Our childcare co-ordinator has just had a meeting with someone from our local authority concerning possible overpayments of the childcare element of working tax credit.

The scenario is as follows:

The DWP, Glasgow City Council and some other agencies have been giving money to some families to help them out with the cost of childcare until their tax credits come through. GCC is now trying to stop this by urging claimants to claim the childcare element from a different date to the rest of the award to prevent 'overpayments' occuring.

For example, client A starts working and claiming tax credits, including the childcare element, from 1 February. She is given a letter to take to her childcare provider by DWP to say they will pay the first month's childcare fees. Client is therefore expected to claim her WTC from 1st February but the childcare element only from 1st March. Glasgow City Council's lawyers are saying that if she claims childcare from 1st February this will amount to fraud.

As we all know trying to claim separate elements for separate time periods will just further confuse the IR. Plus, there isn't actually
any facility on the form to do so. I'm also not convinced that client would be committing fraud as I think her liability starts on the day she signs the childcare contract, ie 1st February.

Any legal minds out there who can clarify?

Thanks,

Lorraine

Under what powers are the DWP and the Council giving money to claimants for Childcare? Appreciate things are different in Scotland but only thing I can think of is council's giving money under S.17.

Not the same situation but there was a bit of a tiz in Leicester when Social Services were giving S.17 payments to families waiting for HB, there were difficulties getting interim payments. HB initially tried to claim that claimants weren't liable for rent during period covered by S.17 payments. This was quashed by Commissioner who said liability didn't stop just because payments were being made by someone else.

I think you are right about the liability starting when claimant signs the contract. However, might be worth looking into whether whatever the money they are being given counts as income when the final assessment is made, which may make a small difference in the long run.

Disclaimer; don't think I qualify as a 'legal mind' but gave it my best shot anyway...

Thanks for your reply, Andy.

I'm not sure under what powers Glasgow City Council is giving money but I can find out. DWP money is for lone parents from the adviser
discretionary fund. My organisation is a local economic development company and we have funds to help remove barriers into employment so we often pay childcare for clients until their tax credits come through. We don't ask for this back.

I thought of the income issue but decided that, as the money isn't given directly to the client but to the childcare provider, this should not prove to be a problem.

My main concern (as it always is with tax credits)is being unable to appeal against any future overpayment. Hopefully challenging any fraud allegation should be easier, especially given the commissioner's decision that you highlighted, so thanks for that.

Ah yeah, forgot about the ADF.

Not sure that just because paid to childcare provider would make any fifference but doesn't sound like any of the payments you refer to would be taxable so presume would still be disregarded.

My feeling is that claimant would still be liable for the childcare payments from day 1, so would be included in maximum tax Credit calculation. Worst case scenario that I can see is that the income you and ADF pay isn't disregarded and that it is added to the annual income over the year, which presumably would be less than the £2.5k buffer zone compared to previous year's income so no problem (unless there is other increase in income which has already taken this up).

I have to say the above is only based on a very quick look into things so please don't take it as definitely right!

Look at

The Working Tax Credit (Entitlement and Maximum Rate) Regulations 2002

14. -(1) For the purposes of section 12 of the Act charges incurred for child care are charges paid by the person, or in the case of a joint claim, by either or both of the persons, for child care provided for any child for whom the person, or at least one of the persons, is responsible.

In these Regulations, such charges are called "relevant child care charges".


As the client is not actually paying the carer then the childcare is not a relevant charge.

This means that when the clent starts paying it becomes a notifiable change of circumstance under The Tax Credits (Claims and Notifications) Regulations 2002, Reg 21 and the Tax Credits Act 2002, Section 32.

Fair point well made

Cheers, Gareth.

So one way round this would be for clients to accept money from whatever source and then pay it directly to the childcare provider?

That is likely to be treated as income of course.

You might want to consider The Tax Credits (Definition and Calculation of Income) Regulations 2002, Reg. 4(4),Table 1 (Item 15) which deals with vouchers that are payments disregarded in the calculation of employment income:

"15. A cash voucher, non-cash voucher or credit-token to the extent that it is used by the recipient for the provision of child care, the costs of which if borne by the recipient would be relevant child care charges within the meaning of regulation 14 of the Working Tax Credit (Entitlement and Maximum Rate) Regulations 2002 ."

I suspect that you aren't going to find an easy way of having your cake without getting crumbs on your face (carefully constructed mixed metaphor). You can have the income and get the childcare element or have neither, the individual circumstances might mean that one outweighs the other.

I my experience it is rarely a case of clients wanting their cake which implies an element of greed. Most people who come to us for help do so only after they have claimed tax credits and have been told they may take some time to come through. In the meantime they must pay the childcare fees or risk losing the child's nursery place. They almost invariably offer to repay the money and therefore tend to view it as a sort of crisis loan.

They don't generally even seem to mind the possibility of being overpaid - as long as they know about it in advance and how much it will be - but the thought of being charged with fraud is something quite different.

I guess in most cases clients are too stressed about their immediate circumstances to think long-term so I suppose all we can do is explain the regs and help them keep themselves right.

Thanks to you both for helping me clarify the situation in my mind.
I always fond brainstorming far more interesting than studying regulations.

just to add - the "amounts to fraud" advice from GCC legals is somewhat extreme!!! fraud involves knowledge and intent. the claimant cannot reasonable be expected to know the substance of reg 14, unless the claim form or the IR notes make it clear, of if she received specific advice on it. i don't think the notes do make it clear - do they?

is income under #300 still disregarded?

jj