APPENDIX ONE
CASES WHERE AN OVERPAYMENT MAY BE INEVITABLE
The following, provided by the Low Incomes Tax
Reform Group, gives an example of where an overpayment may inevitably
arise even when a claimant reports any change of circumstance
on time:
"Fergus and Deirdre made a joint claim for
tax credits in 2003-04. In the first six months of the year, only
Fergus was working. Their joint income for 2001-02 was £12,000
a year, Fergus's annual salary. Therefore, for the first six months
of 2003-04 their tax credit award was based on joint income of
£6,000 (half of Fergus's earnings).
Fergus continued on the same salary level in
2003-04. Half way through the tax year Deirdre started working,
also earning £12,000 a year, so their annual income in a
full tax year doubled to £24,000 and their joint income for
the second half of the year to £12,000. Fergus and Deirdre
reported this change to the Revenue straight away, and the Revenue
processed it promptly. The Revenue recomputed their income ignoring
the first £2,500 of the increase, and recalculated their
income accordingly.
Now because of the way the regulations spread
income over the whole tax year, when Fergus and Deirdre's income
for the whole of 2003-04 is recalculated, it is spread evenly
over both six-month periods. Thus, because their annual income
is now £18,000 (£12,000 for Fergus and £6,000 for
Deirdre), for the first six months their income is recomputed
as £9,000, not £6,000. Even with the £2,500 disregard,
this is bound to make a difference to their entitlement for those
six months and could mean that an overpayment will have arisen
in that period.
October 2005
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