The Low Incomes Tax Reform Group (LITRG) says working tax credit claimants need to check their position carefully after the ending of certain coronavirus tax credit easements.

The group says that current government guidance is misleading for some claimants and it’s putting pressure on HMRC to confirm it will not charge penalties and will write off any overpayments that result from the incomplete guidance.

Special rules

In response to the coronavirus pandemic, HMRC introduced easements for tax credit claimants. These included special rules for working tax credit claimants who could not work their normal hours because of the impact of the pandemic. This essentially allowed their tax credits to continue uninterrupted by treating them as working the same hours as they were before the pandemic.

These special rules were in place until 30 September 2021. From 1 October 2021, a complex series of rules replaced them for claimants who were still not able to resume their usual working hours (or the level needed to qualify for working tax credit) as a result of the pandemic.

For people in this situation, the new rules mean that the point at which a claimant needs to notify HMRC about their situation depends on whether they expect their hours to return to the level needed to claim working tax credit by 25 November 2021.

If they do expect to reach the required level by 25 November, they don’t need to do anything immediately, and only need to tell HMRC on 25 November if their hours do not return to the required level.

However, at any point from 1 October 2021, if they do not expect their hours to reach the required level by 25 November 2021, even if the situation is temporary, they must inform HMRC immediately. Their working tax credits will then continue for a further four weeks before ending.

Tax credit overpayments

LITRG understands that HMRC will be writing to people who they think may be affected by these new rules and those letters should relay the correct instructions – but it warns it may be too late for some people to avoid an overpayment of tax credits.

Victoria Todd, head of LITRG, said: “The tax credits easements introduced due to the pandemic were welcome for claimants. It is unfortunate but not unexpected that the rules for the ending of the working hours easement are so complex: HMRC are attempting to provide a series of run-ons to avoid a ‘cliff-edge’ end to entitlement for those still struggling to resume their normal hours. We are urging claimants to check LITRG’s website guidance to understand the full rules and check whether they need to report any changes to HMRC before 25 November.

“The Gov.UK guidance is over-simplified and, as a result, misleading. It indicates that all claimants who benefited from the working hours easement, and whose hours are still not back to the required levels, do not need to do anything before 25 November 2021 unless they have a permanent change. This is not correct in cases where the change in their working hours remains temporary but is expected to last beyond 25 November. In those cases, they must tell HMRC immediately.

“Anyone in that position who has not told HMRC may build up an overpayment, which can be minimised if they tell HMRC of the change now. We urge HMRC to correct the Gov.UK guidance as soon as possible and also to confirm that no-one will receive a penalty as a result of following the guidance. In addition, HMRC should write-off any overpayments resulting from people following the Gov.UK guidance – which their dispute policy allows them to do in a situation such as this.”