Client had 05-06 childcare cost of £15.75 per week (average over 52 weeks) included in her WTC. Her childcare costs reduced in September making a new average for 05-06 of £10.63 per week. Client has had major problems with TCO in the past and did not want to run the risk of any overpayment so she rang to tell them about the reduction and ask them to amend her award. She was told they cannot amend childcare on the system unless the change is in excess of £10 per week and that nothing needs to be done until the year end. She was given the impression that this reduction in the cost will not affect her award for this tax year. If this is the case it appears that any change in childcare costs (up or down) of less than £10 per week does not alter current year awards. Is this correct, or will she find at the year end that an overpayment has occurred? (I'm sure there should be a simple answer to this, but can't find it!)

Hi Derek,

Here is Reg 16 of WTC (EMR) Regs...

"Change of circumstances

(1) There is a relevant change in circumstances if -

(a) there is any change in the child care provided during the period of an award; or

(b) the relevant child care charges -

(i) exceed the average weekly charge calculated in accordance with regulation 15 by £10 a week or more;

(ii) are less than the average weekly charge calculated in accordance with regulation 15 by £10 a week or more; or

(iii) are nil.

If there is a relevant change in circumstances, the amount of the child care element of working tax credit shall be recalculated with effect from the specified date."

So any other changes will not spark a re-calculation.

But I share your confusion...

1) The reg says when a change must prompt a re-calculation. What stops the HMRC from doing it outside this reg if they want to be nice?

2) If any other change is ignored, what happens at reconcilliation? Looking at child care element as any other element, if a change increasing the max TC is not reported immediately (as would in this case), there is potential for up to 3 months arrears courtesy of s15 of the Act. Not sure this leaves us!

My feeling is that changes to child care cost liability of more or less than £10.00pw for 4 weeks or more means the TC award does not increase/decrease, and that this will not be resolved at reconcilliation, so no underpayment/overpayment. Tough for some, and joy for others. What do you think?

Steve

Steve

Many thanks. I've now looked at the Regs. and feel the Explanatory Note at the end helps (with the caveat of course that the Notes are not actually part of the Regs.):

"Reg. 15 prescribes the method of calculating the amount of relevant child care charges, and Reg. 16 the situations in which a change of circumstances gives rise to a recalculation of the child care element." The clear implication is that recalculation does not take place unless a change within Reg. 16 has occurred.

What I have not found is anything that specifically says that an award cannot change unless there is a "relevant change in circumstances", but I think the Note is quite clear and I agree with your final para.

A final thought. If we are right, shouldn't this reality be notified to any national childminding body or bodies, so that members be advised of the perils of putting up costs of less than £10.00pw? I suppose that the HMRC might be sensitive to policy based increase advice though - the whiff of fraud?

Steve