Tax credits - don't miss out

Posted in: Finance Last updated: 19 Jul 2013

Most parents would probably agree that tax credits are the most tortuous and complicated benefits ever devised, and the temptation to stuff it all at the back of the drawer may be overwhelming, but the HMRC sets tight deadlines for the return of all these annoying bits of paper. 

Save the date

So you should probably just put the 31st July on your calendar, and bite the bullet because responding to the annual review is how you can renew your claim for tax credits for the new tax year.

There is an additional incentive to being organised this year, making sure that the renewal happens on time and uses the correct information – because the national rollout of Universal Credit (UC) is scheduled to begin in October 2013 for new claims.

The renewal process

If you claimed tax credit for the tax year 12/13, then HMRC should send you an annual review form (TC603R) at some point between April and June 2013.This form is known as the ‘final notice’. You should also get an annual declaration form (TC603D). If you're receiving benefits such as income support, or income-based Job Seekers Allowance you might not get one of these forms.

The annual review form

If you are sent an annual review form but not an annual declaration form, you are asked to check that all the details on this form about your claim for the previous year are correct and to notify the tax credit office of any change in your circumstances. You will then be deemed to have confirmed that all the details in the form are correct, and the final decision on your 12/13 award, and the initial decision on your 13/14 award, will be finalised. If you fail to reply within the time limits and you don’t pick up on incorrect information given, then your tax credits may be wrong. If you don’t notify a change of circumstances promptly, then you can be penalised.

The annual declaration

This is the form which asks for details of your income in the previous tax year, and you must always respond to it in time, usually by 31st July. This will come round quicker than you think, so don’t put it off. You can make your declaration by phone if you choose, but good luck with getting through as the deadline approaches. You can make an estimate, if you don’t yet know the correct figure. If you put in an estimate, and fail to meet the deadline for the actual income to be notified (usually 31st January), then your calculation will be done on the basis of the estimate and may stay that way, possibly to your disadvantage. If you fail to meet the deadlines, then it is likely that your tax credit payments will cease, and you will have the bureaucratic equivalent of pushing a rock up a hill to get them started again.

Look after your tax credits award:

  • Make sure that all the standard elements have been included,
  • Ensure your current and anticipated childcare costs are accurate, as this will affect the childcare element of your working tax credit calculation,
  • Don't forget that holiday clubs also count as eligible childcare costs – as long as the club/provider is registered.

"Most parents would probably agree that tax credits are the most tortuous and complicated benefits ever devised..."

Check that your taxable income figure is correct or if there is any way it could be reduced:

  • Is there an option to increase the amount paid into your pension schemes?
  • Could any of your taxable savings or investments be moved into tax-free schemes?
  • If you have a lodger the rent you get from the lodger could be tax free under the HMRC rent a room scheme.

Staying sane in a time of benefit uncertainty

The last thing you will want when Universal Credits does arrive is to still be arguing with HMRC over incorrect tax credits. It will be so much less stressful to ensure a seamless shift to Universal Credit with the maximum transitional protection in place.

Even though Universal Credit has been highlighted as a major project ‘likely to fail’ by the Government’s own Major Projects Authority, we have to assume that Universal Credit is actually going to happen. Migration of existing claimants starts in April 2014, and will affect everyone currently claiming tax credits, housing benefit, or any of the other means-tested benefits – but not Child Benefit.

Anyone getting means-tested benefits who turns out to be worse off under UC will have a top-up payment to bring their UC up to the level of their old benefits. This top-up will be called 'transitional protection'. This is why it’s worth getting your tax credits in the best shape possible – so that you can maximise your transitional protection.

Note: Whilst we take care to ensure Hub content is accurate at the time of publication, individual circumstances can differ so please don’t rely on it when making financial decisions. OneFamily do not provide advice so it may be worth speaking to an independent financial advisor about your own circumstances.