Tax Credits - Should Everyone Claim?
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AccountingWeb.co.uk
7 May 2003 We can sort out your tax for as little as £125 (fully inclusive).
Tax credits claims are for 'everyone' - almost
Andrew Goodall, author of the Tax Credits Zone guides, reports The Chartered Institute of Taxation advises that "everyone should apply for tax credits, regardless of whether they are likely to qualify", according to a weekend report in the Times. The Institute has sought to clarify this, whilst saying that the basic message of the Times article is valid. John Whiting, past President of the CIOT, said: "We are not suggesting that everyone should go ahead and apply, but people with children or those on a relatively low income should consider registering. The message is this - don't let your income price you out of putting a claim in". The Times reported that the CIOT had convinced the Revenue to "drop some of the fines that it levies on claimants, which means that there is now no risk in making an application". Richard Mannion, head of tax at Solomon Hare and the CIOT's representative on Working Together, told the Times that the three-month limit on backdating of claims was a "real problem for the self-employed people who, by definition, will find it impossible to anticipate their total income for 2003/04 and probably won't know their final income until summer". Francesca Lagerberg, the CIOT's Personal Tax Technical Committee Chairman, indicated that after "long talks" with the institute, the Revenue had undertaken not to impose penalties for failure to notify changes in circumstances following protective claims. A Revenue spokesman was reported as saying: "We're simply making clear that we will not be seeking penalties for technical reporting failures when there are no tax credits at stake. This is no different from the approach we would take in many areas of the tax code - for example, with self-assessment". The Revenue has the power to mitigate or entirely remit any penalties arising under Part 1 of the Tax Credits Act. Whiting told me - "There is a basic tension between what is essentially a benefits system, operating on the basis of 'you need your money now, we'll only go back up to three months' and the income test, which is based on tax years. We asked the Revenue to extend backdating to twelve months, and they said that was not possible because it would distort the system. But they would welcome protective claims instead. We don't think this is the right decision, but the decision has been made". The continued absence of any Inland Revenue message to the public on the protective claims issue suggests that it may well be struggling to decide how to get the message across. I suggested that the situation was particularly unfair on people without tax advisers, but the Revenue declined to comment. The Commons Standing Committee on the Tax Credits Bill debated the rules on backdating of claims in January last year. Howard Flight MP, then Shadow Paymaster General, tabled a probing amendment to Clause 4, which would have imposed a four-week limit on backdating. He recognised that this was probably too short but said a time limit was needed "to avoid inefficiency, fraud and waste". Paul Boateng, then Financial Secretary to the Treasury, said the government would allow a period of three months - "There is a balance to be struck, and we must offer flexibility and recognise the everyday practicalities of real life. A time limit of three months will enable the rules governing child tax credit claims to be aligned with those governing child benefit claims on the birth of a child. That will allow new parents to claim the child tax credit and child benefit in tandem-a further part of the integration process. However, because the time limit is set out in regulations, we can keep it under review in the light of experience." Mr Flight responded - "I thank the Minister for his response and in particular for clarifying, at least for me, that the Government initially intend there to be a three-month time limit. That addresses the main issue that we were raising. What everyone wants to avoid is the development of a lucrative trade for clever lawyers specialising in back-claiming for long periods, long after that support was needed for the people concerned, who have survived notwithstanding." Hansard 15 January 2002, cols 41 and 42 ANDREW GOODALL
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