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With an eye on changes coming in, LITRG reminds us that the tax year end is a key date to review your tax credits.

Introduction

A number of changes are being made to tax credits from 6 April 2011 and in future years. You can find further information about these changes in the tax credit advisers section of the LITRG website (see useful links below), which could help you to understand how you might be affected.

As part of our monthly series of reminder articles, below we explain what action you might need to take now for tax credits purposes in respect of:

1. Changing, or a prospective change in, circumstances
2. The renewals process
3. Leaving the tax credits system
4. HMRC non-renewal of nil awards

We will cover in a separate article tax issues to consider around the tax year end.

1. Changing, or a prospective change in, circumstances

Your possible entitlement to tax credits changes with time, depending on your circumstances. This means it is important to keep an eye on your position and take appropriate action.

For example, if your income is currently too high to qualify for tax credits, but you think it might fall later in the year, you can consider making a ‘protective claim’ for tax credits now, so that they can be backdated later.

2. The renewals process

For those already claiming tax credits, the renewals process now begins for 2011/12. Over the next month or two, you should receive papers from HMRC to confirm details of your income and circumstances for 2010/11 to finalise your award for that year and to make your claim for 2010/11.

Although the deadline for renewal is 31 July 2011, you should aim to contact HMRC as soon as possible and not leave it to nearer the deadline. This will ensure that your claim for 2011/12 is made as soon as possible and minimises the chance that you will be paid too much in terms of tax credits, or if you are due more tax credits, you will get the money sooner.

3. Leaving the tax credits system

Dissatisfaction with the system, generally as a result of overpayments, has meant that some claimants have decided not to complete their renewals forms in an attempt to get out of the tax credits system. But failure to complete renewal forms can lead to an overpayment of any provisional payments made by HMRC between April and the time that payments are stopped due to non-renewal.

In April 2010, HMRC introduced new rules to allow claimants to leave the system by informing HMRC that they do not wish to renew their claim for the next year. However, HMRC have not yet released full details of how claimants can do this. We recommend that anyone in this position should contact HMRC prior to 6 April, otherwise any provisional payments made after 6 April are likely to become an overpayment. Even if you don’t want to claim for the next tax year, it is still important to finalise your claim for the 2010/11 tax year and therefore you will still be required to give HMRC your actual income information for that year.

4. HMRC non-renewal of nil awards

Due to the various changes announced during 2010 to the tax credit system, people who currently receive the family element of child tax credit may find that they receive a nil award from 6 April 2011. In an effort to reduce costs, HMRC introduced legislation in December 2010 which enables them not to automatically renew claimants on nil awards (or who will be on nil awards from 6 April 2011) unless the claimant tells HMRC that they wish to renew their claim.

You may therefore receive a letter (TC1015) from HMRC in April or May which states that they will not renew your claim unless you contact them within 30 days of the date of the letter to say that you want to renew your claim. It is very important that you understand the consequences of not renewing your claim.

There are two groups of people who may lose out by not renewing, as explained below.

Change in circumstances/fall in income

If your circumstances change for the worse, or your income falls, during 2011/12, you will have to make a new claim, which in most cases HMRC can backdate by only three months, whereas if you renewed your claim (by contacting HMRC within 30 days of the date on your letter) you may be able to secure an increased award for the entire tax year (the ‘protective claim’ principle).

Certain claimants entitled to the disability element

If you have entitlement to the disability element of working tax credit which rests on Case G in the working tax credit regulations (entitlement to the disability element for at least one day in the preceding 56 days), you will no longer be so entitled if you allow your claim to lapse and do not make a new claim within 56 days.

So what must you do to renew your claim in these situations? Don’t miss the 30-day deadline!

It is absolutely crucial if you want to renew your claim that you contact HMRC within 30 days of the date of the letter. Outside of that 30-day period, HMRC do not have any power to renew the claim and you will have to submit a new claim. Even if your claim is not renewed, you will still receive forms which relate to the 2010/11 tax year which should be read and any necessary action taken if your income falls outside of the range stated on the notice.

Useful links

LITRG website – What’s next for tax credits?
More on the LITRG website about ‘protective claims’
More on the LITRG website about tax credits renewals