Working Tax Credit

The latest Employers Bulletin (issue 17 - April 2004) reminds employers that existing WTC awards should continue to be paid into the new tax year at the same rate. Because the WTC awards for 2004/05 will not be confirmed for several months, the rate being paid from April 2004 is a provisional rate. The Inland Revenue may adjust the rate if an employee reports a change of circumstances, but all provisional payments will be reviewed when a renewals claim is processed.

As a result, employers will receive one or more stop or amendment notices for each employee receiving WTC payments through the payroll. In some cases, two amendment notices may be received showing the same effective date. In that situation, the notice bearing the highest issue number should be applied.
(Source: www.inlandrevenue.gov.uk/employers/empbull17.htm )
...back to 16 April 2004

Working Tax Credit questions

The Inland Revenue has published a series of questions and answers on different aspects of the payment of WTC through the payroll, including guidance on what to do if contradictory notices are received, or if insufficient notice is given to apply a notice.
(Source: www.inlandrevenue.gov.uk/employers/tcqanda.htm )
...back to 19 March 2004

Recovering overpaid tax credits

The Inland Revenue has published the final version of the code of practice, COP 26 What happens if we have paid you too much tax credit? (See news item on 10 October 2003 .)
(Source: www.inlandrevenue.gov.uk/pdfs/cop26.pdf )
...back to 14 November 2003

Tax credit statistics

At the start of October 2003, 5.8 million families were receiving Child Tax Credits, and 1.71 million (mostly included in the 5.8 million) were receiving Working Tax Credits. Unlike the statistics that were published for WFTC and DPTC, the current figures do not provide information on the number of WTC awards actually being paid by employers or a breakdown of the amounts being paid through the wage packet.
(Source: www.inlandrevenue.gov.uk/stats/personal-tax-credits/oct_stats.pdf )
...back to 31 October 2003

Recovering overpaid tax credits

The Inland Revenue has published, in draft form, a code of practice that explains to recipients of tax credits the procedures that will be followed if they are overpaid during a tax year. Comments may be made on the draft text up to the end of October. Payroll offices may find it useful to have a copy of the draft booklet, and later on the final version, to give information to employees who enquire about this potential problem.

The different ways that overpaid tax credits may be recovered are:

• The Revenue may decide not to pursue recovery if it would cause hardship - taking income, outgoings and family circumstances into consideration - or if the overpayment was caused by a Revenue error.
• If the overpayment is discovered during the year, the ongoing payments are reduced, or stopped altogether.
• If the overpayment is identified after the end of the year, repayment may be arranged by
  • reducing the amount of the ongoing tax credit award, by up to 15% for recipients receiving the maximum tax credit, and 25% in other cases,
  • the recipient making a direct payment to the Inland Revenue, within 30 days of the request, or in instalments if agreed,
  • reducing the recipient's PAYE code.

• If the overpayment was caused by an incorrect claim that was made fraudulently or negligently, interest and penalties may also have to be paid.

(Source: www.inlandrevenue.gov.uk/consult_new/cop-tax-credits.pdf )
...back to 10 October 2003

Tax credit awards

Figures announced by the Inland Revenue at the end of July show that 4.75 million claims for Child Tax Credit and Working Tax Credit have been made, of which 4.5 million are now being paid, 90,000 are awaiting further information or being verified, and 190,000 have been rejected.

A further 1.3 million families are receiving Child Tax Credit automatically through Income Support or Jobseekers Allowance. (Sources: http://www.gnn.gov.uk/gnn/national.nsf/IR/84...
...back to 1 August 2003

Tax Credit Notices - (This article has been reproduced by kind permission of the IPPM)

1. A significant proportion of the notices that have been received this week are dated from early April with mid-May start dates. Therefore employers have not been given the required 42 days lead-time.

If you are unable to cope with the volume of "short notice" forms or have already closed your May payroll you should send the relevant notices back to the Tax Credit Office, marking them "42 days lead time not given". This can be done via a covering letter for a batch of notices rather than signing a declaration for each one. The Inland Revenue will shall ensure that direct payments are made in the interim to those affected and new start notices will be issued giving the required 42 days notice lead in. This will unfortunately generate emergency stop notices which are a legal requirement, however you can ignore them.

