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Cite as: [2014] UKUT 221 (AAC)
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MMB v HMRC (TC) (Tax credits and family credit : other) [2014] UKUT 221 (AAC) (20 May 2014)
IN THE UPPER TRIBUNAL Case No. CTC/4246/2012
ADMINISTRATIVE APPEALS CHAMBER
Before Judge of the Upper Tribunal Miss E. Ovey
Decision: The decision of the First-tier Tribunal on 11th July 2012 did not involve the making of an error on a point of law. Accordingly I dismiss this appeal
REASONS FOR DECISION
Background
1. By a claim form dated 18th March 2011 (pp.53 to 64 in the bundle of documents before me) the claimant made a new claim for tax credits. The copy I have seen is not date-stamped, but the submission by Her Majesty’s Revenue and Customs (“HMRC”) to the First-tier Tribunal states that the claim form was received on 22nd March 2011. In the absence of any reason to suppose that that date is incorrect (and I note in this context that 18th March 2011 was a Friday), I shall take 22nd March 2011 as the date the claim was received.
2. The claim was a claim for tax credits in the tax year 2010-2011. It gave the claimant’s date of birth, from which it was clear that she was over 25, included a claim for the disability element of working tax credit and stated that she was working for 30 hours a week. The claim form did not require the claimant to state either the date from which she was making her claim or the date on which she had begun work.
3. Under s.7(1) of the Tax Credits Act 2002, entitlement to any form of tax credit for a tax year depends upon the claimant’s income in a particular tax year not exceeding a particular amount or exceeding that amount to a limited extent only. It is therefore necessary to identify which is the relevant tax year. Logically, one would expect the relevant tax year to be the year in which the claim to tax credits is being made. This approach, however, would run into the immediate difficulty that it is not possible to tell until the end of a tax year what income a person has received during that year. On the other hand, if tax credit for a tax year can be paid only after the end of the year, the person entitled to the tax credit will not have the benefit of the credit at the very time when it may be most needed.
4. The legislation tackles this difficulty by prescribing a two-stage procedure involving an initial decision by HMRC when the claim is made and a later, final, decision. Initial decisions are made under s.14 and the decision required is a decision whether to make an award of tax credit and if so, the rate at which to award it. S.7(11) gives HMRC power to make an award on the basis of an estimate of income and it is the standard practice of HMRC to make awards using the claimant’s income for the previous year as an estimate of what the claimant’s income for the current year will prove to be.
5. This practice is reflected in the claim form completed by the claimant in the present case. As already noted, she was making a claim for tax credits for the tax year 2010-2011 on the form provided by HMRC for that purpose, and the form asked for income details for the tax year 2009-2010. It is clear from the claimant’s annotations on the form that she found this surprising and would have expected the form to ask for details of income for the tax year 2010-2011.
6. Awards made under s.14 do not constitute a final determination of entitlement to tax credits for the relevant tax year but are provisional in nature. S.17 provides that at the end of the tax year HMRC must give the claimant a notice which, broadly speaking, requires the claimant to confirm or correct the information on which the award was based, including the information about his or her income. Once the response to the notice has been received, HMRC proceeds to decide whether the claimant was entitled to tax credits during the relevant year, and if so, the amount of the tax credit, as required by s.18(1). It should be noted at this point that under s.7(3)(a) and reg. 5 of the Tax Credits (Income Thresholds and Determination of Rates) Regulations 2002, S.I. 2002 No. 2008 (“the Income Thresholds Regulations”), as in force for the tax year 2010-2011, a claimant’s income for the year 2009-2010 continued to be treated as the relevant income for the purpose of calculating entitlement to tax credits for the year 2010-2011 unless the income for the latter year exceeded the previous year’s income by more than £25,000.
7. It is also to be noted that by virtue of s.11 a person entitled to working tax credit will be entitled to a basic element of working tax credit and may be entitled to a number of additional elements. The various elements and the conditions which have to be satisfied to establish entitlement to them are set out in the Tax Credits Act 2002 (Entitlement and Maximum Rate) Regulations 2002, S.I. 2002 No. 2005 (“the Entitlement Regulations”). The additional elements include a disability element and a “30-hour element” to which a claimant is entitled if he or she works for 30 hours a week.
8. In the present case, the two-stage procedure led to an initial award in the claimant’s favour dated 13th April 2011. It was for the period 22nd March to 5th April 2011 and was calculated on the footing of income of £4,752, leading to an award including the basic, disability and 30-hour elements. This was followed by a final decision made on 25th July 2011 determining, in effect, that the claimant was entitled to working tax credit in the amount of the original award, calculated on the same footing. I have not seen copies of either decision, but the submission to the First-tier Tribunal refers to them in Section 5, paragraphs 1 and 2, and the fact that such decisions were made is not disputed by the claimant.
9. Under s.38 of the Tax Credits Act 2002 there is a right of appeal against various decisions of HMRC, including decisions under s.18. On 20th November 2011 the claimant wrote to HMRC:
(1) notifying them of two typographical errors in a new tax credits claim form dated 15th October 2011;
(2) appealing against the final decision on her claim for tax credits for the tax year 2010-2011;
(3) querying the tax credits award letter dated 7th November 2011 for the period 1st September 2011 to 5th April 2012;
(4) correcting the tax credits award letter dated 25th July 2011 for the period 6th April 2011 to 16th June 2011;
(5) querying the tax credits award letter dated 13th April 2011 for the period 6th April 2011 to 5th April 2012.
10. The present matter concerns solely the appeal notified as explained in paragraph 9(2) above. The appeal was brought late, but was accepted out of time by HMRC. This gives rise to an additional point, with which I shall deal at the end of this decision, but ultimately it makes no difference to the outcome of the appeal.
Basis of the appeal
11. The claimant stated in her letter of appeal that she assumed that the decision was based on the information in her annual declaration dated 8th July 2011 which provided complete earnings information for the tax year 2010-2011. I take it that, in accordance with standard practice, the information in the annual declaration was the claimant’s response to the notice given by HMRC under s.17. On that footing, it seems that her assumption was correct.
