Business

Warning to tax credit claimants

Mother and child
Image caption The government is becoming stricter with claimants who do not reveal if a partner has moved in or out

Tax credit claimants will receive letters this week reminding them to contact HM Revenue & Customs if a partner moves in or out of their homes.

The letters are part of a new anti-fraud plan to stop people overclaiming when their circumstances have changed.

HMRC warned that deliberate failure to keep them informed could amount to fraud, which would lead to prosecution.

It said 150,000 tax credit claims in 2008-09 were incorrect single claims.

"There has been too much error and too much fraud for too long in our benefits and tax credits system," said David Gauke, Exchequer Secretary to the Treasury.

The letters are part of a wider campaign against fraud and mistakes in the public services which the government hopes will save it about £25bn a year.

More generous

Earlier this year, the tax credit system was changed to vary the rules on what is called "notional entitlement".

Claimants were still obliged to tell HMRC quickly if a partner joined their household or left as a result of a couple splitting up.

But the system became more favourable to people who were slow at doing so.

They could now backdate their revised tax credit claim by more than the previous three-month limit, and all the way back to the point at which their circumstances changed.

That meant they could offset all the money gained from the backdated element of their revised claim against anything they might owe due to the previous overpayments they had received.

Less generous

In June, though, the coalition government's Budget announced many important changes to the tax credit system, most of which will make it less generous in a number of important ways from April 2011.

Image caption Significant changes are in the pipeline for 2011 and 2012

These include:

  • Tax credits will be tapered away more quickly once a claimant's income has reached the necessary thresholds for working tax credit and child tax credit.
  • Families with children who claim the £545 "family element" of tax credits will find it is tapered away once their incomes rise above £40,000 a year, not £50,000 as at present.
  • The annual "disregard" - the amount by which your income can rise without it affecting that year's tax credit entitlement - will fall from the current £25,000 to £10,000 in 2011, then £5,000 from April 2013, thus increasing the likelihood of overpayments occurring.

Backdated claims may also be restricted to just one month, from April 2012.

But a spokesman for HMRC said it was not yet clear if this would affect the recent change to "notional entitlement."

"The draft regulations will be prepared sometime in 2011 and will be put before the Social Security Advisory Committee for their views," he said.

"How the draft regulations interact with other areas of policy will be made clear then."

What do you think of the HMRC's plans? Are you a tax credit claimant? Have you received a letter yet?

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