2. Forms have been received with conflicting or duplicate instructions for example

• Stop notices dated before the award is due to start
• A sequence of amendment notices over a few days or all for the same day but with differing amounts
• Stop notices taking effect after one day of the award
• Stop notices filled with zeros in the date field
• Notices with duplicate issue numbers

Please find detailed below guidance issued by the Inland Revenue to IPPM for employers, on the various scenario's members have highlighted to date:

1. Stop Notices are being issued with a stop date, which is earlier than the original start date. The employer should not start paying tax credits in these cases and should return the Notice to TCO.
2. Stop Notices are being issued where no Start Notice has been issued. Employers will not be paying tax credits to the employees concerned and so should return any such Notices to TCO.
3. Stop Notices are showing zeros in the 'Date of TC700 Start Notice' field. Provided all the other information on the Notice appears correct, the absence of a date in this field should not prevent the employer giving effect to the Notice.
4. Stop Notices are being issued with a stop date far into the future e.g. 31/08/2003. The employer should continue paying tax credits and should return the Stop Notice to TCO. (Until April 2004, the Stop Notice should always give the employer a stop date 42 days in the future. Where eligibility to WTC ceases before the PVE start date, this may mean that employers will legitimately pay out tax credits for a short period of days only. After April 2004, TCO staff will contact the employer when such a case arises to agree a stop date and an Emergency Stop Notice will confirm this date.)
5. Start Notices are being issued on the same or different dates showing identical information in either or both of the following fields:
   
   - 'Start paying tax credits from ......';
   - 'The daily rate of tax credit is.........'.
   
   These Notices may have the same or different 'Issue Numbers'
   • Where the information in both of these fields is identical, the employer can give effect to one of the Notices irrespective of the 'Issue Number' and retain the other as a duplicate.
   • Where the information is different in one or both of these fields and there has been no intervening Stop Notice, the Start Notices should be returned to TCO.

   
   

6. Duplicate Amendment Notices are being issued on the same or different dates showing identical information in the following fields:
   
   - 'Start paying the new rate from ......';
   - 'The new daily rate of tax credit is.........'.
   
   These Notices may have the same or different 'Issue Numbers'.
   • Where the information in both of these fields is identical, the employer can give effect to one of the Notices irrespective of the 'Issue Number' and retain the duplicate.
   • Where the information in both of the fields is different, this is likely to be a legitimate change and the employer should give effect to each in Issue Number order provided the Issue Numbers are also different. Where the Issue Numbers are the same, the Notices should be returned to TCO.
   • Where the information is different in only one of these fields, they should be returned to TCO

   
   If you are able to confidently interpret the intended action for a particular employee then please action the relevant notice(s). If however you cannot be sure of the correct action to take you should contact the employer's help-line for advice who have been provided with information so that they can answer these specific questions.

3. There is evidence that some forms, are still being received with no client name and as such that they cannot be matched to the relevant employee. In the event that you cannot match the start notice (TC700) you should contact the help-line.

Subject: Tax Credit Overpayments
Reference: Inland Revenue

The Inland Revenue has now confirmed the following:

In the event of an overpayment of Tax Credits caused by the retrospective reporting of a date of leaving or death you may inform the Inland Revenue of the amount of the overpayment in writing rather than by telephoning the employers' helpline.

The details that must be provided whether in writing or by telephone are:

Employee's name : Date Tax Credit paid to
NINO : Date of Leaving/death
PAYE Reference : Reason for leaving if death.

You can also provide the total amount of tax credits you as the employer have paid; however, the Inland Revenue does not require this information.

Should you wish to inform the Inland Revenue in writing you should write to:

Inland Revenue
Tax Credit Office
C/o Employer Liaison Team
Cop Lane, Preston
PR1 0SD

...back to 9 May 2003

Tax Credit Award delays

The Inland Revenue press office issued the following information on 29 April about the serious delays in handling tax credit applications and the difficulties experienced by applicants when phoning the tax credit Helpline.

