Tax credits and early years eBulletin August 2023

Latest news for advisers supporting low income families in Scotland

Managed migration to universal credit starts in Scotland

Managed migration is the process by which claimants currently entitled to tax credits and other legacy benefits are being moved onto universal credit. The government has announced that managed migration to universal credit will start for claimants receiving tax credits only in the west of Scotland in August 2023, followed by east of Scotland in September 2023. It is understood that west of Scotland local authority areas are Argyll and Bute, East Dunbartonshire, Inverclyde, North Lanarkshire, Renfrewshire , West Dunbartonshire. The east of Scotland local authority areas are Clackmannanshire, Falkirk, Midlothian, Scottish Borders, Stirling, West Lothian, City of Edinburgh and East Lothian. Some of the main points to be aware of during managed migration are: 

  • Claimants are sent an individual letter stating: “This is a migration notice issued under regulation 44 of the Universal Credit (Transitional Provisions) Regulations 2014”.
  • The migration notice gives them three months to claim universal credit.
  • Tax credits are terminated as soon as a universal credit claim is made.
  • Tax credits are terminated if no universal credit is made by the deadline.
  • Claimants can request an extension of the deadline.
  • The migration notice can be cancelled in exceptional circumstances.
  • There is protection intended to ensure that claimants are no worse off at point of transfer if circumstances are unchanged, as long as they claim before, or within one month of the deadline.
  • Claimants should get independent advice to ensure they are receiving the correct amount of tax credits and to anticipate the effect of changes of circumstances.

For more information, see askcpag.org.uk/content/209492/tax-credits-and-managed-migration.

Universal credit childcare costs

The maximum amount of childcare costs payable in universal credit has increased from 28 June 2023. People receiving universal credit who are responsible for a child and in work can claim the childcare costs element to reimburse 85% of childcare costs, within limits. These limits have increased as follows: 

  • maximum amount payable for one child has increased from £646.35 to £950.92 a month
  • maximum amount payable for two or more children has increased from £1,108.04 to £1,630.15 a month

The equivalent amount in working tax credit is 70% of childcare costs, within limits of maximum payable of £530 a month for one child or £910 for two or more children. Some parents may be better off moving from tax credits to universal credit but should get a detailed benefit check before claiming, because as soon as a universal credit claim is made, tax credits stop and cannot be reinstated.

A further change is intended to remove barriers to starting work or increasing hours, by ignoring other payments made by the DWP when calculating the childcare costs element. This means that the Flexible Support Fund (discretionary help from the local Jobcentre) can cover upfront fees and childcare costs before starting work, and the claimant can still claim the universal credit childcare costs element for their full childcare costs paid, within limits as above. However, other payments to help with childcare from local authorities, charities or the Scottish Government are not ignored so the amount of the universal credit childcare costs element is reduced.

See: The Universal Credit (Childcare) (Amendment) Regulations 2023 and ADM Memo 12/23 

Best Start grant school age payment

Nearly back to school time again and that means the Best Start grant school age payment is open for applications for children in lower income families eligible to start school in Scotland this August. The school age payment is £294.70 for families in receipt of universal credit, tax credits, pension credit, housing benefit, income support, income-related employment and support allowance or income-based jobseeker’s allowance. The current window for applications opened on 1 June 2023 and closes on 29 February 2024 for children born from 1 March 2018 to 28 February 2019. It does not matter whether the child actually starts school this August or not. Applications can be made online at mygov.scot/benefits or by phone 0800 182 2222. The school age payment should be paid automatically if the family is entitled to the Scottish child payment for the child.

For more information see socialsecurity.gov.scot/news-events/news/we-have-changed-the-way-that-we-deliver-best-start-grant-school-age-payment

Adjudicator's Office annual report

The latest report from the Adjudicator’s Office, which investigates complaints into tax credits and other HMRC services, was published in June. The Adjudicator resolved 630 complaints, of which 293 were partially or fully upheld, and recommended payments for financial redress of £303,799 in total, including giving up recovery of overpayments. The report includes several case studies, which may be useful to refer to in similar cases when making a complaint: 

