· Employees who are unsure of their work contracts.
Francesca Lagerberg, Chairman of CIOT Personal Taxes Sub-Committee and a director at Smith and Williamson, said:
“We have argued for some time that the system should allow for retrospective claims from those whose incomes fluctuate. Whilst the Revenue haven’t gone that far, at least this means that anyone who wants to put in a protective claim does not have to worry about penalties if they don’t withdraw their claim.
“Because of the way that the tax credit system works, it is not always apparent from the start of a tax year if you are entitled to make a claim or not. As there is a limit of three months on backdating claims it is possible that you might discover at a later date that you were able to make a claim but you are time-barred from doing so. The Revenue’s concession allows people to make a protective claim but without the fear of penalties which might otherwise have arisen if they joined the “tax credits club” but forgot to notify the Revenue of certain changes in circumstances.
“The Tax Credits system requires claimants to notify the Inland Revenue about changes in their circumstances. This is the three-month rule. If personal circumstances affecting tax credit entitlement change, people need to act within three months and inform the Revenue or they will get penalties or lose out on an increased entitlement."
NOTE FOR EDITORS:
The Tax Credits system – Working Tax Credits and Child Tax Credits – basically have to be claimed in advance. A claim can be backdated, but only for a maximum of three months – in contrast to the annual nature of the tax system with its possibility of back claims for some years.
Claims are based on the claimant’s (or couple’s) income for a prior year. If the claimant’s circumstances change, the Inland Revenue must be notified.
The Inland Revenue must be informed of the following change of circumstances within three months:
1. A decrease in childcare costs of £10 a week or more.
2. A reduction in childcare costs to nil.
3. Entitlement to tax credits ceasing where there is a change in the make-up of the tax credit claiming unit e.g:
a single person becomes part of a couple;
a single person becomes part of a polygamous unit;
a couple splits up;
there is a change in the make-up of a polygamous unit; or,
a couple becomes part of a polygamous unit.
Where a member of a tax credit claiming unit leaves the UK permanently, or goes abroad for more than 8 weeks (or 12 weeks if he or she goes or remains abroad because he or she is ill or because a member of the family is ill or has died) this also has to be notified as all members of the unit will no longer be “in the UK”.
The normal penalty for failure to notify these changes of circumstances is a maximum of £300.
The Revenue’s concession means that a protective claim can be made without the risk of incurring a penalty under the above rules.
The Chartered Institute of Taxation (CIOT) is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT deals with all aspects of direct and indirect taxation. Its primary purpose is to promote education in and the study of the administration and practice of taxation. One of its key aims is to achieve a better, more efficient, tax system for all affected by it - taxpayers, advisers and the authorities. The CIOT’s comments and recommendations on tax issues are made solely in order to achieve its aims: it is entirely apolitical in its work. The 12,000 members of the CIOT have the practising title of “Chartered Tax Adviser.
The Institute was established in 1930 and received its Royal Charter in 1994. It is a United Kingdom member of the Confédération Fiscale Européenne (CFE), the umbrella body for 150,000 tax advisers in Europe. As part of its charitable activities, the CIOT also sponsors the Low Incomes Tax Reform Group which works to improve and simplify the tax system so as to make it more responsive to the needs of those who cannot afford to pay for tax advice.
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