12. The claimant further stated that her total income for the tax year 2010-2011 was £22,735, consisting of £2,043 by way of social security benefits and £20,692 by way of salary. Her income the previous year was £4,752, consisting solely of social security benefits. She asked whether her tax credit amount was based on her earnings for both years or for the year 2010-2011. There does not appear to be an answer to this question in the papers, but given what HMRC said about the calculation of the amount stated in the decision, as set out in paragraph 8 above, and the effect of s.7(3)(a) and reg. 5 of the Income Thresholds Regulations, referred to in paragraph 6 above, it seems clear that the tax credit amount was based on her income for the tax year 2009-2010 because her income for the year 2010-2011 did not exceed it by more than £25,000.
13. The claimant’s principal argument, however, was that her claim for tax credits for the tax year 2010-2011 should be backdated from 18th March 2011, the date of the claim form, to 20th April 2010. She explained that her taxable social security benefit had been paid from 20th April 2010 to 30th September 2010 and that her salary was for the period 9th August 2010 to 31st March 2011, during which period she had worked for 30 hours a week.
14. The ground on which she argued that her claim should be backdated was that she had not applied for tax credits earlier because “as a direct result of the poorly explained tax credits system and lack of public information” she believed it was too early to apply. In support, the claimant contended that:
(1) it was not anywhere explained for the public to see that applications for tax credits should be made when not earning a salary and for a current year rather than when a tax year has completed. If she had known that, she could have applied while receiving social security benefits as far back as 20th April 2010 and would then have received an award from that date;
(2) as the income thresholds are not public knowledge, it is impossible to know when a salary meets criteria to apply for tax credits;
(3) she was never informed by the Disability Living Allowance office that as a disabled person receiving disability living allowance she was entitled to claim for tax credits;
(4) HMRC’s tax credits website did not inform her that she should proceed with an application for a current tax year before all earnings for that year were known and that led her to delay her application. As soon as she knew she would be starting work in August 2010 she had gone to the tax credits website to see if she qualified for tax credits, but saw no questions about salary in the current tax year, only questions about the tax year 2009-2010. She therefore assumed that she was not eligible for tax credits.
15. HMRC replied to the claimant’s letter dated 20th November 2011 (or some of it) by letter dated 23rd April 2012. As respects the appeal, it was said:
(1) in order to qualify for tax credits a claimant has to be in qualifying remunerative work, which the claimant was not for the period 20th April 2010 to 8th August 2010;
(2) the HMRC records showed that after 9th August 2010 the claimant had a break in employment and recommenced work on 22nd March 2011. She was therefore not in qualifying remunerative employment prior to 22nd March 2011 and the claim could not be backdated for that reason;
(3) a tax credit claim can be backdated for 93 days and there is no provision within the tax credit legislation to consider further backdating based on incorrect advice given.
16. The claimant responded by letter dated 8th May 2012. As respects the appeal, she said that she understood HMRC to be saying that tax credits only applied to periods worked. She therefore agreed that her claim should not be backdated to 20th April 2011 but maintained that it should be backdated to 9th August 2010, when she started working. She repeated that it was misinformation on the HMRC website which led to her missing out on another 225 days of tax credits (i.e., tax credits from 9th August 2010). She also pointed out that HMRC had not backdated the claim by the 93 days it said was permissible and said that if that was done she might think about reconsidering the need for a formal tribunal appeal for the extra 132 days. In this context, she drew attention to HMRC’s mistaken statement that she had had a break in employment at some point between 9th August 2010 and 22nd March 2011.
17. HMRC did not then proceed to revise its decision of 25th July 2011 by backdating the claimant’s claim for 93 days (i.e., to 19th December 2010). In paragraph 9 of Section 6 of its submission to the First-tier Tribunal it said that there was no provision to allow it to amend the claimant’s claim without her agreement and referred to s.54 of the Taxes Management Act 1970 and s.18(11) of the Tax Credits Act. In effect, HMRC said that the claimant would not agree because she wanted her claim backdated to 9th August 2010 if possible.
18. On the issue of further backdating, HMRC said:
(1) a claim can be backdated for 93 days if the claimant would have been entitled to the tax credit if the claim had been made at that earlier date. It was accepted that the claimant would have been entitled to tax credits from 19th December 2010;
(2) there were further provisions allowing a claim to be treated as made more than 93 days prior to the date it was received, but that was “subject to 3 specific circumstances, which do not apply in this case”. The relevant provisions were identified as regs. 8, 26 and 26A of the Tax Credits (Claims and Notifications) Regulations 2002, S.I. 2002 No. 2014 (“the Claims and Notifications Regulations);
(3) the onus for establishing entitlement and making a claim lies with the claimant. There had been substantial advertising, with a helpline number. This was in order to introduce tax credits to millions of people and could not be tailored to individual circumstances.
19. The claimant produced what I take to be a submission to the tribunal dated 7th June 2012 to make clear that she was asking first for backdating by 93 days and secondly that the tribunal consider whether to backdate the claim further, since her failure to make a claim earlier was the result of misinformation given by the tax office.
Proceedings in the First-tier Tribunal
20. Neither party attended the hearing of the appeal, which took place on 11th July 2012. The decision notice (p.19 in the bundle) recorded that the claimant’s letter dated 20th November 2011 raised a number of matters which were not within the power of the tribunal or did not relate to the decision of 25th July 2011. The crucial paragraphs read as follows:
“4. The specific issue which [the claimant] … seeks to appeal is the backdating of her claim made on 22/03/2011. There is a general power to backdate a claim for 93 days. There is no legal power to backdate for any greater period, whatever the reason for the late claim. HMRC has indicated that it will backdate to 19/12/2010 but has not yet done so. However this does not appear to be an issue in dispute and I cannot understand why HMRC feels that it requires the Tribunal’s consent.
5. In any event for the avoidance of doubt the claim made on 22/03/2011 is backdate[d] for 93 days in accordance with Regulation 7 Tax Credits (Claims and Notifications) Regulations 2002.”
21. The claimant then contacted the Courts and Tribunals Service by telephone for guidance about next steps. The telephone call was referred to in a letter to the Service dated 27th July 2012 in which the claimant:
(1) asked that a judge should “use his/her powers of reasonable discretion to look at the exceptionality” of her circumstances in making a decision to backdate her claim beyond the 93 days;
(2) referred to having received tax credits for the 93 day period but stated that an appeal should not have been necessary to achieve payment of that sum and claimed interest at a rate equivalent to that charged by HMRC on late payments of tax;
(3) claimed that the 93 days should be counted from 18th March 2011, the date of her claim form, rather than 22nd March 2011.