"We have had nearly 2,000 people on the helpline. Despite that, the sheer weight of traffic meant that callers were having trouble getting through. We're sorry about that and have since put more staff on to improve the service. We've added several hundred advisers to the line, so that there are now an extra 700 staff available to take calls. Many people now seem to be calling because they are worried by the media coverage, rather than because there is a problem - which of course increases demand further. But the helpline is beginning to answer a significantly larger proportion of the calls being made.

The number of calls means people may have to try ringing more than once, but the helpline is open 8.00 am to 8.00 pm, 7 days a week. Lines tend to be quieter in the early afternoon on weekdays and Saturdays, and all day on Sundays.

If people don't want to wait on the phone, they can call into any Inland Revenue Enquiry Centre. Jobcentre Plus customers can also go to their Jobcentre Plus office. Or, they can write to: Inland Revenue Tax Credits Office, Preston, PR1 0SB.

The overwhelming majority of people will not need special arrangements for getting their money. They either have had it, or aren't due it until early May. In the tiny minority of cases where a payment is due and has not been received, as an alternative to phoning the helpline, claimants may want to visit their local Inland Revenue office. Local offices can check the status of a claim and, where appropriate, can arrange an interim payment of tax credits."
...back to 2 May 2003

Working Tax Credit payment errors

Due to an error in the computer specification provided to payroll system developers by the Inland Revenue, some minor under/over payments may be made when an amendment notice is applied. The error can cause the old rate of WTC to be paid for one day more than it should, and for the new rate to be paid for one day less.

Some payroll developers spotted the error and have made the necessary adjustments for the payments to be made correctly. In other cases, developers may not make the change until the start of the 2004/05 tax year.

If any employees report an under/over payment in this situation, they should be instructed to contact the Tax Credit Helpline. Employers will not be involved in correcting the error.
(Source: IR Notes for Payroll Software Developers)
...back to 18 April 2003

Overpayment of tax credits

The following guidance on how employers should handle overpayments of Working Tax Credit is given in the Revenue's latest Tax Bulletin. In some situations, employers could find themselves liable for the overpayments.

• Under the previous rules for payment of Working Families' Tax Credit, an employee leaving the employment could be paid the credits up to either the last day of employment or the last day of the pay period. This practice does not apply to payments of the Working Tax Credit. Payment may only be made to the last day of employment. Under the new rules, employees cease to qualify for WTC unless they start a new job within seven days. Therefore, if an employer pays WTC beyond the date of termination, commonly because the month's salary has already been paid when the payroll office hears that the employee has left, the payroll office must contact the Employer's Helpline (08456 143143) within seven days of finding out that the employee has left, and report the last day for which payment has been made. If this procedure is followed, the employer will not be held liable for the overpayment.
• Exactly the same procedure should be followed if it is found that an employee has died and tax credits have been paid beyond the date of death.
• If it is found that an employer has not applied an amendment notice or a stop notice because there is no trace of it having been received, the employer will not be held liable for the resulting overpayment as long as the Revenue has no reason to doubt the employer's word. The overpayment will be recovered from the claimant, normally by reducing any ongoing payments.
• If an overpayment occurs that is the fault of the Revenue, the corrections will be arranged between the Revenue and the claimant. The employer will have no liability as long as the instructions given on a start, amendment or restart notice have been correctly applied. A code of practice is to be published to cover this situation.
• If an employer makes an overpayment of WTC in a pay period, the excess may be recovered from the employee by reducing the payment in the next pay period.

(Source: www.inlandrevenue.gov.uk/bulletins/tb64.pdf)
...back to 18 April 2003

Entitlement to Working Tax Credit

The tax credit legislation requires one or other, or both, of the person or persons making a claim for Working Tax Credit (WTC) to be engaged in "remunerative work". Circumstances where a person is deemed to be in "remunerative work", although not actually working, are defined in new Regulations that take effect from 6 April 2003.

