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Summer 2003 Bulletin

  Recent Tax Changes

Tax Credits

TAX CREDITS

There are continuing problems with the new Child Tax Credit and Working Tax Credit, which are likely to have affected many clients, their families and employees. It is not clear whether these problems were caused by the Inland Revenue underestimating the volume of work involved, or by their failing to put in place sufficiently robust computer and administrative systems, but the outcome has certainly been long delays in dealing with some Tax Credit applications, even longer delays in responding to written enquiries, and a telephone ‘Helpline’ which is useless because it is permanently jammed with calls from other anxious enquirers.

This has inevitably affected the service we can provide for clients. Not only is it very difficult to chase up delayed claims, it is not unknown for the Revenue simply to return a Tax Credit application form, which has been fully completed, with the bald comment that it must be resubmitted ‘because you have not provided all the information requested’. What information is still required is not specified; it is of course impossible to get through to the ‘Helpline’; and letters are not answered promptly, if at all.

The Inland Revenue have attempted to solve the problems by recruiting 700 extra staff, but we hear that many of these are University students recruited to work evening shifts at the call centres, after only minimal training.

Very worryingly, it also appears that a high proportion of the Tax Credit payments made by the Inland Revenue (or authorised by them to be made by employers) are just plain wrong. Many Tax Credit Awards have been made for amounts which are much less, or much more, than the amount due. Even if a Tax Credit Award notice has been issued – and in many cases the Inland Revenue are now paying Tax Credits without issuing a formal Award – the notice simply states the amount payable, without showing how it was calculated, so it is difficult for claimants to check the figures and most will be unaware of any mistakes – unless the error is obvious just because it is so large.

If the Tax Credits paid are too low, the claimants may suffer hardship. If the payments are too high, claimants will have to pay the excess back – and so may suffer hardship later. It is therefore important that Awards are checked, so if you receive, or have received, a Tax Credit Award, or begin to receive payments, and are not sure that the figures are correct, please let us verify them for you.

Have you claimed for your beautiful baby?

There is a special ‘baby tax credit’ for families with a new baby. For the tax year 2002/03 it took the form of a £520 reduction in the parents’ income tax liability; from 6 April 2003 it takes the form of an addition to the Child Tax Credit.

It has been reported that two-thirds of eligible families have not claimed the tax reduction for 2002/03, possibly because it was not clearly signposted on the Tax Return form. The reduction is available if the baby was born between 6 April 2002 and 5 April 2003, both days inclusive. Because the income tax rules apply, claims may be made until 31 January 2009.

By contrast, the Tax Credit is an addition to the weekly or monthly Child Tax Credit payment, until the baby is a year old. Thus if the baby was born (say) on 1 January 2003, it will create a tax allowance for 2002/03 and a Tax Credit entitlement from 6 April to 31 December 2003. However, Tax Credit claims cannot be backdated for more than three months, so time is of the essence.

Pension Credit – the next disaster?

In theory, the new Pension Credit – which is to be administered by the Department for Work and Pensions (DWP), not the Inland Revenue – is to be introduced on 6 October 2003. But in practice, the DWP has already admitted that they will be unable to process applications from every eligible pensioner by that date. Instead, existing Minimum Income Guarantee (MIG) claimants will be transferred automatically to Pension Credit in October, and by September ‘claim packs’ will have been sent to approximately one-fifth of other pensioners. The remainder will be invited to claim later, under a rolling programme running through to June 2004, though their payments will then be backdated to October 2003.

The Pension Credit will be income-related. The rules are quite complex, but broadly speaking, some Credit will be due if a single pensioner’s income is less than £102.10 a week (age 60 to 64) or £139.10 (aged 65 or more); or a couple’s joint income is less than £155.80 (£203.80 if either is aged 65 or more). Higher limits apply where the claimant is severely disabled, or cares for a severely disabled person, or is still paying mortgage interest on his home. The Government estimates that nearly half of those aged 60 or more will qualify for some Pension Credit.

At present, a substantial number of older people with very small pensions do not qualify for the Minimum Income Guarantee, because MIG is not payable to people with savings of £12,000 or more. They may become entitled to worthwhile amounts of Pension Credit from October, because the capital cut-off will no longer apply. They need not wait until they receive their ‘claim packs’, as they can claim now by telephoning the DWP on 0800 99 1234 (8am to 8pm, Monday to Friday and 9am to 1pm Saturday). The call is free and the operator will take down details to complete a form, which will then be sent to the claimant for signature. When calling, the claimant will need to have to hand his or her National Insurance number, and that of any spouse or partner, and details of pensions, any current earnings, and any savings or investments.

Tax Refunds

Although the Inland Revenue are having trouble paying out Tax Credits, they are continuing to improve the collection side of their operations. Their computer system will now block an income tax repayment if there are unpaid Class 2 National Insurance contributions. This can have the effect of delaying a tax repayment that is far larger than the outstanding Class 2 contributions and so is another reason for keeping Class 2 contributions up-to-date, preferably by using the Direct Debit facility.

We understand that it is also their intention to block tax repayments where Tax Credits have been overpaid. Tax Credit overpayments may also be clawed back from future Tax Credit awards, or through the PAYE system.

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Recent Tax Changes