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Changes to tax credits - statement by HM Revenue and Customs Paymaster General Dawn PrimaroloOn 5 December 2005 Paymaster General (Dawn Primarolo) announced a package of tax credits improvements most of which will come into effect over the next 18 months. These changes are as follows:
As announced on 2 December, as part of their ongoing compliance work, HMRC have identified and stopped attempts to defraud the tax credits system by making claims through the tax credits e-portal. HMRC has closed the e-portal while it develops new checks to ensure the system remains secure. A criminal investigation is also being undertaken into the apparent false use of a number of DWP staff identities in fraudulent tax credit claims. It would not be appropriate to make any further public statement at this stage.
From April 2006 there will be an increase in the limit on the amount that family income can rise over the current tax year without affecting tax credit entitlement for that year. The current annual income disregard of £2,500 will increase to £25,000.
In summer 2006 the deadline for providing information to finalise and renew tax credit awards will be brought forward by one month (from the end of September to the end of August) to shorten the period during which provisional payments may be made using out-of-date information.
From November 2006, automatic limits will be imposed on the extent to which tax credit payments can be reduced to recover higher payments in the earlier part of the year which could lead to an overpayment for the year as a whole. These limits will be set at the same levels at which overpayments from a previous tax year are currently recovered.
From November 2006, the range of changes reducing entitlement that must be reported to HMRC within three months will be expanded to include
In early 2007, towards the end of the tax year, HMRC will contact key groups of claimants to obtain more up-to-date income information on which to base the next year's payments while the finalisation process is completed.
From April 2007, the time allowed to notify changes that must be reported to HMRC will be reduced from three months to one.
From April 2007, when claimants report a fall in expected income during the year, their tax credit payments will be adjusted for the rest of the year to reflect their new income level, but will no longer include a one-off payment for the earlier part of the year. At the end of the year, their award will be finalised when their actual income is known. If they have been underpaid, a further payment will then be made.
From 2008–09, the income figure used in setting provisional payments will be uprated by average earnings where up to date information has not been provided.
A case has been made for a system of fixed awards, which within the framework of the annual tax credits system, would need to be based on the previous year's income. The Government will continue to listen to the case, but believe on balance that it is preferable to maintain the current system that flexibly responds to changing circumstances.
Today's measures will also give claimants clear responsibilities to report changes promptly and more regularly. They will be helped to keep their records up to date, including through more proactive contact by HMRC, allowing HMRC to base tax credit awards on the best possible information.
I am still considering whether there is more that can be done to alert claimants about the recovery of an overpayment before HMRC starts to collect it but the scale of changes to the computer system that would be needed mean that this could not be done quickly.