Employees are considered to be in "remunerative work" for any period during which they are

• receiving maternity allowance, SMP, SPP or SAP, or
• not receiving any of those payments but are absent from work during ordinary maternity leave, paternity leave, or ordinary maternity leave, or
• receiving SSP or short-term incapacity benefit at the lower rate, or
• receiving income support or national insurance credits on the grounds of incapacity for work, for a period of up to 28 weeks only, or
• on strike for a period of not more than 10 consecutive days on which they should have been working, or
• suspended from work while complaints or allegations are investigated.

In each case, the employees must have been in qualifying remunerative work immediately before the beginning of the period.

However, employees who stop work and are paid in lieu of notice are not considered to be in remunerative work during the period for which the payment is made.

The impact of these Regulations for employers is as follows:

• Payments of WTC can continue to made through the payroll while employees are absent sick or taking maternity, paternity or adoption leave, whether or not they are being paid SSP, SMP, SPP or SAP, or during short-term industrial action, or suspension during investigations.
• However, employers may stop making payments of WTC if they are unable to make the payments through the payroll when no other payments are being made. The employer should contact the Revenue immediately by telephone if the decision is made to stop payments. The Tax Credit Office will continue making the payments direct to the employee.
• The Revenue's guidance on trade disputes is that WTC should continue to be paid if the dispute lasts for less than an employee's pay period but, if it lasts longer than the pay period, the employer should contact the Revenue by telephone for guidance. The new Regulations also indicate that, if an employee is on strike for more than ten consecutive working days, payment should stop and the Revenue informed immediately.
• When an employee leaves, payment of WTC should be made only up to the date of termination, even if the notice period would have continued to a later date if it had been worked instead a payment in lieu of notice being made. However, if an employee is on "garden leave" during the notice period, WTC should continue to be paid until the true date of termination. In any situation where an employer pays WTC beyond the date of termination, the Revenue must be contacted immediately by telephone to prevent the employee receiving WTC twice for the same period.

If an employee needs to contact the Revenue urgently in any of these situations, the phone call must always be made to the Employer's Helpline (08457 143143), not the Tax Credit Helpline. The latter is only for the use of recipients of tax credits.
(Source: The Working Tax Credit (Entitlement and Maximum Rate) (Amendment) Regulations 2003 - www.inlandrevenue.gov.uk/si/2003-0701.pdf )
...back to 21 March 2003

Tax Credits

Useful background information is given in Issue 12 of the Revenue's Working Together document on the reporting requirement of employees who are in receipt of the new tax credits. The amount of an award of Working Tax Credit (WTC) does not change unless employees report changes in their family circumstances or in their level of income.

Recipients of WTC are required by law to notify the Revenue within three months if the following changes in circumstances arise during the tax year:

• a change in the composition of the household, e.g., a couple splits up, or two people start to live together as a couple, or
• the amount spent on childcare reduces or stops altogether.

Otherwise, other changes may be reported at the time, or at the end of the tax year. This includes changes in levels of earnings. If earnings increase, awards are only affected if the increase is more than £2,500 over the previous year's gross earnings. However, a fall in earnings, however small, is used to increase an award by the total amount of the reduction.

Consequently, it is expected that the events that are most likely to prompt the Revenue to issue amendment notices to employers during a tax year are (1) changes in the composition of the recipient's household, and (2) falls in the gross earnings of the recipient's family. The Revenue's Working Together notes are available at www.inlandrevenue.gov.uk/workingtogether/publications/wt_12.htm .
Payroll Briefing 18 - 28 March 2002

Tax Credits and P60s

Awards of tax credits from April 2003 are based on annual earnings as shown on employees' P60 End of Year Certificate. Many employers have been asked to provide duplicate certificates by employees who have lost their original forms and, as a result, the Inland Revenue has relaxed its restriction on never issuing duplicate P60s.

