We have two cases on the go where clients earned enough in the first part of the tax year to ensure that their Child Tax Credit comprises only the basic £10 per week, in one case less than £5. Due to illness / redundancy, they are now claiming IS / IBJSA. The Tax Credits Act says that anyone receiving these benefits is entitled to full CTC, and the IS / IBJSA rules were amended so that a claimant's income will be treated as including any CTC to which they are entitled.

The local DWP are taking into account as income the amount of CTC that the clients are entitled to, despite being fully aware that they are not receiving anything like that figure. This is causing obvious hardship issues - one client is £100 per week out of pocket. The DWP attitude is that they are applying the rules correctly (instructions from Leeds) and that it is up to the IR to sort it out. The IR say the client is receiving the correct amount of TC and is not entitled to hardship payments as his entitlement is less than £5 a week. This case is going to tribunal next Friday and we can only come up with one (human rights) argument - any comments would be appreciated.

Despite the chaos being caused by the whole annual award versus weekly benefits issue, the rules are being applied correctly and there's not much a tribunal can do about it. The regulation that states it is entitlement rather than amount received that is treated as income (Reg 8(1) Social Security (Working Tax Credit and Child Tax Credit) (Consequential Amendments) Regulations 2003)is secondary legislation and my understanding is that tribunals can choose not to follow this if they feel a reg is incompatible with the HRA.

I think there is a strong case for showing a breach of the clients right to respect for family life - he can't feed his children. Anyone think that there's any mileage in this argument, or have any other suggestions?

Thanks in advance.

Presumably, you have lodged an appeal against the decision of the Inland Revenue, as well as the decision of the DWP? Because it seems clear that it is the IR who have got things wrong here:

Under the Tax Credits Act 2002:

section (7)(1) allows that the entitlement of a person(s) to a tax credit depends on the relevant income not exceeding an income threshold

section (7)(2), however, states that s(7)(1) does not apply when a person is entitled to a social security benefit as prescribed by regulations.

section (13) goes onto state that in the case of a person(s) entitled to a tax credit whose entitlement arises by virtue of section 7(2), the rate at which they are entitled to the tax credit is the maximum rate for their case.

Under The Tax Credits (Income Thresholds and Determination of Rates) Regulations 2002, (SI 2008/2002), regulation 4 states that:

4. The following are social security benefits prescribed for the purposes of section 7(2) of the Act in relation to child tax credit and working tax credit –

(a) income support under Part 7 of the Social Security Contributions and Benefit Act 1992 other than income support to which a person is entitled only by virtue of regulation 6(2) and (3) of the Income Support (General) Regulations 1987;

(b) income support under Part 7 of the Social Security Contributions and Benefit (Northern Ireland) Act 1992 other than income support to which a person is entitled only by virtue of regulation 6(2) and (3) of the Income Support (General) Regulations (Northern Ireland) 1987;

(c) an income-based jobseeker's allowance within the meaning of the Jobseekers Act 1995 or the Jobseekers (Northern Ireland) Order 1995.

The exceptions in reg6(2)&(3) are for the work run-on provisions, therefore, if your clients are entitled to income support or jobseekers allowance, they should also recieve the maximum amount of tax credits. I don't see how the IR could argue otherwise but am certainly willing to be proved wrong.

can I check I have understood this correctly. It does not matter if a claimant has reached or nearly reached their maximum tax credit award for year already; if they lose a well paid job and have to claim IS, they get the full CTC as a matter of course?

That is the assumption being made by the DWP - the regs say you are passported to full CTC if you receive Income Support or IBJSA, so they are deducting the maximum CTC from the applicable amount. But where someone has earned enough earlier in the tax year to give them a minimal CTC award, the Inland Revenue's position is that the annual tax credit award has been correctly calculated and will not be revised.

Clients are then in a position where they are not receiving the maximum CTC but they are having it deducted from their JSA. The DWP are sympathetic to the client's plight but are adamant that they are applying the rules correctly and assume that the IR will start paying full CTC. The IR are equally adamant that they won't.

Even if we can win the appeal and get the tribunal to rule on the correct amount of CTC to be taken into account, that option will not apply after April when the amounts for children are eventually removed from IS / IBJSA.

I do not see much hope for the appeal on the IS decision. However I do not see why top-up payments have not applied in this case.As Paul Treloar's posting says the client is entitled to full CTC for the relevant period when he is on IS. This added to what he has already received in the previous relevant period gives an overpayment for the year. the IR deducts this overpayment from the entitlement in the balance of the second relevant period, leading to a nil/small payment. This puts client in hardship as DWP assumes full payment. Ct applies for top up payments as per the IR overpayment leaflet.Page 3 of the leafletstates that the IR will make additional payments in hardship cases - " We will set those payments taking into account the maximum amounts by which we would reduce your award for the following year if we were collecting an overpayment from it". The client is likely to continue to be on IS in the following year and therefore entitled to the maximum award.Page 4 of the leaflet states that in this case they would reduce the award by 10%. Applying this to top up payments, the Client should receive a top up payment to bring him up to 90% of the maximum CTC.While in the beginning this guidance was not being followed, we understand from CAB in the county that it is now being followed- more or less.

