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Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising...

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Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”. Housing Benefit and tax credits
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Page 1: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Tax Credit Update

Migration to Child Tax Credit for IS and JSA claimants by April 2006

Finalising awards for 2003/4 and Renewals

Overpayments and “eliminations”.

Housing Benefit and tax credits

Migration to Child Tax Credit for IS and JSA claimants by April 2006

Finalising awards for 2003/4 and Renewals

Overpayments and “eliminations”.

Housing Benefit and tax credits

Page 2: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Migration from Income Support/JSA

Child personal allowances and premiums will have disappeared from Income Support/JSA by April 2006

They have already gone for over 60s on Pension Credit. They will remain as part of HB/CTB

Child personal allowances and premiums will have disappeared from Income Support/JSA by April 2006

They have already gone for over 60s on Pension Credit. They will remain as part of HB/CTB

Claiming CTC while on IS/JSA

In 2003/4, IS/JSA claimants who claimed CTC had the normal applicable amount. CTC counted as income.

From April 2004, their IS/JSA became “adult only”. CTC is now ignored as income.

Claiming CTC while on IS/JSA

In 2003/4, IS/JSA claimants who claimed CTC had the normal applicable amount. CTC counted as income.

From April 2004, their IS/JSA became “adult only”. CTC is now ignored as income.

Page 3: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

What happens now?

New IS/JSA claimants with children claim CTC for the children and receive “adult-only” IS/JSA.

Existing IS/JSA claimants who have not yet claimed CTC carry on with “adult and child” applicable amounts

At some point in next year they will be contacted by Inland Revenue and notified when CTC will start. Their iS/JSA will then become “adult only”

This process has been delayed – new aim is for process to be completed by April 2006.

What happens now?

New IS/JSA claimants with children claim CTC for the children and receive “adult-only” IS/JSA.

Existing IS/JSA claimants who have not yet claimed CTC carry on with “adult and child” applicable amounts

At some point in next year they will be contacted by Inland Revenue and notified when CTC will start. Their iS/JSA will then become “adult only”

This process has been delayed – new aim is for process to be completed by April 2006.

Migration from Income Support/JSA

Page 4: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Old versus new system

On switching to CTC: Income Support…£

25.65 (Applicable amount: adult

£55.65 less maintenance)

Child Benefit…… £ 27.55

Maintenance…….£ 30.00

Maximum CTC….£125.93

(Family element £10.50+ Baby addition £10.50 + 2 child @£31.22 + disabled child £42.49 _________

Total Income £209.13

On switching to CTC: Income Support…£

25.65 (Applicable amount: adult

£55.65 less maintenance)

Child Benefit…… £ 27.55

Maintenance…….£ 30.00

Maximum CTC….£125.93

(Family element £10.50+ Baby addition £10.50 + 2 child @£31.22 + disabled child £42.49 _________

Total Income £209.13

Old system (from April 2004):

Income Support……£ 151.58

Applicable Amount: Adult £55.65 + 2 child@£42.27 + Family Premium £15.95 + Disabled Child Premium £42.49 = £198.63

less Child Benefit (after baby disregard) and maintenance

Child Benefit………£ 27.55

Maintenance…….. £ 30.00

Total Income £209.13

Old system (from April 2004):

Income Support……£ 151.58

Applicable Amount: Adult £55.65 + 2 child@£42.27 + Family Premium £15.95 + Disabled Child Premium £42.49 = £198.63

less Child Benefit (after baby disregard) and maintenance

Child Benefit………£ 27.55

Maintenance…….. £ 30.00

Total Income £209.13

Angharad is a lone parent with two kids (one aged 6 - on DLA - one aged 6 months). She gets Income Support, Child Benefit and £30 maintenance.

Angharad is a lone parent with two kids (one aged 6 - on DLA - one aged 6 months). She gets Income Support, Child Benefit and £30 maintenance.

Page 5: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Effects for Angharad

Angharad is no longer obliged to authorise CSA to act.

Angharad is no longer obliged to authorise CSA to act.