Duplicates may now be issued if the original is lost and the details are needed for a tax credit claim. Any duplicate form issued must be clearly marked "duplicate". Alternatively, the details from the original P60 can simply be reproduced on some other form of statement.
Payroll Briefing 18 - 28 March 2002

Tax Credit information

An information pack of documents has been put together by the Revenue for the benefit of welfare rights organisation and advice centres. The contents would be ideal for payroll offices wishing to have basic information to pass on to employees who enquire how they will be affected by the changes from April 2003. The pack, available at www.inlandrevenue.gov.uk/taxcredits/welfare_advice_orgs.htm#pack , includes a number of bulletins, a ready-reckoner that gives approximate award levels at different income levels, and a PowerPoint presentation that includes several case studies. Alternatively, enquiring employees can be directed to the Revenue's dedicated website, at www.taxcredits.inlandrevenue.gov.uk .
Payroll Briefing 8 - 10 October 2002

New tax credits

The new Working Tax Credit and Child Tax Credit will replace the existing tax credits from April 2003. The initial payments will be based on gross income in the 2001/02 tax year. TC600 claim forms will be send automatically to current recipients, and applicants should be able to provide the necessary details from the P60s. Employees who have not kept their P60s may have to ask their employers for a copy of the earnings details from the P14.

It is estimated that 9 out of 10 families will qualify for the new tax credits. However, as the Working Tax Credit will be available to individuals and couples without children, people who do not currently qualify for a tax credit may order an application form from 0845 300 3900, or from 0845 603 2000 in Northern Ireland.

Alternatively, the Revenue has opened a dedicated secure website to allow anyone to find out if they qualify for one or both of the new tax credits. This interactive site provides guidance, an estimate of entitlement based on the details entered, and the opportunity to complete and submit an on-line application form. The address is www.taxcredits.inlandrevenue.gov.uk .

The Revenue will not start to send out confirmation of the new payments to individuals until January 2003. Employers will start making payments of the Working Tax Credit in May 2003.
Payroll Briefing 6 - 12 September 2002

Tax credits

Issue 11 of the Employer's Bulletin is included in the Budget Pack and, as well as covering the key Budget changes, includes an article covering the basics of the two new Tax Credits that will be introduced from April 2003, namely the Child Tax Credit (CTC) and the Working Tax Credit (WTC). Note that the names of these tax credits have been changed from those used in earlier announcements, and explained in Payroll Briefing issue 209 . The Working Families' Tax Credit (WFTC) and the Disabled Person's Tax Credit (DPTC) will be paid to recipients until the end of the current tax year.

CTC draws together all of the child payments that are paid as part of the existing tax credits, Income Support and JobSeeker's Allowance, and the Children's Tax Credit that currently takes the form of a tax allowance and is paid by increasing the recipients' tax codes. The Revenue will pay CTC direct to the main carers of the children.

WTC will no longer include any payments in respect of children and will replace what is left of the WFTC. It will, however, include payments in respect of disabilities, and will therefore also replace the DPTC. The new feature is that it will be available to individuals and couples without children who meet certain criteria. As with the existing tax credits, WTC will be paid through the payroll, although the burden on employers is being eased considerably.

In addition to the basic information in the latest Employer's Bulletin, a detailed description of the credits was published by the Treasury at the time of the Budget, a range of questions and answers are tackled on the Revenue's website, the Tax Credits Bill is currently under consideration by the House of Lords, and the detailed Regulations have just been published in draft form.

The following notes describe the nature of the new credits, how they are calculated, the responsibilities of employers for payment, and the transitional arrangements for their introduction.

Entitlement

Entitlement to WFTC and DPTC is based on net income, after tax and NICs. In contrast, entitlement to the new credits will be based on the gross income of the claimant or, in the case of a couple, their combined gross income, i.e. before deduction of tax and NICs. However, other taxable income, notional income, and the value of certain taxable benefits-in-kind will be included, in particular company cars and fuel benefit, cash and non-cash vouchers, credit card purchases, and payments in kind. The total amount of contributions to approved pension schemes will be excluded, as will social security benefits that are not taxable, student loans and grants, and the first £300 of income from minor sources. The general effect is that taxable income, from whatever source, will be the income on which the new tax credits will be calculated.

