TCA sec 7(2) says that where someone is entitled to income support they can get full tax credits. Someone might find themselves in this situation where they are on SSP and this is less than their applicable amount. However since WTC is taken into account as income this could knock them off income support which would mean they are no longer entitled to full WTC. This would mean they would have a low enough income to claim IS again and so on in circles.

I can see I'm missing something very simple but don't know what it is. Can anyone tell me what it is?

WTC continues while someone is on SSP regardless.

I think you have misunderstood the post Bill (which Kevin put on rightsnet after I called in at BIAC last week and asked their opinion on the issue).

Someone can get WTC when on SSP and of course they can also get IS. The difficulty comes from regulations which make both WTC and IS effect each other at the same time. The entitlement to IS means that s 7(2) operates (or should do) to give entitlement to full tax credits which in turn reduce the ammount of income support payable. This works okay whilst the ammount of tax credits does not exceed what is left of the applicable ammount but where it does the 'full WTC' would mean the end of the income support award on which it was based in the first place meaning the end of full WTC. Anyone know what the claimant should get in this situation?

I do very little tax credits in this job so I don't have any practical experience of this but it seems to me the situation must be fairly common. Anybody know how this has operated in practice?(though I realise this could be a poor guide to what should happen)

Of more concern is the possible (non) effect of this provision on CTC.

If a person goes onto IS/JSA/PC part way through a tax year you might think they would therefore get max CTC under s7(2) which would give a weekly income of CTC plus means tested benefit for adults at the same rate they would have received if kids were still part of their applicable amount.

However, if income from earlier in the year was above the threshold their CTC would be less than the max. The effect can be to give a weekly income below the poverty line while on IS/JSA/PC because TCs are annual not weekly benefits.

Of course many claimants do look in their crystal balls and put some of their CTC aside in case they have a change of circumstances that means they will be on benefit in the future.

Yet another example of the problems created by having claimants simultaneously in a weekly means tested benefits system and annual tax credits scheme! Thank you Gordon.

http://www.rightsnet.org.uk/dc/dcboard.php?az=show_topic&forum=103&topic_id=630&mesg_id=630&page=5

When looking at 7(2) it is always helpful to recall the words of Baroness Hollis in the House of Lords and to remind the TCO from time to time:

House of Lords

(21 May 2002, CWH 107):

"Therefore, regulations under subsection (2) . . . will make clear that for

any period of entitlement to income support or income-based JSA, entitlement

to tax credits will be at the maximum rate and shall not be subject to a

test of annual income. This will ensure that the poorest families continue

to receive the appropriate safety net support on a weekly basis. For any

other period in the same tax year where the family is not claiming IS or

JSA, entitlement to tax credits will be based on annual income as usual."

Thanks for that. I will use that in argument in a currently adjourned appeal hearing. Athough not directly the issue under appeal it is the practical outcome for the client. It will be interesting to see the tribunal (& IR) responce!

Section 7(1) sets out the income means testing framework for the annual award (income, thresholds). Section 7(2) effectively disconnects claimants on IS/IBJSA etc from this circus. I would say it would be unlawful for the IR to let income considerations from earlier in the year affect their section 7(2) awards. Only overpayment recovery can spoil the party.

Steve

John
The specific case has now been re-listed for hearing in mid May following an adjournment. It is a case I think we have discussed before.

The client was in 16hrs work in the first half of the tax year 03/04 and on IS for the second half. She was always entitled to max CTC because of her low earnings etc. However, because CTC (and WTC) payments in the first part of the year were eratic she had already been paid approx £450 CTC in excess of maximum entitlement on a weekly basis when she stopped work and claimed IS. As a result she was then paid CTC at £23 pw below the max rate while of IS.

IR argument seems to be that as TC are annual they are simply applying s28(5) to avoid an in year overpayment and that that approach is not affected by s7(2).

It seems to me that the policy intention as stated by Baroness Hollis must be correct. The intention must be that under TC claimants should receive an income equivilent to that which they would have received under IS/JSA when kids were including in the applicable amount.

If too much CTC has been paid 'up front' s7(2) simply allows, in effect, for the total CTC paid in the year to be an amount in excess of maximum entitlement to ensure a minimum income during a period on IS/JSA. That excess amount is not an 'overpayment' (in year or end of year) and is not recoverable.