Angharad’s income rises to £209.13 from £171.20 in 2002 –3 as a result of: The extra £10.50 baby addition A general above inflation increase in

amounts for children – an extra £27.43 since 2002/3

Angharad’s income rises to £209.13 from £171.20 in 2002 –3 as a result of: The extra £10.50 baby addition A general above inflation increase in

amounts for children – an extra £27.43 since 2002/3

Maintenance still counts as income against “adult only” IS/JSA, although all other child income is ignored.

Maintenance still counts as income against “adult only” IS/JSA, although all other child income is ignored.

Page 6: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Angharad’s “adult only” Income Support is £25.65.

If Angharad started to claim Incapacity Benefit (£55.90) – her IS would cease on switching to the new system.

Floating off Income Support

She would gain by The difference between her IB and IS

(£30.45) keeping all her maintenance (£30.00)

She would lose by: a fall off in any HB/CTB – up to 85% of

her gains (after a £15 maintenance disregard) -

losing access to discretionary Social Fund

Page 7: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

CTC take-up opportunities

Many people – whether on IS or not – may not be affected by complications of tax credit assessment.

Will get maximum CTC as income well below £258 a week.

Many people – whether on IS or not – may not be affected by complications of tax credit assessment.

Will get maximum CTC as income well below £258 a week.

A couple on Incapacity Benefit of £147.00, Child Benefit £27.55 and a works pension of £80 are well over their Income Support level, even after a DLA claim for one of the children.

They can now get maximum CTC of £107.90

A couple on Incapacity Benefit of £147.00, Child Benefit £27.55 and a works pension of £80 are well over their Income Support level, even after a DLA claim for one of the children.

They can now get maximum CTC of £107.90

Page 8: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

CTC take-up opportunities Grandparents on a retirement income of

£250 a week couldn’t get any more than £16 Child Benefit and £9.90 child addition to Retirement Pension

They can now get £41.72 Child Tax Credit.

Grandparents on a retirement income of £250 a week couldn’t get any more than £16 Child Benefit and £9.90 child addition to Retirement Pension

They can now get £41.72 Child Tax Credit.

A lone parent student could only get Income Support during Summer (due to grant/loan income)

Can now get maximum CTC of £41.72 all year.

A lone parent student could only get Income Support during Summer (due to grant/loan income)

Can now get maximum CTC of £41.72 all year.

An ex-miner still had £10,000 of redundancy so couldn’t get IS, despite low income and 3 kids

Can now get £104.16 maximum CTC.

An ex-miner still had £10,000 of redundancy so couldn’t get IS, despite low income and 3 kids

Can now get £104.16 maximum CTC.

Page 9: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Protective claims

Some people may feel they won’t get anything now, but might be advised to make a “protective claim” – if any doubt about future circumstances

They might well get a nil “provisional award” now

Some people may feel they won’t get anything now, but might be advised to make a “protective claim” – if any doubt about future circumstances

They might well get a nil “provisional award” now

But if income changes by end of the year they can have the nil award revised.

New calculation will include all elements for the year.

If they leave claiming until it happens, tax credits will only go back 3 months.

But if income changes by end of the year they can have the nil award revised.

New calculation will include all elements for the year.

If they leave claiming until it happens, tax credits will only go back 3 months.

Page 10: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Renewing your claim

From 5th April 2004:

“provisional” awards for 2004/5 are made, continuing old award at 2003/4 rates. Any reductions to eliminate likely overpayments cease

From 5th April 2004:

“provisional” awards for 2004/5 are made, continuing old award at 2003/4 rates. Any reductions to eliminate likely overpayments cease

Between April and July 2004,

renewal forms go out: Annual Review Form (TC603R) to all

claimants – may or may not need to be returned

Annual Declaration Form (TC603D) to some claimants which must be returned by 30/9/04

Between April and July 2004,

renewal forms go out: Annual Review Form (TC603R) to all

claimants – may or may not need to be returned

Annual Declaration Form (TC603D) to some claimants which must be returned by 30/9/04

Page 11: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Renewing your claim

IR will then check your actual income in 2003/4 and:

confirm a final award for 2003/4, andan ongoing award for 2004/5 at the new

rates, (backdating the difference to April 2004)

IR will then check your actual income in 2003/4 and:

confirm a final award for 2003/4, andan ongoing award for 2004/5 at the new

rates, (backdating the difference to April 2004)

Time limits

First limit September 2004: If forms not returned, all payments stopped, but can then be fully backdated

Final limit 31st January 2005: if not returned, claim ceases. All payments since April 2004 are recoverable. Can make a new claim, but can only only backdates 3 months.