22. It appears that the claimant applied for an extension of time for applying for a statement of reasons, explaining that she was due to receive hospital treatment. The Tribunal Judge granted an extension to 1st September 2012. In the decision notice to that effect dated 2nd August 2012 (p.20) he stated that the tribunal had no power to allow the claimant’s appeal in the way she wished.
23. The Tribunal Judge then produced a statement of reasons dated 19th September 2012 (p.24). The material parts read as follows:
“3. This appeal was about backdating a claim for tax credits, although [the claimant] raised a number of the issues regarding her dealings with HMRC.
4. The Tribunal has limited powers. It can only do what the law set out in Acts of Parliament and Regulations permits it to do. It does not for example have power to deal with maladministration.
5. The only issue [in dispute] (and even that did not appear to really be in dispute, bearing in mind HMRC’s concession) was the backdating of [the claimant’s] claim for 93 days. I allowed the appeal. I explained that I had no legal power to back date for any greater period. This is not a question of exceptional circumstances or discretionary powers. The Tribunal does not have discretionary powers. As explained above it can only do what the Acts and Regulations gives it the power to do. The same applies to the Upper Tribunal.”
24. Having received the statement of reasons, the claimant wrote to the Courts and Tribunals Service by letter dated 7th October 2012 stating that she wished her appeal to go to the Upper Tribunal. Much of the letter was, in both form and substance, a repetition of what the claimant said in her letter dated 27th July 2012. She maintained the three points set out in paragraph 21 above.
25. Permission to appeal was refused by the Tribunal Judge on 18th October 2012 (p.29). The decision notice stated that he could not identify a material error of law and that the tribunal did not have any discretionary powers.
The appeal to the Upper Tribunal
26. The claimant applied to the Upper Tribunal for permission to appeal on 27th November 2012, relying on the grounds previously stated. Permission to appeal was granted by Judge Bano on 13th March 2013. He also extended time for making the application, which was made late for the reasons given by the claimant in the application form.
27. Judge Bano’s reason for granting permission was as follows:
“Under regulation 8(3) of the Tax Credits (Claims and Notifications) Regulations 2002 (as in force at the relevant time) additional backdating would have been possible if the award of tax credit had included the disability element and if the claimant was receiving one of the specified benefits. I am giving permission to appeal for HMRC to investigate whether additional backdating should apply on that basis.”
Judge Bano also gave case management directions under which HMRC was directed to provide a response to the appeal within one month of the date of the letter notifying it of the grant of permission and to attach copies of the claim form, the working tax credit awards if available and evidence of any relevant disability benefit awards.
28. HMRC was notified of the grant of permission by letter dated 13th May 2013. On 12th June 2013 an extension of time for a further month from the date of the request was sought and an extension to 12th July 2013 was granted.
29. HMRC’s submission in response was received on 11th July 2013. As to the claimant’s grounds of appeal, HMRC said:
(1) under reg. 4(c) of the Claims and Notifications Regulations, which applied in the claimant’s case, a claim is made on the date on which it is received by a relevant authority at an appropriate office;
(2) the general backdating provision is reg. 7 of the Claims and Notifications Regulations, which permits backdating for up to 93 days but no further backdating.
30. As to the point raised by Judge Bano, HMRC set out reg. 8 of the Claims and Notifications Regulations and made detailed submissions on its construction. In summary, the argument was:
(1) to satisfy reg. 8, the claimant would have to show, among other things, that, subject to making a claim, she would have been entitled to working tax credit “if (and only if)” she satisfied reg. 9(1)(c) of the Entitlement Regulations on any day in the period beginning on the date of her claim to a relevant benefit and ending on the date of the tax credits claim;
(2) the question is how a claimant’s entitlement to working tax credit might depend on whether or not he or she satisfies reg. 9(1)(c);
(3) the answer is that one way of satisfying the fundamental requirement of being in qualifying remunerative work is that the claimant has a physical or mental disability which puts him or her at a disadvantage in getting a job and satisfies reg. 9(1)(c);
(4) although the claimant might have satisfied the fundamental requirement that way, she also satisfied it (from 9th August 2010) by being aged over 25 and working for 30 hours per week;
(5) she therefore could not satisfy the “if (and only if)” part of the reg. 8 requirements because satisfying reg. 9(1)(c) was not the only way by which she might be entitled to working tax credit.
31. As can be seen, the argument was a pure matter of construction of the relevant statutory provisions and did not depend on any factual material which might emerge from the claim form, the award notices or the evidence of disability benefits. No such material was provided. The submission stated:
“40. At the point of sending this submission to the Upper Tribunal the claim form is still awaited from HMRC’s remote storage facility but should arrive next week. Copies of award notices have not been obtained and the evidence of disability benefits is in electronic form. This submission is initially sent by email but hard copy including that material will follow shortly.”
32. It appears from the papers that no such hard copy was sent. The next substantive development was that an electronic copy of the claim form was received on 13th December 2013. On 16th December 2013 an extension of time was granted to validate the submission of 11th July 2013 and copies of the submission and claim form were sent to the claimant on 21st December 2013. I have seen nothing from HMRC to explain the delay from mid or late July to December 2013 in producing the claim form or the continuing absence at that point of copies of the award notices or evidence of disability benefits.
33. The next step in the appeal process was for the claimant to respond to HMRC’s submission, if she wished to do so. On 6th February 2014 she sent an e-mail to the Upper Tribunal asking for an extension of time to respond, referring to her ill-health and her uncertainty over what she was being asked to do. On 20th February 2014 she was granted an extension to 7th March 2014.
