I was just wondering if anyone is aware of a decision on notional entitlement to Tax Credits?

This refers to a long standing case I have where the woman did not inform the IR that her partner had moved in and the IR have terminated her TCs from the date she became part of a couple, creating a massive overpayment.

I have received a letter from the IR this morning which states - "Our proceedures for calculating tax credits settlements have changed for the year 05/06. It is possible, in certain circumstances, to take into account a notional entitlement for a household as if they had made a correct claim at the correct time. I will discuss this with you further if this becomes relevant"

This is relevant, obviously! But not sure if he will be able to apply it retrospectively to 03/04 and 04/05.

If anyone is aware of this I'd be really grateful for info.

PLUS - any opinions on the IR's new power to change PAYE codes to recover OPs which are above the next years' total awards? No-one will have any idea how much of their tax is tax and how much is paying back the tax credits. Heaven help anyone who has to fill in an income tax self assessment form!

what a very coy response. i hope he doesn't think he's going to get away with keeping that one to himself! : )

there has been no change in the legislation, defining joint and single claims. i'm not aware of a decision either. the alternative is that something has caused a re-think - if they have now realized they need procedures to take account of notional entitlement, it suggests a change in guidance or interpretation of the legislation. i can't see that there can be any reasonable basis to justify _not_ applying it retrospectively. of course - i'm often wrong. but it sounds like some good news. i eagerly await you prising the info out of him, or someone better informed than i, throwing some light on this.

thanx also for warning me about the tax code powers. i have to leave the office this instant, so for now, i will spare everyone my opinion, including the one word summary. : )

jj

I've not seen anything about changing PAYE codes to recover TC overpayments. Your comment "if the OP is above the next year's total award" seems to imply that they could breach their own COP26 rules (max. recovery 25% etc.)in these cases. Does it really mean this? Presumably they can also use it against people no longer getting TCs. Can you point us to the Regs. or any other papers where this new power is set out please?

It is in the Code of Practice (COP26, Page 5)

It appear to be for people who have no entitlement to TCs, although whether it will apply to people who have an OP of WTC but no longer get WTC because of an increase in earning but still get CTC will have to be seen!

Here is the extract, and it seems there have been changes for the worst since last year:

If we identify an OP when we finalise you TC award, we can ask you to pay it back by one of the following methods
1. Reducing your TC award for the current year.
2. adjusting your PAYE code to collect the amount overpaid by increasing the tax on your earnings. This will apply for 04/05 and later years. For 03/04, you can pay back the amount overpaid by 12 monthly installments.
3. making a payment direct to us, due WITHIN 30 DAYS. But for overpayments arising 03/04, you will be able to pay in 12 monthly installments if you wish.


So, it appears that this year you are restricted to either a change to your tax code or pay within 30days. Stark contrast to the 12 monthly installments. I'm sure most people will not have the money just hanging about waiting for the IR to demand it back, especially when many of these OPs are into thousands, not just hundreds, of pounds.

Whilst the potential good policy changes, allowing notional entitlement "offsetting" to occur, it appears that on the other end of the scale they appear to be sending people into potential longterm debt with loan companies to pay within 30 days. The other issue is of course, how can you know if your extra "tax" is the correct amount, when you have not arranged to pay it? Potentially, if they are as incompetent as they are with making the awards, people could be left with little of there wages left!

Thanks for that, but can you say please where this version of COP26 comes from. I've looked on IR web site & on Rightsnet Toolkit and neither version includes the reference to recovery via PAYE coding.
You say it appears to be for people who don't get TCs, but the quote you include doesn't say that at all - it seems to give them carte blanche to do it anyway! (But of course we all know we can always rely on them to act reasonably and responsibly in everything they do.)

I'm afraid it doesn't have any kind of version number on it, but I got given it on a training course at CPAG in September last year.

It appeared to me that it applies to people who are no longer getting WTC anymore, but may or may not still be getting CTC. It is quite ambigous, as always.

Section 29(5) of the Tax Credits Act appears to give the power to recover from PAYE, although a fairly recent employers bulletin from the IR stated that they would not be using PAYE adjustment during 2005/2006 (does that make it more likely they would bankrupt you?).

The possibility of a an offset provision would be fantastic. Any more information on the source for this?

Yeah, I've not seen or heard of any cases where they have used the power to adjust the PAYE code, but I found it very worrying in principle.

I've also now received my new copy of the COP26 (after being hinted that maybe it wasn't up to date, sorry!), and it is not mentioned in there now, however it is still there in the regs. I take it they've not made any amendment, so could, given time, raise it's ugly head.

The offset provision would be great in my client's case and would reduce her OP from 13k to 2.5k. I've tried to speak to the guy dealing with the case, but he's on holiday at the moment for three weeks - maybe he's gone off with stress after i've mention Human Rights Act to him, but I think he's probably in the med...