IN THE UPPER TRIBUNAL Case No. CTC/3977/2012
ADMINISTRATIVE APPEALS CHAMBER
Decision: The appeal is allowed. I set aside the decision of the tribunal and the decisions of HMRC and I remit to HMRC the calculation of the amounts of the working tax credit awards to which I have found the claimant and his wife to be jointly entitled.
REASONS FOR DECISION
1. The claimant and his wife were in receipt of tax credits since January 2009. They had four children and the claimant was working 16 hours a week. On Friday 25 June 2010 the claimant ceased to work, but on Monday 28 June 2010 his wife started working 16 hours a week. The evidence was that the household income remained the same. The claimant took the view that there was no need to report the change as it could not affect entitlement under a joint claim for tax credits. HMRC was not therefore notified until July 2011.
2. HMRC took a different view. It decided that the joint claim terminated four weeks after the claimant stopped work and a new claim was necessary based on his wife’s employment. As her employment was only notified in July 2011, HMRC concluded that a claim based on her employment could only be backdated 3 months. This left a period from July 2010 to April 2011 when HMRC concluded that the couple were not entitled to any tax credits. The four weeks period of continuation of the award after the termination of the claimant’s employment was said to be by virtue of regulation 7D of the Working Tax Credit (Entitlement and Maximum Rate) Regulations 2002 (The Working Tax Credit Regulations). This regulation provides that, inter alia, where “a person, being a member of a couple only one of whom is engaged in qualifying remunerative work for not less than 16 hours per week, ceases to work…” “(2) For the purposes of the conditions of entitlement in this Part, the person is treated as being engaged in qualifying remunerative work during that period.”
3. By a decision dated 19 August 2011 (file, p.9), the claimant and his wife were awarded £1139.05 working tax credit and £9760.10 child tax credit from 6 April 2010 to 5 April 2011. By a further decision of the same date (file, p.10) they were awarded £3681.84 working tax credit and £13253.16 child tax credit from 6 April 2011 to 5 April 2012. The sizes of the awards are misdescribed in the decision maker’s submissions.
4. The claimant appealed but his appeal was disallowed by the First-tier Tribunal on 30 April 2012. The tribunal found that the claimant had stopped being in remunerative work on 23 July 2010 (allowing for the 4 weeks run off) and that although his wife had been in work from 28 June 2010 this could not be taken into account before 24 April 2011, as HMRC had not been notified until 24 July 2011. There was, the tribunal found, an obligation to notify the change in the circumstances and “had [the claimant] notified the ‘swop’ with his wife to HMRC at the time the effect on their award would be negligible.”
5. The claimant now appeals to the Upper Tribunal with the permission of a District Tribunal Judge.
6. Under section 3(1) of the Tax Credits Act 2002, entitlement to a tax credit for the whole or part of a tax year is dependent on the making of a claim for it. Under section 3(2) where HMRC decide under section 14 of that Act not to make an award of a tax credit on a claim, or decide under section 16 of that Act to terminate an award of a tax credit on a claim, (subject to any appeal) any entitlement, or subsequent entitlement, to the tax credit for any part of the same tax year is dependent on the making of a new tax claim.
7. Under section 3(3), a claim for a tax credit may be made jointly by the members of a couple (subject to qualifications not relevant here). Under section 3(4) entitlement to a tax credit pursuant to a claim ceases in the case of a joint claim if the persons by whom it was made could no longer jointly make a joint claim. There is no provision for the claim to cease simply because there is a change of circumstances if the couple remain entitled to make a joint claim despite the change.
8. Under section 5 of the Act, subject to any decision of HMRC to terminate an award under section 16, where a tax credit is claimed for a tax year by making a claim before the tax year begins, any award of the tax credit on the claim is for the whole of the tax year and where the claim is made later the award is for remainder of the tax year from the date of the claim.
9. Section 6(1) provides for regulations to be made which provide that “any change of circumstances of a prescribed description which may increase the maximum rate at which a person or persons may be entitled to a tax credit is to do so only if notification of it has been given.” Section 6(3) provides that “Regulations may require that, where a person has or persons have claimed a tax credit, notification is to be given if there is a change of circumstances of a prescribed description which may decrease the rate at which he is or they are entitled to the tax credit or means that he ceases or they cease to be entitled to the tax credit.”