The Child Tax Credit will be paid to the person "responsible" for a child or young person, in most cases the person with whom the child or young person lives. A person is a "child" up to 1 September following the sixteenth birthday, and is a "young person" if under the age of nineteen and in full-time education.

Entitlement to the Working Tax Credit is dependent, not just on earnings, but on the individual, or one or both partners in a couple, being in remunerative work. This means:

• working for pay for at least 16 hours a week - in the case of (1) claimants, or their partners, who have responsibility for a child or young person, (2) claimants who are disabled, (3) claimants who are at least 50 years of age and returning to work from welfare
• working for pay for at least 30 hours a week and at least 25 years of age - in all other cases

Calculating the payments The various elements of the tax credits and the weekly rates at which they will be paid to a claimant entitled to full payment will be as follows:

Payment of Child Benefit is not affected by any CTC award.

Awards of CTC and/or WTC will be made up of the elements appropriate to the claimant's circumstances and will be paid in full if the claimant's gross income does not exceed £97 per week (£5,060 per year), the "first income threshold". If gross earnings exceed that threshold, the full award will be reduced by 37p for each £1 by which gross income exceeds the threshold. The total amount of the reduction will be applied

• first, to the WTC part of the award, except for any childcare element of the award
• second, to the childcare element of the award
• third, to the CTC part of the award, except for the family element.

The family element of CTC (i.e. that part of the CTC that replaces the current Children's Tax Credit) continues to be paid in full until the "second income threshold" is reached, i.e. £958.90 per week (£50,000 per year). Beyond that threshold, the family element is reduced by £1 for each £15 by which gross earnings exceed the threshold.

Example
A couple have two school-age children. The father works full-time and earns £200 a week; the mother works part-time and earns £100 per week. They pay out £60 a week for childcare.

If their combined earnings were not more than £97 week, they would be entitled to the maximum possible payment of £177.85, made up of £65.95 CTC, plus £42.00 CTC childcare element, plus £69.90 WTC.

As their weekly earnings exceed £97 by £203, the maximum possible payment is reduced by £75.11, i.e. 37% of £203. The total award is, therefore, £102.74.

The £75.11 reduction wipes out the £69.90 maximum WTC payment altogether, and the first £5.21 of the WTC childcare payment.

The resulting payment is £102.74, i.e. £65.95 CTC, paid direct to the mother, plus £36.79 WTC childcare element, paid to either the father or mother through the payroll.

Changing circumstances

In principle, the new tax credits are intended to reflect gross earnings in the current tax year. For entirely practical reasons, they will be based instead on earnings in the previous tax year, but will allow for the resulting awards to be amended when circumstances change in the current tax year. At the start of each tax year, recipients will be asked to confirm their current circumstances and give details of their previous year's earnings, as shown on their P60. From the information provided, the award for the new tax year will be calculated. Because of the inevitable delay in receiving this information, the previous year's payment will continue into the new tax year and any underpayment or overpayment will be incorporated in the final calculation. It should be noted that, although the tax credit rates and the worked example given above show tax credit awards worked out on a weekly basis, they will, in practice, be worked out using annual figures.

Recipients will be required by law to notify the Revenue, within three months, if the following changes in circumstances arise during the tax year:

• a change in the composition of the household, or
• the amount spent on childcare reduces or stops altogether.

Otherwise, other changes may be reported at the time, or at the end of the tax year. This includes changes in levels of earnings. It is accepted that many applicant's earnings will rise year on year, so awards will only be affected if gross earnings increase by more than £2,500 over the previous year's gross earnings. Even then, only the amount by which the increased earnings exceed £2,500 will be used to calculate the reduction in the award. However, a fall in earnings, however small, will be used to increase an award by the total amount of the reduction.

Example
The couple in the above example have combined earnings of £15,600 in the last tax year and their award for the current tax year is based on those earnings.