34. On 3rd March 2014 the claimant sent her observations to the Upper Tribunal. The observations in fact consisted of the points made in a lengthy document dated 7th February 2014, supplemented by a further document dated 3rd March 2014. They were as follows:
(1) the claimant gave a more detailed account of how she had been misled by the HMRC website into believing she was not eligible for tax credits and why she thinks it is wholly unfair and unreasonable that she should not receive something she would have been entitled to if she had known to make the claim. She repeated her request for “a discretionary decision … based on what is fair and reasonable, rather than just based on what the regulations already provide for”;
(2) the claimant referred (on p.79 in the bundle) to a letter received on 8th April 2011 from HMRC (not included in the bundle) which had apparently said the claim could be backdated for 93 days but no further. No such backdating was included in the decision of 25th July 2011;
(3) (in effect) the claimant left it to the Upper Tribunal to determine whether HMRC was correct about reg. 8. Her appeal was based on having received misinformation from HMRC and she could not see anything in the regulations which stated that exceptions to backdating time periods cannot be made in circumstances where the claimant was in receipt of wrong or misleading information from HMRC about eligibility to claim.
35. In the light of the material so far, further directions were given on 3rd April 2014 requiring HMRC by 30th April 2014:
(1) to provide the other evidence required by Judge Bano on 13th March 2013;
(2) to identify which benefit the claimant was receiving which entitled her to the disability element of working tax credit and the dates of the claim for and award of that benefit;
(3) to make a submission on the merits of an alternative construction of reg. 8, in summary to the effect that the relevant paragraph was not addressing the means by which the claimant satisfied the qualifying remunerative work condition but rather the question whether, given the claimant’s income, he or she established entitlement to working tax credit through satisfying the disability element conditions in addition to the basic element conditions and the conditions of any other relevant element.
36. Although the directions were addressed to HMRC, on 6th April 2014 the claimant provided a copy of a letter from the Department of Work and Pensions dated 5th March 2010 and relating to her entitlement to disability living allowance. This letter puts beyond doubt the nature of the claimant’s disability benefit and states the outcome of a reconsideration of the claimant’s claim following a decision dated 23rd November 2009. The decision on reconsideration contained awards of both the mobility component and the care component of disability living allowance from 26th October 2009. The letter also states that the award is an increase from the date of an application by the claimant, from which it appears that the claimant had established entitlement to an award, albeit of a smaller amount of benefit, prior to 26th October 2009. From the claimant’s covering e-mail it appears that she is still entitled to those components of disability living allowance.
37. Unfortunately, 30th April 2014 came and went without any further submission, or even communication, from HMRC. On 1st May 2014 HMRC applied for an extension of time to 9th May 2014 on the ground that the writer had only that afternoon received confirmation from the Department of Work and Pensions of the claimant’s disability benefits history and had asked for clarification of aspects of that record. Earlier that day the claimant had pre‑emptively objected to any such extension.
38. The extension asked for was in fact granted by Judge Jacobs on 7th May 2014 in a ruling which noted the objection but stated that the extension was short, the claimant had herself been the beneficiary of an extension and the information provided might ultimately be to her advantage.
39. No further communication has been received from HMRC. As appears from what follows, however, I have come to the conclusion that I am able to reach a decision on this appeal on the material now before me. The effect will be that HMRC loses the opportunity to make further submissions on the true construction of reg. 8 of the Claims and Notifications Regulations. I am satisfied, however, that it is open to me to proceed to decide the appeal and further that I ought to do so, having regard to the statutory power given to the Upper Tribunal by rule 7 of the Tribunal Procedure (Upper Tribunal) Rules 2008, S.I. 2008 No. 2698, to take such action as it considers just in the event of a failure by a party to comply with a direction and having regard also to the overriding objective set out in rule 2 of dealing with cases fairly and justly. In particular, rule 2 provides that dealing with a case fairly and justly requires avoiding delay, so far as compatible with proper consideration of the issues.
The claimant’s points on the appeal
(i) Reasonable discretion
40. The claimant’s primary point is, as it has been throughout, that in the circumstances of her case discretion ought to be exercised to backdate her claim beyond the 93 day limit prescribed by reg. 7 of the Claims and Notifications Regulations. She would no doubt be content for such an outcome to be reached by reliance on reg. 8, but she does not rely on any statutory provision to enable backdating.
41. This argument is bound to fail, as HMRC has said in its submission and as the Tribunal Judge pointed out in his various decision notices, because neither HMRC nor the First-tier Tribunal nor the Upper Tribunal has the power which the claimant is asking to be exercised in her favour.
42. The claimant says, perfectly correctly, that she cannot see anything in any of the regulations stating that exceptions to the backdating provisions cannot be made in circumstances such as hers. The tax credits and tribunal system, however, does not work on the basis that what is not prohibited can be done by the relevant authority. A body created by or deriving its powers from legislation can only lawfully do what is permitted expressly or by necessary implication.
43. The powers of HMRC in relation to tax credits are purely statutory and there is no statutory power which expressly gives HMRC any discretion in relation to backdating a claim. Nor is such a power to be implied into any of the statutory provisions. No such power is necessary to enable the tax credits system to operate.
44. Both the First-tier Tribunal and the Upper Tribunal are creatures of statute and similarly cannot exercise a power not given to them by statute. Neither the First-tier Tribunal nor the Upper Tribunal has an independent statutory power which could be interpreted as enabling it to exercise a discretion to permit backdating of any kind of a tax credits claim.
45. The task of the First-tier Tribunal, in a tax credits case, is to look again at the facts and the law and to decide whether the decision of HMRC was correct. If it concludes that HMRC was right, it will dismiss the appeal. If it concludes that HMRC was wrong, it will allow the appeal and make the decision which in its view HMRC should have made. It follows that the First-tier Tribunal cannot allow an appeal on the ground that HMRC was wrong for not making a decision it had no power to make and proceed to make a decision that HMRC could not have made.
46. The task of the Upper Tribunal, in a tax credits case, is first to decide whether the decision of the First-tier Tribunal involved an error on a point of law. Unless there is an error on a point of law, the Upper Tribunal must dismiss the appeal. There is no error on a point of law if the First-tier Tribunal’s decision is, in effect, that it cannot make a decision on the substance of the appeal that HMRC could not have made. It follows that the Upper Tribunal cannot allow an appeal brought on the ground that the First-tier Tribunal should have decided to make a decision which HMRC could not have made.
47. When those principles are applied to the present case, it is clear that HMRC could not exercise a discretion to backdate the claimant’s claim in circumstances not covered by the Tax Credits Act 2002 or regulations under that Act. To the extent that its decision was a decision not to do so, its decision was not wrong. The First-tier Tribunal therefore had no power to make a different decision about such backdating and its decision was accordingly correct on that point. It further follows that the Upper Tribunal has no power to make a different decision on the point.