Time limits

First limit September 2004: If forms not returned, all payments stopped, but can then be fully backdated

Final limit 31st January 2005: if not returned, claim ceases. All payments since April 2004 are recoverable. Can make a new claim, but can only only backdates 3 months.

Page 12: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Overpayment of the new Tax Credits

Tax credits lead to routine under and over payments, as award not finalised until end of year reconciliation completed. Underpayments lead to a nice arrears

cheque. Overpayments are recovered by

reduction of future tax credits, adjustment of income tax code or a payment demand.

Couples are jointly liable for overpayments, whether WTC or CTC, whoever it was paid to.

Tax credits lead to routine under and over payments, as award not finalised until end of year reconciliation completed. Underpayments lead to a nice arrears

cheque. Overpayments are recovered by

reduction of future tax credits, adjustment of income tax code or a payment demand.

Couples are jointly liable for overpayments, whether WTC or CTC, whoever it was paid to.

Page 13: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Recoverability of Overpayment

Overpayments are routine for IR rather than exceptional (as in DWP)

No appeals. Are generally recoverable unless IR accepts “official error” or “hardship”

Overpayments are routine for IR rather than exceptional (as in DWP)

No appeals. Are generally recoverable unless IR accepts “official error” or “hardship”

“Official error” – caused by the Inland Revenue and you could not have reasonably known that you were being overpaid at the time

“Hardship” – looking at income, expenditure, inability to afford essentials, savings, incapacity or disability, children under 5, time to repay, other debts to IR, previous payment history

“Official error” – caused by the Inland Revenue and you could not have reasonably known that you were being overpaid at the time

“Hardship” – looking at income, expenditure, inability to afford essentials, savings, incapacity or disability, children under 5, time to repay, other debts to IR, previous payment history

Page 14: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Rate of recovery

Payments are recovered at a rate of:

10% of tax credits if on maximum award

100% if entitled to CTC family element only.

25% of next years award in all other cases

Payments are recovered at a rate of:

10% of tax credits if on maximum award

100% if entitled to CTC family element only.

25% of next years award in all other cases

Page 15: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

In-year eliminations of overpayments.

If IR suspect an overpayment could arise they can act to recover the likely overpayment by the end of the current year. This could mean severe cuts or stopping of tax credits.

IR can make additional payments for hardship if asked:

90% if on IS/JSA and 75% if award of tax credit includes a

disability element or maximum WTC or maximum CTC (without any WTC)

50% in other cases These payments will be recovered next year as

part of any overpayment recovery.

If IR suspect an overpayment could arise they can act to recover the likely overpayment by the end of the current year. This could mean severe cuts or stopping of tax credits.

IR can make additional payments for hardship if asked:

90% if on IS/JSA and 75% if award of tax credit includes a

disability element or maximum WTC or maximum CTC (without any WTC)

50% in other cases These payments will be recovered next year as

part of any overpayment recovery.

Page 16: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

In-year eliminations of overpayments.

Eliminations have had effect of: By-passing issues of “official error”

recoverability Destabilising incomes and taking families

below IS level.

Eliminations have had effect of: By-passing issues of “official error”

recoverability Destabilising incomes and taking families

below IS level.

Page 17: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Housing Benefit and tax credits

Underpayments of Tax Credit

HB/CTB continue to be worked out weekly.

They will continue to have child personal allowances and premiums

HB/CTB has an extra Family Premium Baby Addition of £10.50, but counts Child benefit in full as income

Underpayments of Tax Credit

HB/CTB continue to be worked out weekly.