1. At the start of the new tax year, the father's pay increases to £260 per week. His annual earnings have increased by £3,120. He notifies the Revenue immediately and the award is recalculated by increasing gross earnings for the previous tax year by only £620 (i.e. £3,120 - £2,500) to £16,220.
2. Also at the start of the new tax year, the mother reduces her working hours and now earns £70 per week. Her annual earnings have fallen by £1,560. She reports the change immediately, and the award is recalculated by reducing the previous year's earnings by the full £1,560. Including the effect of the father's pay rise, their combined earnings are now treated as if they had been £14,660.
3. Any award for the following tax year will be based on the actual combined earnings in this current tax year.

If changes that would have the effect of reducing the award are not reported at the time, any overpayment will be collected by

• adjusting the following year's award accordingly, or
• decreasing the following year's tax code accordingly, or
• asking for direct repayment, but only as a last resort.

Conversely, if changes that would increase the level of an award are not reported until the end of the year, the Revenue will recalculate the award and pay the underpayment as a lump sum payment. Payment by employers

Employers should find that the work involved in administering the payroll aspects of tax credits will be much reduced from 2003/04. Instead of six-monthly stop-start awards, employers will be told how much to pay until further notice and, in many cases, the rate of payment will only change once a year. The notice period for all changes, even for weekly-paid employees, will be 42 days. As awards will be based on gross earnings, as shown on form P60, there will no longer be any earnings enquiries to complete, or copies of payslips to produce. The requirement to complete certificates of payment for leavers will be scrapped.

Awards may start, stop or be changed from any day of the week. This could mean that an employer could be asked to apply more than one change of rate in the same pay period. The Revenue have stated that no more than three different rates will have to be handled in the same pay period, i.e. the existing rate and two changes. Payroll software will need to be changed to accommodate this situation.

Transitional arrangements These were explained in the Budget report in issue 223 of Payroll Briefing, but some further information is now available.

As far as claims for the new tax credits are concerned, all existing recipients of tax credits will be given instructions on how to apply. In addition to paper application forms, an interactive website facility will be provided allowing individuals to test their entitlement and, if appropriate, complete and submit their application on-line.

To prevent recipients having to make claims for the existing credits if their awards run out towards the end of this tax year, all awards made from 4 June 2002 onwards will run until Monday, 7 April 2003, rather than for the normal six months. The last payments made by employers will be for the period up to Monday, 17 February 2003. The Revenue will pay direct any further payments up to 7 April 2003.

The first payments of the new awards will be made from 18 May 2003, i.e. after 42 days notice counting from 6 April 2003.
Payroll Briefing 224 - 23 May 2002

New tax credits

The payment of Working Families' Tax Credit (WFTC) and Disabled Person's Tax Credit (DPTC) through the payroll began in April 2000. Even before employers started to make the payments, the Chancellor, in his 2000 Budget, announced that he intended to replace them, from April 2003, with two different "tax credits", i.e. the Integrated Child Credit (ICC) and the Employment Tax Credit (ETC), although these are provisional names. Furthermore, the announcement made clear that the Children's Tax Credit (CTC), the new tax allowance to replace the Married Couple's Allowance and still a year away from its introduction in April 2001, would only operate for two years and would also be replaced by the Integrated Child Credit.

On 19 July 2001, the Inland Revenue published a consultation document entitled "New Tax Credits - Supporting Families, Making Work Pay and Tackling Poverty", inviting comments on these tax credit proposals. Whereas the WFTC and DPTC were simply temporary enhancements of the previous Family Credit and Disability Working Allowance, the new ICC and ETC are intended to implement the Government's strategy of "eradicating child poverty and making work pay".

The new tax credits will replace WFTC, DPTC, the New Deal 50+ Employment Credit (currently administered by the Department for Work and Pensions), the CTC, and the child-related elements of Income Support and income-based Jobseeker's Allowance. As will be seen in the following paragraphs, the existing provisions are being dismantled and reassembled in a new format, without disadvantaging anyone receiving the existing benefits.

Like WFTC, the Employment Tax Credit will be based on the level of earnings, but it will not be restricted to families with children. From April 2003, the ETC will be paid by employers along with wages and will be made up of the following elements:

• a basic payment, at different rates for individuals and families
• a full-time payment, where a family member works at least 30 hours per week
• a disability payment, in respect of each adult family member with a disability
• an enhanced disability payment, in respect of each adult family member with a severe disability
• an age-related payment, in respect of individuals aged 50 or over and returning to work after a period on certain benefits
• childcare payments, in respect of eligible childcare costs.