48. This does not leave a claimant entirely without a remedy in a case in which the making of a claim has been delayed by misinformation from HMRC. The starting point is to complain to HMRC itself. If the complainant is not satisfied as a result, the next stage is to take the complaint to the Adjudicator, an independent person. Finally, the complaint can be taken, via the claimant’s M.P., to the Parliamentary and Health Service Ombudsman. Information about these steps is available on the HMRC website and on the Adjudicator’s and Ombudsman’s own websites. I should add that I state this for completeness and am not to be taken as implying that the matters of which the claimant complains, and in particular the information she found on the HMRC website, would in fact found a meritorious complaint.
(ii) Late payment
49. The claimant’s second point is that the appeal should not have been necessary to obtain backdating of her claim by 93 days and she ought to be awarded interest on the amount of tax credit eventually paid after the hearing of her appeal by the First-tier Tribunal. This raises two questions:
(1) was the appeal necessary or could HMRC have backdated the claim in any event?
(2) if the appeal was not necessary, ought an award of interest to be made?
50. The second question was not expressly before the First-tier Tribunal, but in my view the first question was, since the claimant had complained in her letter of 8th May 2012 of the failure to backdate the claim by 93 days and to make payment accordingly, and indeed had specifically said that if such backdating was applied she might think about reconsidering the need to appeal. As set out in paragraph 17 above, HMRC contended that that could not be done without the tribunal’s consent. The tribunal recorded in its decision notice that it did not understand why HMRC took that view. In those circumstances, if there was a statutory obligation on HMRC under the tax credits legislation to pay interest on tax credits paid late, or a discretion to do so, it might be contended that the question of awarding interest was impliedly before the tribunal.
51. In fact there is no such provision and it would therefore not have been open to the First-tier Tribunal to make a decision requiring HMRC to pay interest, despite its clear view that its consent to the backdating was not required. If the claimant wishes to pursue this aspect further, she will need to follow the complaint route.
52. Since, however, the First-tier Tribunal did express a view on the necessity or otherwise of an appeal, in response to a legal point raised by HMRC, I will express my own view on the point, although it is not material to the outcome of this appeal.
53. At the material time reg. 7 of the Claims and Notifications Regulations read as follows:
“7.(1) In the circumstances prescribed by paragraph (2), a claim for a tax credit received by a relevant authority at an appropriate office shall be treated as having been made on the date prescribed by paragraph (3).
(2) The circumstances prescribed by this paragraph are those where the person or persons by whom the claim is made would (if a claim had been made) have been entitled to the tax credit either –
(a) on the date falling 93 days before the relevant date (or on 6th April 2003, if later); or
(b) at any later time in the period beginning on the date in subparagraph (a) and ending on the relevant date.
(3) The date prescribed by this paragraph is the earliest date falling within the terms of paragraph (2)(a) or (b) when the person or the persons by whom the claim is made would (if a claim had been made) have become entitled to the tax credit.”
54. I have sympathy with the claimant’s point that the various regulations are not easy to read and understand. One might, however, paraphrase reg. 7 for present purposes as providing that if (i) a claimant sends a claim to the right person and place and (ii) 93 days before the date on which the claim was received the claimant satisfied the conditions for entitlement to a tax credit, then the claim “shall be treated” as having been made 93 days earlier.
55. HMRC’s position on this point as set out in its letter dated 23rd April 2012 was somewhat confused because of its factual error that there had been a break in the claimant’s employment at some stage prior to 22nd March 2011. This error was corrected by the claimant in her letter dated 8th May 2012 (in which she stated that HMRC was already aware of the true position) and HMRC expressly stated in paragraph 5 of Section 6 of its submission to the First-tier Tribunal that it was apparent from the information supplied by her that she would have satisfied the conditions of entitlement from 19th December 2010 (i.e., 93 days before her claim was made).
56. At first sight, therefore, HMRC ought to have applied reg. 7 and to have backdated the claim to 19th December 2011, calculating the claimant’s tax credit accordingly. What I understand HMRC to be arguing in paragraph 9 of Section 6 of its submission to the tribunal is that:
(1) under s.18(11) of the Tax Credits Act a decision under s.18(1) is final, subject to any alteration made following a revision under certain subsections of s.18, s.19 (investigations), s.20 (discovery of information), s.21 (official error) or an appeal;
(2) a decision which would otherwise be final under s.18(11) can, however, be amended if an appeal is pending and HMRC and the claimant agree that the decision under appeal should be treated as varied in a particular manner;
(3) HMRC would have been prepared to agree for the purposes of s.54 of the Taxes Management Act 1970 that the decision notice under s.18(1) dated 25th July 2011 should be varied by treating the claim as backdated to 19th December 2011 but could not reach such an agreement with the claimant because she wanted the claim to be backdated further.
57. The fallacy in this approach, or potential fallacy, as it seems to me, is that it proceeds on the basis that the decision notice under appeal was final under s.18(11) despite the fact that it decided that the claimant was entitled to working tax credit only from 22nd March 2011. The decision failed to give effect to reg. 7, which is expressed in mandatory rather than discretionary terms; it provides that the claim “shall” be treated as made from an earlier date. The question thus arises whether the decision could have been revised on the ground of official error under s.21, as s.18(11) envisages.
58. S.21 itself provides simply for regulations to make provision for a decision under (inter alia) s.18(1) to be revised in favour of the person to whom it relates if it is incorrect by reason of official error as defined by the regulations. Under the Tax Credits (Official Error) Regulations 2003, S.I. 2003 No. 692, “official error” is defined by reg. 2 as:
“… an error relating to a tax credit made by:
(a) an officer of [HMRC];
…
to which the claimant, or any of the claimants, or any person acting for him, or any of them, did not materially contribute, excluding any error of law which is shown to have been an error by virtue of a subsequent decision by [the Upper Tribunal or a court].”
