Tightening deadlines for tax credit claimants

People who receive child and working tax credits will have to report more changes in circumstances from November. Claimants will now have to tell HM Revenue & Customs (HMRC) within three months if:

they were working 30 hours or more a week and now they are working less, or

they were working between 16 and 30 hours a week and are now working less than 16, or

they cease to be responsible for a child or young person, or

a child or young person no longer qualifies for support.

Other changes they will have to report include starting to live with a new partner, separating from a partner and incurring reduced childcare costs.

From April 2007, the time limit for reporting changes to HMRC will fall to one month.

These rule changes are part of a package to persuade claimants to report promptly any changes that affect the level of their tax credits award. A further encouragement is that if an award is reduced during the year as a result of a change that the claimant reports, from November 2006 HMRC will apply an automatic limit on the recovery of excess amounts already paid. This will reduce the effect of the change on continuing payments in that year.

Another change from April 2007 is aimed at preventing some overpayments. Where claimants report a fall in income during the year, their tax credits during the rest of the year will increase to reflect the lower income, but they will no longer receive a one-off payment for the earlier part of the year. If it turns out that they are entitled to more money, they will get it after the end of the year.

Overpayments of tax credits by HMRC continue to be a major problem. After writing off many overpayments in 2005, HMRC appears to have clamped down this year even in cases where errors were the Revenue’s fault. The Revenue argues that claimants should have spotted the mistakes. Figures released in July showed a loss of £1.74 billion through a combination of overpayments, errors and fraud.

The Revenue’s online tax credits claim facility remains closed following the discovery of its fraudulent use, although HMRC has relaunched the ‘Do I qualify?’ section and updated the frequently asked questions.

Tax credits are available to families with income below around £58,000 and in some cases where income is higher.