They will continue to have child personal allowances and premiums

HB/CTB has an extra Family Premium Baby Addition of £10.50, but counts Child benefit in full as income

WTC and CTC count in full as income – broadly the amount actually received each week, not any adjusted award

So can be worthwhile being underpaid tax credits during year to get more HB/CTB.

Page 18: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Housing Benefit and overpayments

Underpayments of Tax Credit

HB/CTB are based on actual tax credits paid in each benefit week. Arrears of tax credit do not retrospectively affect HB/CTB

So can be worthwhile being underpaid tax credits during year to get more HB/CTB.

Underpayments of Tax Credit

HB/CTB are based on actual tax credits paid in each benefit week. Arrears of tax credit do not retrospectively affect HB/CTB

So can be worthwhile being underpaid tax credits during year to get more HB/CTB.Overpayments of Tax Credit

Income for HB is the amount of WTC/CTC awarded less the amount of the deduction for previous overpayments.

Does not include additional payments e.g compensation or hardship payments .

Overpayments of Tax Credit

Income for HB is the amount of WTC/CTC awarded less the amount of the deduction for previous overpayments.

Does not include additional payments e.g compensation or hardship payments .

Page 19: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Changes in circumstances Awards are not fixed like the old tax credits.

Three different categories of changes: changes which end your award changes in entitlement to tax credit elements changes in income

Awards are not fixed like the old tax credits.

Three different categories of changes: changes which end your award changes in entitlement to tax credit elements changes in income

Changes which end your award

If a partner leaves or comes to live with you - make a new single or joint claim.

You get Working Tax Credit only and stop work

Your average childcare costs change by more than £10 a week.

Changes which end your award

If a partner leaves or comes to live with you - make a new single or joint claim.

You get Working Tax Credit only and stop work

Your average childcare costs change by more than £10 a week.

Page 20: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Changes that affect tax credit elements

Changes in entitlement to elements

The Inland Revenue work out your tax credits over a relevant period. If nothing changes in the year, the tax year will be your relevant period.

Anything which changes your entitlement to a tax credit element (e.g. a new child, an award of DLA etc) will trigger a new relevant period.

Your tax credit will then be recalculated according to the new elements.

Changes in entitlement to elements

The Inland Revenue work out your tax credits over a relevant period. If nothing changes in the year, the tax year will be your relevant period.

Anything which changes your entitlement to a tax credit element (e.g. a new child, an award of DLA etc) will trigger a new relevant period.

Your tax credit will then be recalculated according to the new elements.If you delay reporting these changes:

arrears can be backdated for up to 3 months.

any overpaid tax credit can be recovered.

Page 21: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Changes in relevant income (1)

If your income is less than last year, you will initially be underpaid tax credits.

Arrears can be backdated for the full 12 months.

If your income is less than last year, you will initially be underpaid tax credits.

Arrears can be backdated for the full 12 months.

Relevant income is income in the whole tax year, not income in any relevant period.

Initial awards are made using previous year’s income. Final awards (at year end) will still be based on previous year’s income, unless relevant income in current year has: gone up by more than £2,500 this

year fallen in the current year.

Relevant income is income in the whole tax year, not income in any relevant period.

Initial awards are made using previous year’s income. Final awards (at year end) will still be based on previous year’s income, unless relevant income in current year has: gone up by more than £2,500 this

year fallen in the current year.

Page 22: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Changes in relevant income (2)

If you have more than one relevant period in a year (because of a change in your entitlement to tax credit elements), then a separate tax credit calculation is made for each period

BUT relevant income is not income earned during each relevant period.

It is the proportion of the overall annual income (divided up according to the number of days in each relevant period).

This can make a big difference to tax credits during your first year of working or on moving to a higher paid job.

If you have more than one relevant period in a year (because of a change in your entitlement to tax credit elements), then a separate tax credit calculation is made for each period

BUT relevant income is not income earned during each relevant period.

It is the proportion of the overall annual income (divided up according to the number of days in each relevant period).

This can make a big difference to tax credits during your first year of working or on moving to a higher paid job.