59. Since I do not have before me all the documentation relating to the claimant’s claim and the basis on which the decision of 25th July 2011 was made, I cannot say for certain that the claimant had by then provided all the information which showed that she satisfied the conditions of entitlement to working tax credit from 19th December 2010 onwards. If, however, she had done so, as I should have expected to be the case (and I note also that, as mentioned in paragraph 34(2) above, the claimant says that she was informed on 8th April 2011 that the claim could be backdated by 93 days), my present view is that there would have been an official error in the making of the decision of 25th July 2011 and that an appeal to the First-tier Tribunal would not have been necessary to enable the decision to be revised.
(iii) Extent of backdating
60. The final point raised by the claimant is that her claim form was dated 18th March 2011, not 22nd March 2011 and the claim ought therefore to have been backdated by a further four days. Under reg. 7, backdating is to take place up to 93 days from “the relevant date”. The question is therefore what is meant by “the relevant date”.
61. The definition of that expression is to be found in reg. 4. Subject to exceptions relating to reg. 6 (amended claims) and reg. 11 (cases involving changes from joint claims to single claims or vice versa), the relevant date is “the date on which the claim is received” by HMRC. It was therefore correct to calculate the backdating period from 22nd March 2011.
Regulation 8 of the Claims and Notifications Regulations
62. There still remains the question of reg. 8, the existence of which was noted in HMRC’s submission to the First-tier Tribunal, as explained in paragraph 18 above, but was said briefly not to apply. Its applicability was addressed in more detail by HMRC in its submission to the Upper Tribunal, as directed by Judge Bano. I have summarised HMRC’s argument in paragraph 30 above and the suggested alternative construction in paragraph 35 above. I now proceed to state my views on reg. 8, albeit in the absence of the further submission from HMRC directed on 3rd April 2014.
63. At the material time reg. 8 provided:
“8.(1) In the circumstances prescribed by paragraph (2), the claim referred to in paragraph 2(a) shall be treated as having been made on the date prescribed by paragraph (3).
(2) The circumstances prescribed by this paragraph are where -
(a) a claim for working tax credit including the disability element (“the tax credits claim”) is made by a person or persons (“the claimants”) which results in [HMRC] making an award of working tax credit including the disability element;
(b) the claim is made within 93 days of the date that a claim for any of the benefits referred to in regulation 9(2) to (8) of the Working Tax Credit Regulations (“the benefits claim”) is determined in favour of the claimants (or one of them); and
(c) the claimants would (subject to making a claim) have been entitled to working tax credit if (and only if) they had satisfied the requirements of regulation 9(1)(c) of the Working Tax Credit Regulations on any day in the period –
(i) beginning on the date of the benefits claim, and
(ii) ending on the date of the tax credits claim.
(3) The date prescribed by this paragraph is –
(a) the first date in respect of which the benefit claimed is payable; or
(b) if later, the date falling 93 days before the claim for the benefit is made; or
(c) if later, the first day identified under paragraph (2)(c).”
64. This is another complex regulation, designed to tackle issues about the impact which a determination of entitlement to certain disability benefits may have on entitlement to working tax credit. Where it applies, its maximum potential effect is to require a new claim to working tax credit to be treated as backdated to the date from which the relevant disability benefit is payable.
65. Clearly, reg. 8 will apply only if the claimant satisfies all the conditions in paragraph (2). The submission of HMRC concentrates on whether the claimant satisfies the third condition and does not address the first two. If, however, the claimant does not satisfy the first and second conditions, whether or not she satisfies the third condition will not affect the outcome of the present appeal.
66. There is no doubt that the claimant satisfies the first condition. She made a claim for working tax credit which resulted in HMRC making an award of tax credit which included the disability element.
67. To satisfy the second condition, the claimant must show that her tax credits claim was made within 93 days of the determination of a claim by her for one of the disability benefits. Disability living allowance is certainly one of the benefits referred to. Unfortunately from the claimant’s point of view, the letter dated 5th March 2010 from the Department of Work and Pensions on which she relies shows that the claim was determined in her favour on (or at least not after) that date. As that is more than 93 days before the claim was made, the claimant does not satisfy the second condition and is not entitled to the benefit of reg. 8.
68. It is therefore not strictly necessary for me to consider the third condition. Nevertheless, as HMRC has made a detailed submission on its construction and the correctness of that submission has been queried by another judge of the Upper Tribunal in giving directions, I shall express my views on the point.
69. The third condition requires that the claimant “would have been entitled to working tax credit if, but only if”, he or she had satisfied reg. 9(1)(c) of the Entitlement Regulations. This formulation directs attention to the question in what circumstances would satisfaction of reg. 9(1)(c) make the difference between entitlement to working tax credit and no entitlement. This is in substance the question asked by HMRC, which answers it by reference to the circumstances in which a claimant satisfies the qualifying remunerative work condition, a prerequisite to entitlement to any element of working tax credit.
70. The alternative construction is also based on the proposition that one must ask in what circumstances would satisfaction of reg. 9(1)(c) make all the difference. It takes into account, however, the fact that a person who satisfies the qualifying remunerative work condition may still not be entitled to working tax credit, because his or her income may be greater than is permitted by the provisions relating to income. In other words, satisfaction of the qualifying remunerative work condition is a necessary, but not a sufficient, condition to establish entitlement. The alternative construction then asks whether it is satisfaction of reg. 9(1)(c) which makes the difference to whether or not the totality of the conditions for entitlement are satisfied rather than simply the initial condition of whether or not the claimant is engaged in qualifying remunerative work.
71. It is certainly the case that whether or not a claimant satisfies the conditions for the disability element (one of which is subparagraph (c) of reg. 9(1), the others being subparagraphs (a) and (b)) may determine whether or not he or she is entitled to working tax credit. That is because a claimant whose income exceeds the threshold for working tax credit may still be entitled to receive an amount of tax credit under the provisions of reg. 7 of the Income Thresholds Regulations. Reg. 7 works by finding the maximum rate of working tax credit for each element to which the claimant is entitled, finding the claimant’s income, finding the prescribed percentage (39 per cent in the year 2010-2011) of the amount by which the claimant’s income exceeds the threshold and deducting the amount of that prescribed percentage from the maximum rate of working tax credit. Ignoring the additional steps required when a child care element is involved, if there remains a balance of working tax credit after the deduction is made the claimant is entitled to a reduced tax credit of that amount. This means that there may be a case in which a claimant whose income exceeds the threshold is entitled to a reduced rate of tax credit if the maximum rate is increased by including a disability element but would not be entitled to such a tax credit in the absence of the disability element.
