Tax credit claimants working reduced hours urged to check if they need to notify HMRC

In response to the coronavirus pandemic, HMRC introduced easements for tax credit claimants.¹ This included special rules for working tax credit claimants who could not work their normal hours because of the impacts of the pandemic – essentially allowing their tax credits to continue uninterrupted by treating them as working the same hours as they were before the pandemic.²

Complex rules

These special rules were in place until 30 September 2021. From 1 October 2021, a complex series of rules replaced them for claimants who were still not able to resume their usual working hours (or the level needed to qualify for working tax credit) as a result of the pandemic.³

For people in this situation, the new rules mean that the point at which a claimant needs to notify HMRC about their situation depends on whether they expect their hours to return to the level needed to claim working tax credit by 25 November 2021:

• If they do expect to reach the required level by 25 November, they do not need to do anything immediately, and only need to tell HMRC on 25 November if their hours do not return to the required level.
• However, at any point from 1 October 2021, if they do not expect their hours to reach the required level by 25 November 2021, even if the situation is temporary, they must inform HMRC immediately as HMRC are treating that as a permanent change. Their working tax credits will then continue for a further four weeks before ending.⁴

For example, suppose that a claimant who was working reduced hours (below the level required for working tax credit) before 1 October 2021 was told on 1 October that they will continue on reduced hours until 1 December, at which point they will then return to their usual hours – in that situation, they should have reported that to HMRC on 1 October. However, the information on GOV.UK⁵ currently says they do not need to tell HMRC until 25 November. We understand HMRC will be writing to people who they think may be affected by these new rules and those letters should relay the correct instructions – but it may be too late for some people to avoid an overpayment of tax credits, fears LITRG.

Victoria Todd, Head of LITRG, said:

“The tax credits easements introduced due to the pandemic were welcome for claimants. It is unfortunate but not unexpected that the rules for the ending of the working hours easement are so complex: HMRC are attempting to provide a series of run-ons to avoid a ‘cliff-edge’ end to entitlement for those still struggling to resume their normal hours. We are urging claimants to check LITRG’s website guidance to understand the full rules and check whether they need to report any changes to HMRC before 25 November.”

‘Misleading’ HMRC guidance

Victoria Todd said:

“The GOV.UK guidance is over-simplified and, as a result, misleading. It indicates that all claimants who benefited from the working hours easement, and whose hours are still not back to the required levels, do not need to do anything before 25 November 2021 unless they have a permanent change. This is not correct in cases where the change in their working hours remains temporary but is expected to last beyond 25 November. In those cases, they must tell HMRC immediately.

“Anyone in that position who has not told HMRC may build up an overpayment, which can be minimised if they tell HMRC of the change now. We urge HMRC to correct the GOV.UK guidance as soon as possible and also to confirm that no-one will receive a penalty as a result of following the guidance. In addition, HMRC should write-off any overpayments resulting from people following the GOV.UK guidance – which their dispute policy allows them to do in a situation such as this.”

Notes for editors

1. See https://www.gov.uk/government/news/tax-credits-customers-will-continue-to-receive-payments-even-if-working-fewer-hours-due-to-covid-19 for the original announcement of the easement for working tax credit claimants. The changes applied to both employed and self-employed claimants. See https://www.litrg.org.uk/tax-guides/coronavirus-guidance/tax-credits-and-coronavirus for a full list of all tax credit easements.

2. Working tax credit entitlement is based on working a certain number of hours. The hours required depend on the claimant’s circumstances – see https://www.litrg.org.uk/tax-guides/tax-credits-and-benefits/tax-credits/what-working-tax-credit#toc-how-many-hours-do-i-need-to-work-to-get-wtc- Usually, reductions in the number of hours a person normally works, need to be reported immediately to HMRC and may impact on working tax credit entitlement. Penalties can be charged if the change is not reported within 1 month.

3. The LITRG websites explains the rules from 1 October 2021 and includes examples Tax credits and coronavirus | Low Incomes Tax Reform Group (litrg.org.uk). The rules apply to both the employed and self-employed.

4. If the claimant increases their hours to the level required for working tax credit in the 4 week run-on period, their working tax credit entitlement can continue under the normal tax credit rules. They should notify HMRC of the increase in their hours.

5. See https://www.gov.uk/changes-affect-tax-credits under ‘if your working hours fell because of coronavirus (COVID-19)’

6. Low Incomes Tax Reform Group

The 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 the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

Contact Hamant Verma, External Relations Officer, 0207 340 2702 [email protected]