Clearly the way IR are applying s7(2) and s28(5) is frustrating the policy intention and can leave claimants below the poverty line.

The failure to apply s7(2) correctly must be an error in law when applied to my clients circumstances and her appeal against the calculation of her entitlement to TCs for 03-04.

It seems to me to be a very practical example of where (incorrect?) application of (incoherent?) TC legislation by IR leaves claimants in deep financial poo and the policy intention is going horribly wrong in practice.

I would tread carefully when attempting to rely on, or advancing, ministerial statements in argument. Traditionally, the courts (and by extension tribunals) have frowned on such approaches. The situation changed after the decision of the HoL in Pepper v Hart (1993). This decision stated that ministerial statements (and other parliamentary material) when used to promote legislation before its enactment could be relied on in situations where a statutory provision is ambiguous, obscure or leads to absurdity, but, only where the ministerial statement or parliamentary material is sufficiently clear.

The problem would seem to be the last sentence in Baroness Hollis’s statement (above) which states “(f)or any other period in the same tax year where the family is not claiming IS or JSA, entitlement to tax credits will be based on annual income as usual”.

I can see a problem with this. Section 7, as a whole, when applied to the situations described in this post, almost certainly leads to absurdity at first look. If that is so then I don’t think that Baroness Hollis’s statement is sufficiently clear in addressing the apparent absurdity created.

When she talks about not applying the means test to periods of entitlement to IS/JSA then that is clear enough but then she apparently contradicts herself in the last sentence in the quoted passage, i.e. the means test will be applied to the period when the claimant comes off IS/JSA. The contradiction appears because a person would actually be disentitled to IS/JSA for the period that they were in receipt of IS/JSA because of entitlement to maximum CTC(which if there was other income) may take that person over their applicable amount for that period. Thus her statement actually endorses the absurdity that the legislation appears to create.

I would suggest that if CTC and WTC are in payment and entitlement to WTC stops part way through a year then a new relevant period begins (a view supported by the annotations to Reg’8 of the TC (Income Thresholds and Determination of Rates) Regs 2002. A subsequent change in income (losing, or reduced, IS) would not end the new relevant period. Thus I would agree with Steve that income from earlier in the year probably could not be used and it would then be a matter for recovery of any overpayment for a previous period, at the end of the year based on an end of year re-calculation.

My view, therefore, is that I don’t think that the legislation as a whole produces the apparent absurdity suggested. In year recovery of overpayments when a person is on IS leaving that person with an income below IS levels is inherently unjust and should be addressed by an automatic right of appeal against overpayment decisions with no right of recovery of an overpayment caused by official error. Baroness Hollis’s statement is insufficiently clear to assist in the interpretation of Section 7 but it is misleading in that it gives the impression that it suggests that no one will fall below the appropriate safety net and, that, is to this government’s eternal shame.

I think Nevip is right.

The likely overpayment recovery from ongoing TCs is via s28(5), which makes no exceptions for people now on IS/IBJSA etc.

Such an approach does not contravene s7, because s7 is only a cog in the means testing wheel. Clearly, overpayment recovery is outside the scope of award calculation means testing, so the two sections happily co-exist.

I was looking at the IR compliance manual the other day (as you do), and in one section it refers to recoveries of WTC overpayments from ongoing CTC (it refers to this activity as "set off"). The manual seems to suggest that its a bit naughty to recover WTC overpayments from ongoing CTC , but then goes on to say that the IR computer ignores such scrulples! I realise that in this case, it is a CTC overpayment being recovered from ongoing CTC.

I am sure that the Minister meant well, but the statement made at the time was only as accurate as the person down the food chain who drafted it. It is also doubtful that the IR had any idea at the time of the scale of misery that would follow from overpayments.

All this of course still leaves Peter's client and family living below IS levels. How curious that no government seems to have had the courage to recognise IS levels as the poverty line.

COP 26 says that hardship is a ground to seek an overpayment write off (under the "may not" provision). However, the government conceded recently that none of the 4% of cases written off by the end of December 2004 were done so under the hardship banner. Fettered discretion, or what?!

Steve