72. My provisional view, which unfortunately has to be expressed without the benefit of a further submission from HMRC, is that the alternative construction is correct, for the following reasons.
73. First, to my mind reg. 8 is more naturally to be read as directed to the question whether or not the claimant succeeds in satisfying the totality of the entitlement conditions through satisfying reg. 9(1)(c) than to the question whether or not he or she succeeds in satisfying one of the entitlement conditions (i.e., the second qualifying remunerative work condition), even though that condition is a necessary condition. In this context I note that s.7 of the Tax Credits Act provides that “The entitlement of a person … to any description of tax credit is dependent on” his or income not exceeding the threshold by an amount which would mean that no rate of tax credit can be calculated. The claimant’s income level is therefore relevant to entitlement as well as to amount.
74. Secondly, the HMRC construction seems to me to produce anomalies. For example, the second qualifying remunerative work condition in reg. 4 of the Entitlement Regulations may be satisfied by a person aged at least 16 who works for not less than 16 hours if either he is responsible for a child or he has a physical or mental disability which puts him at a disadvantage in getting a job. A person over 16 who works for 16 hours a week, is responsible for a child and has a relevant physical or mental disability therefore satisfies the condition on two bases, as does the claimant by virtue of her disability and the fact that at the material time she was over 25 and worked for 30 hours a week. On the HMRC construction the person with the child and the disability would be unable, like the claimant, to take advantage of reg. 8.
75. Similarly, the second qualifying remunerative work condition could formerly be satisfied by a person aged at least 50 who started work for at least 16 hours a week and was in receipt of carer’s allowance (those being conditions specified in reg. 18). If that person also had a relevant physical or mental disability, he or she would again satisfy the second qualifying remunerative work condition on two bases, but would be unable to take advantage of reg. 8.
76. In both those examples, the effect of the HMRC construction is that a claimant with additional responsibilities would be in a worse position than a claimant who did not have those responsibilities. Moreover, that would be the case although the additional responsibilities are or were elsewhere recognised in the tax credits legislation as entitling the claimant to additional elements of tax credit. I do not at present see how such differences could serve a likely policy objective.
77. By contrast, under the alternative construction a claimant entitled to the disability element enjoys the benefit of reg. 8 whether or not he or she is entitled to any other elements, provided only that its benefit would not be available if at the relevant time the claimant would not have been entitled to the disability element because of a failure to satisfy reg. 9(1)(c) and as a result he or she would not have been entitled to working tax credit at all. This would be consistent with a policy objective of allowing backdating for a period comparable with the period allowed under reg. 7 to any claimant whose entitlement depended on the outcome of a benefits claim, rather than to some only of such claimants. That appears to me an inherently more likely policy objective.
78. Thirdly, the history of reg. 8 supports the conclusion that the alternative construction is the correct one. Before 6th April 2009 reg. 8 read as follows:
“8.(1) In the circumstances prescribed by paragraph (2) the claim referred to in sub-paragraph (f) of that paragraph shall be treated as having been made on the date prescribed by paragraph (3).
(2) The circumstances prescribed by this paragraph are where –
(a) a claim for working tax credit including the disability element (“the original claim”) was made by a person or persons;
(b) on the original claim, the decision of [HMRC] under section 14(1) of the Act was not to make an award of the tax credit;
(c) the reason for that decision was that the person or any of the persons did not satisfy paragraph (1)(c) of regulation 9 of the Working Tax Credit Regulations;
(d) at the relevant date in relation to the original claim, the person or any of the persons had made a claim for any of the benefits referred to in that paragraph that had not been determined;
(e) after that date, the claim for the benefit was determined in favour of the person by whom it was made; and
(f) a further claim for working tax credit including the disability element is made by the person or persons, within 3 months of the date that the claim for the benefit was determined.
(3) The date prescribed by this paragraph is –
(a) the first date in respect of which the benefit claimed was payable; or
(b) if later, the date on which the original claim was made (or treated as made under regulation 7).”
78. Reg. 9(1)(c) was then in the same terms as it is now. It requires that the claimant should satisfy any of Cases A to G, as set out in the remainder of reg. 9. All of the Cases involve some element of entitlement to a benefit by reference to a disability. That is to say, they all require that at some point the claimant has made a successful benefits claim.
79. I take the view that it is clear on the wording of the old reg. 8 that the situation being addressed was the case where at the time of the initial tax credits claim the claimant was unable to show a favourable determination of a benefits claim because the claim was still pending determination, but in all other respects the claimant could show entitlement to working tax credit. In such a case, the determination of the benefits claim in favour of the claimant was likely to mean that it could be seen, with the benefit of hindsight, that the claimant had been entitled to working tax credit all along, because of the date from which the disability benefit was payable. The effect of reg. 8 was to make it possible to give appropriate retrospective effect to the entitlement to working tax credit. Consistently with this, the second tax credit claim could not be backdated beyond the date of the original claim. It is also clear, however, that in order to protect his or her position and obtain the benefit of reg. 8 a claimant had to make a tax credits claim at a time when it clearly would not succeed because he or she did not yet satisfy reg. 9(1)(c), had to await the refusal of that claim and had then to make a further tax credits claim. It is difficult to see how this particular two stage process would have been helpful either to the claimant or to HMRC.
80. Also before 6th April 2009 a similar procedure applied in relation to notification of a change of circumstances consisting of becoming entitled to a relevant disability benefit, both in respect of working tax credit, where the claimant became entitled to the benefit, and in respect of child tax credit, where the child became entitled to the benefit. The claimant had to make an original claim at a time when a benefits claim was pending and to notify HMRC both of a change in circumstances which might lead to the benefit becoming payable and then of the award of the benefit. The relevant regulations were regs. 26 and 26A, the other two regulations referred to by HMRC in its submission to the tribunal about backdating as explained in paragraph 18(2) above. Reg. 26A was considered in SP v. HMRC [2009] UKUT 42 (AAC) (CTC 2878/2008) by Judge Turnbull, who upheld the decision of the tribunal that double notification was required, but commented on the weak drafting of the regulation. Apparently as a consequence of that decision all of regs. 8, 26 and 26A have been revised so that backdating is available on the basis of a single claim or notification (as the case may require) made within the specified period from the determination of the relevant benefits claim in favour of the claimant (or child).
