CIOT: Think twice before leaving the tax credits system, claimants urged

CIOT: Think twice before leaving the tax credits system, claimants urged

CIOT: Think twice before leaving the tax credits system, claimants urged

Large numbers of people could lose out by not making a tax credit claim for this year, even if they do not currently receive tax credits, the Low Incomes Tax Reform Group (LITRG) are warning.

Within the next few weeks, some 1.8 million tax credits claimants will receive a letter from HMRC warning them that their claim will lapse from 6 April 2011, unless they contact HMRC telling them that they want to renew for 2011/12. Those receiving the letter will be those who have been on a nil award (i.e. not receiving any tax credits because their income is too high), and those who were receiving something last tax year but are now on a nil award because of cuts in tax credits taking effect from 6 April.

Robin Williamson, Technical Director of LITRG, explained:

“It is very important that claimants consider their response to this letter carefully. For those who have made a conscious decision that they want to leave the tax credits system, not responding to the letter can provide a safe and convenient way of doing so.

“But the consequence could be that if your income falls unexpectedly during the current tax year, and you need to make another claim, you will only be able to backdate your claim by three months. If instead you had responded to the letter saying that you want to renew your claim, and had done so within the deadline set, the increase in your entitlement could have been spread back to the beginning of the tax year.

“In other words, leaving the system in this way could cost you money.

“This is because tax credits looks at your income for the tax year as a whole. Any award made during the year is provisional only; nobody can tell what their actual entitlement is until the tax year is over, when all changes in circumstances and income are reviewed to produce a final figure.

“Renewing your tax credit claim is particularly important if you are worried that your income might fall during the current tax year – for example, if you might be made redundant, or are self-employed and can foresee difficult times ahead – or if you are currently entitled to the disability element of working tax credit. In the latter case, allowing your claim to lapse now could make it difficult or impossible for you to re-establish entitlement to the disability element if you need to claim again later in the year.”

Notes to editors

There is further information for recipients of these letters from HMRC on the LITRG website (http://www.litrg.org.uk). This includes details of the changes in tax credits which come into effect this month.

The Low Incomes Tax Reform Group (LITRG) is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.

The CIOT is a charity and the leading professional body in the United Kingdom concerned solely with taxation. The CIOT’s primary purpose is to promote education and study of the administration and practice of taxation. One of the key aims is to achieve a better, more efficient, tax system for all affected by it – taxpayers, advisers and the authorities.

– ENDS –

George Crozier
External Relations Manager

D: +44 (0)20 7340 0569
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The Chartered Institute of Taxation
Registered charity number 1037771
www.tax.org.uk

The Association of Taxation Technicians
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www.att.org.uk