10. Regulations have been made under sections 6(1) and (3). Regulation 20(1) of the Tax Credits (Claims and Notifications) Regulations 2002 provides that “any change of circumstances of a description prescribed by para.(2) which may increase the maximum rate at which a person or persons may be entitled to tax credit is to do so only if notification has been given in accordance with this Part” [of these Regulations]. Regulation 6(2) deals with changes of circumstances other than those in consequence of which HMRC have given notice of a decision under section 16(1) of the Act in accordance with section 23 of the Act.
11. Regulation 21(1) of those Regulations provides that except in certain cases of advance notification, “where a person has or persons have claimed a tax credit, notification is to be given within the time prescribed by paragraph (3) if there is a change of circumstances of the description prescribed by paragraph (2) which may decrease the rate at which he is or they are entitled to the tax credit or mean that he ceases or they cease to be entitled to the tax credit. Regulation 21(2) includes where “(a) entitlement to the tax credit ceases by virtue of section 3(4), or regulations made under section 3(7) of the Act”. It is clear that section 3(4) has no application as both claimants could still make joint claims because the wife was commencing similar work for 16 hours at the same rate. Section 3(7) also has no application as it relates to whether a person is or is not in the United Kingdom. Because of the four weeks run on period of entitlement following the termination of the claimant’s employment, there was no time when entitlement changed, just as there would have been no time when it changed if it had been the claimant who started a new job on the Monday after leaving his old job.
12. Regulation 21(2) also includes some cases where a person ceases to undertake work for at least 16 hours per week. No explanation has been offered by HMRC as to which of those cases, which are extremely convoluted, applies to the claimant. In the end it does not appear to me to be necessary to try to disentangle the regulation to identify the basis on which this regulation is said to apply to the claimant and his wife because even if it does apply and they ought to have reported the change of working arrangements, there is no evidence that that would have affected the award in their favour. Further, even if it would have affected the award, it would only be in respect of the amount of the award and not its existence.
13. The position appears to have been, or should have been, that following an application for tax credits, a decision was made by HMRC under section 14 of the Act whether to make an award and if so the rate at which to award it. Where there is notification of a change of circumstances increasing the maximum rate, HMRC is required by section 15 to decide whether to amend the award. Under section 16(1) of the Act, where HMRC has reasonable grounds during the period for which the award was made for believing that the rate differed from the rate at which they were entitled to the tax credit for the period or that they had ceased to be or never were entitled to the tax credit, HMRC could decide to amend or terminate the award. Given that the claimant and his wife never ceased to be entitled to a tax credit and that because all the work was done for the same reward, I am unable to follow on what basis there was any power to terminate the award. Even if there was a change in the amount of remuneration, provided this was such as to leave some reduced entitlement to the award, this would only have entitled HMRC to amend the award and not to terminate it. Finally, the power to amend or terminate the award under section 16(1) is only during the period of the award, so that the section 14 award for the year ending on 5 April 2011 could not be amended or terminated in July 2011 (R(TC) 2/06, para.6).
14. Further, if there was a duty to disclose on the part of the claimant and his wife, a breach of this duty may lead to an overpayment, with a consequential overpayment claim and possible penalties. It would not invalidate or terminate the award under section 14 even if it provided grounds for a revision under section 16. The final decision in the present case ought therefore to have been on the basis that the original award continued and that the couple were jointly entitled to the tax credit for the whole year and that the amount should be calculated on that basis. The actual decision and that of the tribunal under appeal were in error of law in proceeding on the basis that the original award terminated just because one job came to an end one Friday, when the partner took on a similar job the following Monday. That was wrong. There was no need for a fresh claim when that happened, although sensibly disclosure of the change should have been made to avoid the problems which have arisen.
15. This covers the period to the end of the 2010/11 tax year. I presume that there was a claim for working tax credit for the 2011/12 tax year for which an award was initially made on the basis that it was the claimant rather than his wife who was working. This was a mistake, but there was nevertheless entitlement to an award and apparently to an award at the same rate as it was made. If that is the case, and I am not clear as to the exact circumstances, then the claimant and his wife were entitled to the award from 6 April 2011.
16. In the circumstances I set aside the decision of the tribunal and the decisions of HMRC and I remit to HMRC the calculation of the amounts of the working tax credit awards to which I have found the claimant and his wife to be jointly entitled.
(signed) Michael Mark
Judge of the Upper Tribunal
9 July 2013