Page 23: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

With income unchanged in year

Bethan Steadystate has been in work continuously for the last couple of years. So she has one relevant period. Her relevant annual income is £15,060 a year.

Bethans maximum tax credit will be reduced by 37% of her excess income: £15,060 -- £5,060 threshold = £10,000

Reduction is £3,700 over the year (c. £71 a week)

Bethan Steadystate has been in work continuously for the last couple of years. So she has one relevant period. Her relevant annual income is £15,060 a year.

Bethans maximum tax credit will be reduced by 37% of her excess income: £15,060 -- £5,060 threshold = £10,000

Reduction is £3,700 over the year (c. £71 a week)

Page 24: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Angharad Newdeal is offered an identical job, exactly midway through the tax year.

Her relevant income and reduction will be very different at first.

Angharad has two identical length relevant periods:

First 6 months on Income Support/CTC - when her income for tax credits was £0

Second 6 months on becoming entitled to elements of WTC – when her income will be half a year’s salary - £7,530.

With income changing during year

Page 25: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Changing income (2)

In 2005/6, Angharad will earn the same £15,060 as Bethan BUT the first £2,500 of increase from previous year is ignored – her relevant income will be £12,560 (or £249 pw). Angharad will get a reduction, but still £925 less than Bethan’s (£18 a week)

It is only in 2006/7 that relevant income catches up with actual earnings (assuming no pay increase in meantime!!)

In 2005/6, Angharad will earn the same £15,060 as Bethan BUT the first £2,500 of increase from previous year is ignored – her relevant income will be £12,560 (or £249 pw). Angharad will get a reduction, but still £925 less than Bethan’s (£18 a week)

It is only in 2006/7 that relevant income catches up with actual earnings (assuming no pay increase in meantime!!)

Angharads’ relevant income is based on her income over the whole year:

£0 (1st period) + £7,530 (2nd period) = £7,530

£7,530 -- first £2,500 of increase over last year = £5,030

So initially Angharad will qualify for maximum Tax Credit.

Her reduction from maximum tax credit is £71 less than Bethan’s

Angharads’ relevant income is based on her income over the whole year:

£0 (1st period) + £7,530 (2nd period) = £7,530

£7,530 -- first £2,500 of increase over last year = £5,030

So initially Angharad will qualify for maximum Tax Credit.

Her reduction from maximum tax credit is £71 less than Bethan’s

Page 26: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Protecting out of work benefits

Protecting incapacity rates Your rate of Incapacity Benefit and SDA are

protected for up to 2 years after starting work with WTC.

IS disability premium - for long term sickness - is not automatically protected beyond the basic 8 weeks but you may be eligible for the 52 week linking rule

The protection applies to the rates only and is not a guarantee that you will be accepted as unfit for work.)

Protecting incapacity rates Your rate of Incapacity Benefit and SDA are

protected for up to 2 years after starting work with WTC.

IS disability premium - for long term sickness - is not automatically protected beyond the basic 8 weeks but you may be eligible for the 52 week linking rule

The protection applies to the rates only and is not a guarantee that you will be accepted as unfit for work.)

A big issue for people on sickness or disability benefits. What if you have to give up work?A big issue for people on sickness or disability benefits. What if you have to give up work?

Page 27: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

52 week linking rule

This applies when:

Someone has been incapable of work for more than 196 days, and

They start work or training within one week of entitlement to their relevant benefit for incapacity ends.

They notify the DWP within one month of benefit ending that they have started work or training

Page 28: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

If these conditions are met, someone is classed as a ‘Welfare to work’ beneficiary

This lasts for a period of 52 weeks starting from the day after the last day of incapacity.

A letter should be received from the DWP stating when this protection will end.

Page 29: Tax Credit Update Migration to Child Tax Credit for IS and JSA claimants by April 2006 Finalising awards for 2003/4 and Renewals Overpayments and “eliminations”.

Disability Living Allowance DLA entitlement is not affected in law by capacity for work

BUT DLA have suspended awards pending investigation in case move to work indicative of reduced care/mobility needs. Reverse may well be true e.g. support to work.


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