- Occupational Sick Pay
- Incapacity Benefit at the short-term lower rate
- Income Support paid because of incapacity for work.
- National Insurance credits awarded because of incapacity for work.
Severe disability element
If the claimant or the claimant’s partner (if they are claiming as a couple) get Disability Living Allowance (Highest Rate Care Component) or Attendance Allowance (Higher Rate), they can get the severe disability element.
They do not have to be working to qualify for the severe disability element as long as their partner does. If they both qualify, they will get two severe disability elements.
Return to Section 3 - Entitlement Rules
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