In this case we cannot understand why the Revenue are not paying the max CTC. Section 7(2) TCA 2002 disapplies the income test for "so long as" the person is entitled to any of the social security benefits listed in reg 4 of SI 2002/2008, which includes of course IS and JSA.

On a simple read there are doubts as to whether s7(2) applies for the whole tax year or just part of the tax year.

We think it has to be part but its complicated by the fact that regs 7 and 8 split the tax year according to relevant periods but do not mention a relevant period ending when entitlement to a social security benefit first arises. But then reg 6(b) of the same SI refers to not using regs 7 - 9 when entitlement arises by virtue of s7(2).

We would go after the Revenue first and not the DWP. If Paul wants us to have a go at getting urgent clarification then by all means drop us a note via the www.litrg.org.uk Contact page.

My first posting was not very helpful in that we are not dealing with an overpayment decision but an IR decision that the entitlement for the relevant period when the claimant is on IS is (say) the family element or apprx £10/week.TC regs (2002) reg 8(2)says that when a claimant entitled to WTC and CTC ceases to be entitled to WTC the relevant period ends.A new relevant period starts and the arguement in the previous posting leads to entitlement being full CTC with no income test.

Now looking at the DWP decision to assume max CTC is in payment. Presumably they are using SS(WTC & CTC)(Consequential Ammendments) 2003.Reg 7(1)allows them to treat as income an amount equivalent to the CTC the claimant is "entitled" (my italics). I would argue the only entitlement in place is the IR decision to pay the £10/week. I would ask the DWP to provide their authority for "revising" that decision. If DWP think the IR are wrong their redress is to ask the IR to revise the decision. I think the DWP were (like me) treating the situation as if it was an overpayment.

If in fact it was to turn out that the IR are correct we will have a major problem post April 2004. At present as argued in the last para there is an IS top up through the Child Allowance/Family Premium. This will not happen post April 2004. Such claimants would then only get the £10/week for their children - clearly not the government's intent.

We have the same issue in a number of appeals, the first of which is listed on 7 April. None of the cases involve overpayments of TC.

Although claimants have notified IR that they are no longer working and have claimed IS or JSA, IR have not adjusted the CTC award to max. rate. It is not clear if this is simply due to administrative delay or their interpretation of when s7(2) kicks in to replace s7(1) awards etc.

The DWP guidance says that SS(WTC & CTC)(CA)Reg 7(1) entitlement (to CTC) means the max amount rather than amount actually in payment.

What is meant by 'entitlement' means in TC legislation - entitlement only arises once s18 has been applied, until then there is simply an award of a TC (i.e it is provisional until the end of year 'reconciliation' - none of which can have taken place yet!).

Similarly there appears no clear relationship between a change of circs (s6), when a 'relevant period' ends (TC(CN)Regs 19-29), and s7(2).

Whatever the possible interpretation of the TC and IS/JSA legislation there appears to be no practical mechanism to get an existing award of CTC changed to max. rate when claimant has to move to IS/JSA.

Has anyone had a case decided at appeal yet. Any cases at commissioners level yet?

Spoke to an appeals officer earlier who said that a similar appeal a few weeks ago was adjourned, apparently for the Inland Revenue to provide something.

In the present case, John Andrews of the Low Incomes Tax Reform Group has kindly offered to raise the issue at policy level with the Revenue, and hopefully get a definitive statement of their position before the appeal on Friday.

It's interesting that Peter says DWP guidance states it is the maximum rather than the actual amount to be taken into account. Apparently the submission for this appeal was written at the DWP legal section in Leeds rather than the local office and includes the paragraph 'Therefore, Mr X shall be treated, for Jobseekers' Allowance purposes as possessing the amount of Child Tax Credit to which he is entitled and a person who is receiving Jobseekers' Allowance is entitled to the maximum amount of Child Tax Credit, regardless of the amount of Child Tax Credit he is actual receiving.’

There have been some DMG memo's - JSA/IS 34 & 44 which say the maximum rate of CTC should be taken into account. However, they don't say why 'entitlement' is to be interpreted in this way.

Our local office say they are following DWP guide 'The New Tax Credits Handbook, Part 10, para 1740-1746' but this is not on DWP website.