  • Case Study 1: HMRC failed to take any steps to recover the debt in a timely way, made several mistakes in recovery of the debt and then failed to consider whether repayment would cause financial hardship. The Adjudicator did not consider it reasonable to seek to collect the debt given the customer’s vulnerability and health issues, and HMRC remitted the debt.
  • Case Study 2: HMRC failed to provide a comprehensive explanation of the debt they were recovering on multiple occasions and transferred the debt from the debt collection agency to DWP without notifying the claimant. The Adjudicator recommended £350 redress.
  • Case Study 3: HMRC failed to consider the customers vulnerability and the history of domestic abuse. The Adjudicator highlighted that re-introducing the repayment arrangement would require contact between both parties, placing the customer at unnecessary risk, and recommended that HMRC waive the customers half of the debt and refund any payments already recovered from her, and pay £200 redress.
  • Case Study 6: After losing passports claimant had sent, HMRC failed to consider the evidence the customer provided, the potential weakness in their own systems or the lack of a robust and detailed policy and process to investigate complaints about lost documents. The Adjudicator recommended the Child Benefit Office pay redress of £350 and the costs of obtaining replacement passports.

Read the case studies and report in full: The Adjudicator's Office annual report 2023

Caselaw

This section summarises recent decisions of the Upper Tribunal; these set a binding precedent on HMRC or DWP decision-makers and First–tier Tribunals in similar cases. 

In year finalisation and part-year income

His Majesty's Revenue and Customs v AS (TC): [2023] UKUT 67 (AAC) 

This Upper Tribunal decision says that when in-year finalisation of tax credits takes place after a UC claim has been made, the notional current year income used (to compare with previous year income) will be based on earnings received in the part year, not earnings attributable to the number of days in the part year. This was disadvantageous to this claimant on a salary of approx. £15,000, with a part year running from 6 to 22 April, of 17 days, who was paid monthly on 15th of each month – 

  • HMRC took the monthly salary received, then divided it by 17 and multiplied by 365 to produce a ‘notional current year income’ of £26,000 (more than £10,000 higher than anything she had ever actually earned). 
  • The First-tier Tribunal took the monthly salary received x 12, then divided by 365, then multiplied by 17 to produce part year income, which is then divided by 17 and multiplied by 365 to get the notional current year income (which produces a figure of about £15,000, which is her expected income for the year).

The Judge concluded that the HMRC approach is correct due to the wording of the amendment to The Tax Credits (Definition and Calculation of Income) Regulations 2002. This left the claimant left with a £400 overpayment. If she had been paid on 25th of the month, she would have been entitled to maximum tax credits for the same period. The implication of this decision is that timing a UC claim just before payday would mean a lower income may be used to finalise tax credits.

Temporary absence abroad and HMRC discretion

GL v His Majesty's Revenue & Customs: [2023] UKUT 100 (AAC)

This Upper Tribunal decision concerned the rule that ends entitlement to tax credits if the claimant is absent from the UK for more than 8 weeks (12 weeks in connection with treatment of illness/bereavement) and whether HMRC had any discretion to extend it, particularly during the Covid-19 pandemic. The claimant left the UK, expecting it would be for a short period of only a few weeks. However, in each case her return to the UK was delayed by difficulties relating to the Covid-19 pandemic. HMRC decided that the claimant was not entitled to tax credits as she had been outside the UK for a period of more than 8 weeks. The First-tier Tribunal upheld this decision, but a referral was made to the Upper Tribunal to give further guidance (if possible) on the relevance of Covid travel restrictions. HMRC had indicated that it did in fact exercise discretion in some such cases, and submissions were invited on whether it had put in place any “easements”, whether by way of legislation, policy or guidance.

The Judge found that “easements” may have been made to other benefits, but no such legislative changes were made to tax credits, and no published or unpublished policy or guidance exists to that effect. At para 33, the Judge notes that HMRC asserted the existence of “Payment and Management Powers”, which could be used in an exceptional case, to waive the requirements of the 8-week rule or the conditions of entitlement to tax credits more generally. The Judge gave the opinion that HMRC simply does not have any power to pay a tax credit to a person who does not satisfy the statutory conditions. This outcome does not affect HMRC’s discretion to make ex-gratia payments of compensation or waive recovery of overpayments. HMRC noted, and the Judge agreed, that entitlement to child tax credit could have continued in an EEA member state under EU coordination rules, but this did not apply to working tax credit.