Unlike the child payments that are currently paid with WFTC, DPTC, CTC, Income Support and Jobseeker's Allowance, the Integrated Child Credit will not be dependent on families receiving these credits or allowances. The ICC will provide regular income for families with children, whether or not they are in work, and will be assessed on the basis of household income. Payment will be made to the main carer, in line with Child Benefit, direct to the carer's bank account.

From April 2003, the ICC will be made up of the following elements:

• a family payment, broadly in line with the CTC
• a higher family payment, for families with one or more children under the age of one, broadly in line with the CTC enhancement due
from April 2002
• a child payment, in respect of each child in the family
• a disability payment, in respect of each child with a disability
• an enhanced disability payment, in respect of each child with a severe disability

By April 2003, the Revenue anticipates that some 300,000 employers will be making tax credit payments to their employees. This is not expected to change as a result of the introduction of the new tax credits. Neither is the overall number of recipients expected to change, with the increase in the number of employees entitled to ETC offset by those currently receiving WFTC in respect only of children and who will move to direct payments of ICC.

The consultation document also outlines radical changes that are proposed to the way in which awards of tax credits are determined, permitting significant reductions in the workload that tax credits create for employers. The proposals are:

• ETC and ICC will be paid for the twelve months of each tax year, instead of the current rolling six-month periods
• entitlement to ETC and ICC will be calculated on the basis of annual income in the previous tax year, but adjustable where there are
significant changes in income in the current tax year
• awards will be made "until further notice" and employers will only change the amount of payment or stop payments when instructed to
do so
• as entitlement to ETC ceases when a recipient leaves employment, there will no longer be any requirement to complete a Certificate
of Payments
• as applications for ETC and ICC will be based on information recorded on P45s and P60s, it will not be necessary for employers to
routinely complete earnings enquiry forms
• a single 42-day notice period for all ETC awards, irrespective of pay frequency.

Of future interest is the comment on page 44 of the consultation document, that "more radical integration of Housing Benefit and Council Tax Benefit with tax credits is an issue for the longer term."

Comments on the proposals and options set out in the consultation document are requested by 12 October 2001. Draft legislation is expected to be published later in the autumn. Copies of the document may be obtained by post from Sandra Bevan, Inland Revenue, Room 50, New Wing, Somerset House, Strand, London WC2R 1LB. Alternatively, it may be downloaded in 'pdf' format from www.inlandrevenue.gov.uk/consult_new/new_tax_credit.htm.

Inland Revenue press release 95/01 of 19 July 2001 - Payroll Briefing 209 - 27 September 2001

New role for the Revenue

The Inland Revenue is to take over the Child Benefit Centre in Washington, Tyne and Wear. The intention is that, when the new Integrated Child Credit (ICC) is introduced in April 2003, also managed by the Revenue, families will have one Government department to deal with about the two family benefits.

Child Benefit is paid to over seven million families with nearly 13 million children. The Government has confirmed that it will continue to be a universal benefit paid for children under 16, and those in further education up to age 19.

The ICC will be paid, from April 2003, to families who are currently receiving the additional child payments associated with Income Support, Jobseeker's Allowance, Working Families' Tax Credit, Disabled Person's Tax Credit and the new Children's Tax Credit (CTC).

Child Benefit in Northern Ireland will continue to be the responsibility of the Northern Ireland Executive and Assembly.

Department for Work and Pensions press release of 25 June 2001. - Payroll Briefing 206 - 19 July 2001

Working Families' Tax Credit

The number of awards increased by 3% in the quarter to 30 November 2000, to 1,168,000. Nearly 52% of awards are made to lone parents. The average gross weekly earnings of the main earner was £163. Awards averaged £77.44 to couples and £83.85 to lone parents. A further 26,790 awards are currently being paid to disabled persons. - Payroll Briefing 201 - 9 May 2001