Hope it isn't too late to point out the fact that the IR's own guidance on this situation states

http://www.inlandrevenue.gov.uk/manuals/tctmanual/tctm07041.htm

TCTM07041 - Calculation of awards: Step 3 - Determining whether income needs to be taken into account and applying income tapers
Determining whether income adjustments are due
Section 7(2) Tax Credits Act 2002
The Tax Credit (Income Thresholds and Determination of Rates) Regulations 2002, Regs 4 and 6(b)
If the claimant is entitled to certain social security benefits during the tax credits award period,
no income will be taken into account whilst they remain in receipt of those benefits and,
the person will receive the full amount of tax credits appropriate to their circumstances
The social security benefits are:
Income Support (but see the exception below)
Jobseekers Allowance (Income Based)
Minimum Income Guarantee
State Pension Credit
The exception is where the claimant is in receipt of the 14 day 'run-on' of income support paid when the claimant is a lone parent and has started work.

I agree with you Paul - however IR seem to interpret that as applying to the calculation at the start of the award.

IR line seems to be that an existing award for 03-04 is correct because it is based on income from 01-02 not income, or income changes, in 03-04.

There seems to be no mechanism in practice to get IR to change an award during the tax year because someone has gone onto a relevant benefit.

That a claiamnt now has a relevant benefit within 7(2) does not seem to end the relevant period of an award made under s7(1) & TC(ITDR) reg 8.

IR position seems to be that it is not a relevant change of circumstances under s6 & TC(CN)Reg 20 which leads to a revised decision under s15.

Have I missed something? Is the problem with the legislation or IR interpretation / practice?

Peter, most puzzling this - the more I look, the less I see somehow.

s.15 deals with revised decisions after notification - however, it states that this applies to notifications that may increase the maximum rate at which a person may be entitled to a TC - losing your job and going onto IS/JSA quite clearly doesn't alter the maximum rate, so it would appear that this section can't come into play.

So we need to look at s.16 which allows the IR to amend awards if they have reasonable grounds for believing that rate at which a TC has been awarded differs from the entitlement. Someone writing to the IR to say that they think that this section applies may be enough to satisfy "reasonable grounds". As s.16(1) decisions are appealable, a refusal to amend an award upon losing a job could be challenged this way.

If that hurdle is overcome, comparing the TC award with potential TC entitlement must mean reg.6 of the ITDR regs coming into play ("manner of determining rate at which a person is entitled") - this reg only applies in cases where s.7(2) of the TC Act does not apply, therefore the relevant period in reg.8 of ITDR regs must come to a halt as soon as the claimant goes onto IS/JSA, thereby applying s.7(2), and thereby allowing maximum CTC.

What a mess, I wish it was an April Fool

We had the appeal this morning. The chairman spent a long time on the phone to the Regional Office and decided that he didn't have the seniority to make a decision following our arguments and disapplying the regulation on HRA grounds. They felt the issue should be dealt with by the Commissioners as soon as possible so confirmed the DWP decision and granted leave to appeal.

However John Andrews of the LITRG succeeded in getting a statement of policy from the Inland Revenue which states:

'Where someone goes on to IS/income based JSA they should be entitled to the maximum amount of CTC for any children they have and that should occur from the effective date of claim for IS/JSA. This should be the case whatever income was earned in year prior to going unemployed and claiming IS/JSA.'

The problem I see with this is that any payment of maximum CTC in the period that someone is on IS/IBJSA will automatically be an overpayment, because their correct amount of CTC has already been calculated on their previous earnings. The overpayment is then recovered in the next tax year and the client ends up in the same position as if they had never received the payments. Is that how other people interpret it?

i'm sure you're right about the overpayment, but my reading of the guidance is that in quite a few circumstances IR may be persuaded not to recover an end of year overpayment, or accept reduced rate of recovery, or postpone. Even if the o'p is recovered, at least it spreads the loss of income out a bit rather than one big income drop. What worries me is that all the stuff I've read saying that max CTC should be paid when entitled to IS or i.b.JSA (including the policy statement you quote above) refers to "once the claimant goes onto IS/JSA". what if the claimant is regarded by DWP as having a higher entitlement to TC's (but they're not now actually getting it because of adjustments) and so Income Support isn't even payable because their "TC income" (entitlement rather than actual) is above the applicable amount? Then surely there's no obligation on IR to pay max CTC?

Appeal tribunal held today - full time chairman allowed the appeal. Gave full reasons and indicates will grant leave if DWP request.

Reasons for allowing include:
- 'entitlement' to CTC only arises at end of tax year under TCA s18. Before that there is an 'award'.
- DWP have no jurisdiction to determine the rate of CTC.
- DWP must take into account the amount awarded by IR
- agreed there is no mechanism within TC legislation that terminates an existing award of CTC and requires award of maximum CTC when a claim for IS/JSA is made.

