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HMRC are currently sending out letters concerning tax credits claims, warning claimants that their claim will not be renewed this year, but will lapse from 6 April 2011, unless they contact HMRC by phone or letter within a specified time telling them that they want to renew for 2011/12. Those claimants will be those who have been on a nil award (ie not receiving any tax credits because their income is too high), and those who were receiving something last tax year but are now on a nil award because of the cuts in tax credits taking effect from 6 April.

The importance of considering your position

It is very important that claimants consider their response to this letter carefully. One consequence could be that if your income falls unexpectedly during the current tax year, and you need to make another claim, you will only be able to backdate your claim by three months. If instead you had responded to the letter saying that you want to renew your claim, even if it is a nil claim, and had done so within the deadline set, the increase in your entitlement could have been spread back to the beginning of the tax year.This is a consequence of the way tax credits work. They are not like traditional benefits, which base entitlement on a person’s income at a particular point in time. Instead, tax credits look at a person’s income for the tax year as a whole. Any award made during the year is provisional only; nobody can tell what their actual entitlement is until the tax year is over, when all changes in circumstances and income are reviewed to produce a final figure.

The practical implications for claimants

In summary, if your income is likely to fall during the current tax year (eg you are expecting to be made redundant, or are self-employed and can foresee difficult times ahead) – or even if you don’t expect any change in your income but want to be covered in case of anything unforeseen – you should respond to the notice TC1015 within the time limit saying that you do want to renew your claim for 2011/12.