Concern at potential confusion for claimants renewing their tax credit claims
Hundreds of thousands of tax credit claimants, who had their claims auto-renewed last year due to the covid pandemic, will have to complete and return renewal declaration forms this year by 31 July or lose their entitlement, the Low Incomes Tax Reform Group (LITRG) is warning.
LITRG has issued the warning as HMRC recently completed the sending out of 2.5 million renewal packs.1
The Group is also reminding those renewing their claims to check all coronavirus-related payments they have received to see if they count as income for tax credits, and if so, how they need to declare the payments, amid concerns about confusion as to what does, and does not, count.
If you claim tax credits, you should have received your annual renewal pack for 2021. HMRC send them out by post between April and June each year. HMRC expected to send out all packs out by 4 June 2021.
HMRC auto-renewed most claims in 2020 because of the impacts of COVID-19 – but HMRC are not doing that this year. It means more people will be receiving ‘reply required’ renewals2 this year which they must act on and declare their income for the 2020/21 tax year (or an estimate) by 31 July 2021.
It is also important this year that tax credit claimants check whether they need to declare any COVID-19 related support payments as income for tax credits. People should also check their circumstances carefully. Various concessions in the rules were introduced during the 2020/21 tax year to help with the impacts of the COVID-19 outbreak – for example in relation to temporary reductions in usual hours of work. Broadly speaking, any temporary changes to work/working hours because of COVID-19 do not need to be reported to HMRC at present, but you must report any permanent changes.3
Head of LITRG Victoria Todd said:
“We are concerned that some people may wrongly assume that their tax credits will be renewed automatically this year and that there will be potential confusion about the various COVID-19 payments, whether they count as income for tax credits and how they should be declared.
“Whatever type of renewal pack HMRC send you, make sure you follow the instructions and complete any actions by 31 July 2021. It is especially important this year to check your income carefully and make sure any COVID-19 support payments that you received have been properly declared.
“HMRC have published some information on the GOV.UK website outlining some of the payments to include as income for tax credits. However, the GOV.UK page4 does not explain how these payments should be declared. You need to check carefully whether they are already included in any of the figures HMRC hold or that you have already calculated – so that you do not double count them.”
For example, the bonus payments for health and social care staff, which count as income for tax credits, were paid through the payroll and should be already included in your P60 figure and in the figure shown on your award notice if HMRC have received earnings data from the tax system.
If you are self-employed and have completed your tax return for 2020/21 that already includes COVID-19 grants in your trading income figure, then you should make sure you do not double-count any payments when doing your tax credits renewal.
Tax credits broadly follow the tax rules: if income is taxable, it will be income for tax credit purposes with only a few exceptions. One of those exceptions is the £500 NHS test and trace self-isolation payments (including equivalent payments in Wales and Scotland) which are taxable but should not be included as income for tax credit purposes.
Self-employed
If you are self-employed and you received any payments under the SEISS scheme, you should include these in your tax return and they will form part of your trading income figure for tax credits. For self-employed individuals and partnerships where the grant was paid directly to you (rather than paid into and then shared out by the partnership), which year they are included depends on which grants you received. SEISS grants 1, 2 and 3 are taxable in the 2020/21 tax year and should be included in your tax return/your trading income figure for 2020/21. There are slightly different rules in a partnership which shared the SEISS grants according to the Partnership Agreement.
Victoria Todd said:
“If you are unsure about whether a grant or payment should be included as income for tax credits or how to declare it as income – contact HMRC.”
Victoria Todd added:
“We are also taking the opportunity to remind people that they may be able to make deductions from their income figure for tax credits – for example for weeks they were receiving certain statutory payments such as statutory maternity pay, for qualifying pension contributions or allowable work expenses. You should check the renewal notes carefully to see if you can make any deductions from your income figure.5
“You may not have your actual income figures for 2020/21 ready by 31 July, for example if you complete income tax Self Assessment where the deadline for submission is 31 January 2022. If you do not yet have your actual income figure for 2020/21, its very important that you provide HMRC with an estimate of your 2020/21 income by 31 July 2021 and you will then have until 31 January 2022 to provide them with your actual figure.
“If you have already completed your renewal and think you have made a mistake with your income declaration or anything else on your renewal – as long as you contact HMRC before 31 July they should be able to correct things and issue you a new award notice based on your updated information.”
In response to the potential scale of confusion this year, LITRG has updated its website guidance, based on current available information, on changes to the tax credits system to help claimants affected by COVID-19 and on the treatment of the various COVID-19 grants.6
Notes for editors
1. HMRC’s data: Out of 2.95 million renewal packs in 2020, just 150,000 of those were reply-required packs and the rest auto-renewals. In 2021, out of approximately 2.5 million renewal packs, roughly 800, 000 are reply-required renewal packs (almost a third) and the rest are auto-renewals.
2. Reply-required: This is where HMRC ask you to fill in a declaration form – either on paper, over the phone, online or via the HMRC app – by 31 July. You must declare your 2020/21 income (you must tell HMRC if it is an estimated income figure) and check the circumstances HMRC hold about you that they have replayed in your renewal paperwork. HMRC will then make a final decision about your entitlement and send you a final notice for the tax year that ended in April (2020/21) and they set up your new claim for the next tax year (2021/22) and send you an initial award notice. If you do not complete your renewal by the specified date (31 July), your claim is not automatically renewed and your payments will stop and all payments made from 6 April 2021 will become overpaid and may have to be paid back.
Auto-renewal: This is where HMRC send you a notice that replays your circumstances and shows the income information that HMRC hold for you. You only need to contact HMRC if anything is wrong, missing or incomplete on the notice by 31 July, otherwise the information will be used to finalise your claim for 2020/21 and set-up your claim for the new tax year.
3. More information is here.
4. https://www.gov.uk/guidance/tax-credits-working-out-income
5. https://www.gov.uk/guidance/tax-credits-working-out-income#income-from-employment
7. You can contact HMRC several ways:
- Using HMRC’s digital service via the GOV.UK website.
- Using the HMRC App, available via your phone’s App store.
- Calling HMRC’s the tax credits helpline: 0345 300 3900.
- (also by post, although this is sometimes slower and may not be ideal if you are renewing close to the 31 July deadline for contacting HMRC).
- HMRC’s full contact details for tax credits are available on the GOV.UK website
8. 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]