I assume DWP will seek leave to appeal - looks like this issue will run & run!

The Inland Revenue have conceded that they should pay the full CTC rate when IBJSA kicks in, because for the new relevant period the income rules are disapplied.

So the worry that Glenys had will not apply.

We now propose to obtain an undertaking that all such cases will be reviewed and rectified.

We will keep this forum informed.

Incidentally the second of our general overpayment articles has just gone up on our website www.litrg.org.uk. The third one dealing with waivers, error etc. will be there by next week.

I've just realised that the new thread I just started (the one above this one - http://www.rightsnet.org.uk/dc/dcboard.php?az=show_topic&forum=104&topic_id=157&mesg_id=157&page= ) actually links in with this one.

It's only just beginning to dawn on me that whilst on IS the whole "relevant period" concept doesn't apply (Reg 6 ITDR Regs). But how can this be??? How do you calculate the value of TC entitlement during a part-year on IS? I can see that, logically, you take the elements of maximum TC, divide by no of days in tax year, (then round up???), then multiply by number of days on Income Support, then add 'em all together. At least, you would if you were trying to emulate Reg 8. But the Regs don't spell this out, do they?

As you say, what a mess!

Absolutely right, John. The regs just don't say how to calculate TCs when IS/IBJSA/SPC is payable.

Section 13(1) TCA 2002 tells us to use the maximum rate but gives no clues on how to work it out (certainly not for periods of less than a year.)

The sensible assumption is that for all periods the elements are applied as you would imagine (using the daily rate round up rules) but this is just an *assumption* as the regs are silent; the rates at which the child elements of IS have been set for this year make it clear that this is what DWP are expecting.

Of course the problem goes a bit wider than this - cases where income is below threshold are similarly underdetermined.

This issue was raised when last year's Welfare Benefits and Tax Credits Handbook was being written and think I CPAG were going to seek clarification from the Revenue. I don't know if they ever got a satisfactory response.

I also think expresstraining’s comment (9.4.2004) is right, with regard to the absence of relevant periods. Surely periods on qualifying benefits are not RPs at all. This is because the job of the RP is to set a common starting point for the TC calculation and means testing (the maximum TC figure). This is not needed when a person is on a qualifying benefit, because section 7(2) effectively disconnects the claimant from the need for further means testing. But this may not be the only time that there is no RP.

Take a couple aged 28 where one is working (over 30 hrs per week). No kids or disabilities etc. They claim TCs at the start of the tax year. For the first 20 weeks (period A) they get WTC. Then the worker is made redundant, and there is no work for 4 weeks (period B), but they do not claim any benefits. Then they have a baby, and claim IBJSA for 18 weeks, and get CTC (period C). Then he gets another f/t job, for the remaining 10 weeks of the year (period D).

In terms of relevant periods, there is period A, which is ended when the worker ceases to satisfy Reg 4 of the WTC (EMR) Regs (16 hour rule), and falls foul of Reg 8 (7 day gap rule). This means the RP up to then stops, because the maximum TC has changed (not entitled to basic component WTC). Pro rating applies to the number of days in period A, and applies to all of the calculation sequence. I nervously propose that there is no RP for period B, because there are no TC components that the couple are entitled to, so the question of a maximum TC does not apply. Reg 7(2) of the TC (ITDR) Regs defines the RP for WTC, when “the elements of WTC…to which the person or persons may be entitled, remain the same”. I am proposing this does not apply where there are no elements of entitlement.

Assuming there is no RP for period C (time spent on a qualifying benefit), the next RP is period D, because the couple have come off IS because of work, and are in principle entitled to a maximum TC figure. Again, pro rating applies, based on the number of days in period D.

So we can have an overall claim period as defined by section 5 of the TC Act, which contains periods when there are no RPs at all. Pro rating makes every thing all right in the end, and prevents the transition onto IS/IBJSA/GC (and therefore maximum CTC), from awarding the claimant too much TC in any one year. However, if there is an overpayment caused by an error or an unreported change of circumstances, the claimant can end up with too much TC for the year, as we all know.

Please put me out of misery if I am wrong.

I have now received a helpful response from the top of the TCO who are today going to re-emphasise their guidance internally that people on IBJSA should get maximum CTC and that year-end procedures will not claw it back.

I was asked for actual examples where the Revenue have got it wrong and Paul's case which started this thread has been sent to them. If anyone else would like to have their cases reviewed very quickly where this maximum credit has been denied could they post brief details to me via the Contact page of www.litrg.org.uk. The Revenue will need name and NINO as well. Please would you confirm that you have your client's authority so to do.

Perhaps we make some progress.