81. This history is, however, relevant because it is clear from the original version of reg. 8 that a favourable determination of the benefits claim was the final piece of the jigsaw puzzle of entitlement. It was immaterial what other elements of working tax credit the claimant might be entitled to as part of the claim if entitlement arose when reg. 9(1)(c) was satisfied through a favourable determination of the benefits claim pending at the time of the original application and did not exist while it was not satisfied. This could happen through the application of the income rules just as much as through the application of the qualifying remunerative work condition. The claimant’s required second claim, following the making of the disability benefits award, could include any number of additional elements over and above the disability element and backdating would be available in respect of the entire claim. I do not see anything which could be construed as providing that the claimant could only succeed on the second claim if he or she could show that the qualifying remunerative word condition which was satisfied was the second part of paragraph (a)(ii) of the second condition in reg. 4 of the Entitlement Regulations.
82. Although the recasting of reg. 8 has affected the way in which the date to which backdating can take place is expressed, exactly the same result in practice would follow under the terms of reg. 8 as amended with effect from 6th April 2009 if it is given the alternative construction. Under HMRC’s construction, however, the elimination of the unsatisfactory double claim procedure would also have produced a substantive change, because only a claimant whose only route to satisfaction of the qualifying remunerative work condition was through the second part of paragraph (a)(ii) of the second condition could rely on it. I see no reason why such a substantive change should have been made, especially since the effect would have been to introduce the anomalies referred to in paragraphs 74 to 76 above.
83. This consideration of the history and apparent purpose of reg. 8 explains, in my view, why the present reg. 8(2)(c) focuses on satisfaction of reg. 9(1)(c) instead of reg. 9(1) as a whole (a point raised for consideration in the directions given on 3rd April 2014). It is a formulation carried over from the time when the claimant was required to have made an original claim at a date when a benefits claim was pending and the only matter needed to complete entitlement to tax credits was a favourable determination of the claim.
84. Conversely, in my view there is no obvious answer to the other point raised in those directions, namely, the fact that reg. 8(2)(c) does not require satisfaction of the whole of the relevant part of paragraph (a)(ii) of the second condition. That part requires not only satisfaction of reg. 9(1)(c) but also that the claimant should have a physical or mental disability which puts him at a disadvantage in getting a job. By virtue of reg. 9(1)(b) and 9(9) a person who has any of the disabilities listed in Part I of Schedule I or, in the case of an initial claim, satisfies the conditions in Part II of Schedule 1, satisfies that requirement. The disabilities and conditions are not, however, identical with those producing entitlement to any particular disability benefit, although one would expect that a person with such disabilities or satisfying such conditions might well be entitled to such a benefit. The effect of HMRC’s argument is therefore to require claimants seeking the benefit of reg. 8 to satisfy the second qualifying remunerative work condition by one only of four possible routes to satisfaction of the second condition, but to specify part only of that route and to do so by reference to another regulation instead of imposing the requirement by direct reference to the second condition in reg. 4.
85. While such an approach is not impossible, it seems unnecessarily convoluted. There is no obvious reason why there should not have been a direct reference to the relevant part of reg. 4 if that was the meaning reg. 8(2)(c) was intended to have. Given that there is an alternative construction to which this objection does not apply, the objection is, in my view, another argument against HMRC’s suggested construction.
86. For all the above reasons, then, I prefer the alternative construction to that proposed by HMRC in its submission dated 11th July 2013. As I have said, however, this does not assist the claimant, because the determination on her benefits claim was made outside the 93 day limit prescribed by reg. 8(2)(b).
87. It follows that the First-tier Tribunal was correct to say in its decision notice that there was no legal power to backdate for any greater period, at least as far as the claimant is concerned, although the First-tier Tribunal understandably does not appear to have given detailed consideration to reg. 8. In those circumstances, the decision made by the First-tier Tribunal did not involve an error on a point of law.
Date of the appeal
87. As mentioned in paragraph 10 above, the appeal is said to have been brought late. S.39(1) of the Tax Credits Act 2002 requires an appeal to be brought within 30 days of the date on which notice of the decision by HMRC was given. I assume that notice was given fairly shortly after the decision was made; I feel no doubt that if the claimant had not received notice of the decision of 25th July 2011 until about 21st October 2011 she would at some point have said so. I therefore accept that the appeal was indeed late.
88. It is clear that HMRC did not intend to take a point on that. Instead, Section 4 of the submission to the tribunal states that the appeal was accepted by HMRC and reference is made to reg. 5 of the Tax Credits Appeals (No. 2) Regulations 2002, S.I. 2002 No. 3196. Reg. 5 of those Regulations on its face gave power to HMRC to extend time for appealing.
89. The difficulty which has now arisen is that in JI v. HMRC [2013] UKUT 199 (AAC) (CTC/345/2012) it was decided that the effect of changes to the enabling legislation was that from 1st April 2009 there was no longer power for HMRC to extend time for appealing. The situation has now been corrected by the Tax Credits (Late Appeals) Order 2014, S.I. 2014 No. 885, but that statutory instrument does not validate, or permit HMRC retrospectively to validate, late appeals brought before 1st April 2013.
90. On that basis, it seems that there was no valid appeal by the claimant against the decision of 25th July 2011. I should, however, be reluctant to base my decision on that point. Not only is it clear that all persons concerned believed that the claimant had validly exercised a right of appeal, but it also seems arguable to me, as at present advised, that her letter dated 20th November 2011, which was treated as the letter of appeal, amounted to a request for backdating which HMRC refused by their letter dated 23rd April 2012. That decision itself was then arguably appealed against by the letter dated 8th May 2012, which clearly was within 30 days of HMRC’s letter.
91. Even if such an argument were correct, however (and JI v. HMRC lends some support to the view that it might be), I am satisfied that no useful purpose would be served by taking the point any further. The grounds of any such appeal would plainly be the same as those which I have decided do not avail the claimant. Neither she nor HMRC have been prejudiced as to the substance of the matter by the error which was understandably made in that respect.
Conclusion
92. For the reasons I have given above, I dismiss this appeal
(Signed) E. Ovey
Judge of the Upper Tribunal
(Dated) 20 May 2014