Here's something that's been worrying me in the last few weeks of teaching a new "Tax Credits Complexities" course...

The received view is that IS entitlement passports you onto maximum TCs. Instead, it is more accurate to say that in a period when you receive IS you are not subject to the income test when claiming tax credits (see TCA s7(2)). That amounts to a passport if you're on IS all year.

But what if: you're on IS together with, say, part-time earnings, for part of the tax year, then go off IS for the rest of the tax year, eg into full-time work. Whilst on IS you get max CTC, all well and good. But come the end of the year, won't the IR assess your current year income by looking at all countable income? It seems to me they can, and will then include the part-time earnings you received whilst on IS. I can't see anything that excludes such income from the definition of current year income. And yet this undermines the s7(2) principle that IS recipients should get max TC. So, should those part-time earnings whilst on IS count as income or not? Is there something in s7 and/or the TC (DCI) Regs that I've missed?

A further issue which suggests those p/t earnings are ultimately counted is that a change from being on IS to not being on IS won't always trigger a fresh relevant period. Mostly it will, such as moving in and out of work. But a single parent, say, who goes off IS because of receiving an increased amount of maintenance, remains in the same relevant period. That makes it impossible to distinguish between the TC calculation made whilst on IS and that made whilst not on IS. Yet s7(2) appears to require different calculations in those 2 circs. So how can it be the case that whilst on IS someone is not subject to the income test?

Hope someone can help un-confuse me on this one!

Hi

The IR will look at a persons total income for last year to assess his/her claim for tax credits for current year, however if the perosn knows that there has been a change in his circmstances and his income will be greater or less than what he had previously he can inform the Ir of this and they can make the adjustment this tax year without carrying it forward into next year.

Yes that's right. But you're dealing with s16 (revised award decisions); the point I was making relates to entitlement decisions and the treatment of income under s7. How will IR treat countable income whilst on IS (eg part-time wages) when they calculate current year income at the end of the tax year in question, in order to finalise a person's entitlement for that year. Is it disregarded, because claimant was on IS, or counted, because nothing seems to explicitly prevent this?

I'm moving towards the view that such income shouldn't count, on the grounds that whilst on income support s7 is disapplied completely.

-John

I'm not sure you're right...

s7(3)-(6) TCA and the DCI regs tell you how to arrive at an (annual) income figure for tax credits; there is nothing here which allows you to disregard TC countable income received just because a IS/IBJSA/PC is payable.

Where s7(2) applies, TCs are calculated without reference to the income - this is not the same as saying that income received whilst s7(2) applies is not taken into account when calculating income for those parts of the year where s7(2) doesn't apply.

So I think that TC countable income received whilst on IS/IBJSA/PC (e.g. part time earnings) can in some cases reduce TC due for those parts of the year where IS/IBJSA/PC is not payable.

But i would be interested to know what other people think too.

I agree as the IR want a total income figure not just your benefit income figure for the whole tax year and if one was working and claiming and there is going to be £2500 difference in income then you should inform the IR immediately as a change of circumstances and they will effect the increase/decrease in TC straight away else you can defer this change till end of tax year and they will base the new award on the total income you receive/earned for that year.