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Annie Hayes

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Employers and tax credits – The end of the story – almost

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Employers are now in their final months of paying tax credits for claimants, and by 5 April 2006 this sorry episode will be over, subject to resolving arithmetical problems when finalising the form P35. However, the termination of the obligation by employers seems to have brought problems of its own, as I found in my own payroll last week. By Rebecca Benneyworth.


Notice to employees
All employers were required to send a notice to tax credit recipients advising them about the change in tax credit payment arrangements. This rather onerous obligation seemed unnecessary, as HMRC Tax Credits office communicate at least twice a year with claimants, and were well aware of the changes in time to include details with the award notifications after the 2005 renewals.

Employers had until 7 November to complete this task, and the notice had to be provided using statutory wording provided by HMRC. Employers were advised by HMRC to keep a copy of the notices sent out, so that compliance officers could check them on a subsequent visit, and a penalty is prescribed for each failure to issue the notice.

Some enterprising employers (and payroll bureaux) did manage to get these messages on the October 2005 payslip, but as the message comprise 189 words this would have been a challenge for most!

“Stop Notices”
Stop notices will start to arrive over the period from now until late February. The last stop payment notices should arrive by 20 February, given that HMRC always give six weeks notice of any change to payments by employers. Any employers who have not received stop notices for all tax credit recipients by 20 February are advised to telephone the help line on 08457 143 143.

As an employer, my own stop notice arrived in October, with a stop date this week – so I am about to make my last payment of tax credits. This has not been without problems though!

Year end
There will be boxes on the P14 and P35 reconciliation to show the amounts of tax credits paid, but this should cause no particular problem to the employer, and will allow a final reconciliation of amounts paid in tax credits, and if appropriate, funding received from HMRC for tax credit payments.

New claimants
New claimants from 7 November will be paid direct by HMRC without the employer ever becoming involved in payment. Unfortunately there are more “new claimants” around than most people now recognise, because some changes in circumstances prompt the termination of one claim and the start of another. Where a change in circumstances arises during the lead in to the cessation of payment by employer, this can cause problems, and some tact and patience will be required, as I found last week.

Having received my “stop” notice early, I explained to the employee concerned what would be happening in addition to providing the written notice. All appeared well.

A few weeks ago the employee arrived with a worried look on her face. She had been told that she had been overpaid tax credits and would have to pay some back. I did not concern myself unnecessarily – I assumed that she had notified a change in circumstances so that her award had been revised. I advised her to contact the tax credit office by telephone if she had any worries.

I did, however realise that I would not be receiving a reduced payment notice, as I had already received my six weeks notice to terminate payment. I assumed that the tax credit office would correct payments when they took over.

I also mused to myself that an inbuilt six week delay for any changes, necessary for the payment by employer system, would probably be a welcome loss, as surely the HMRC computer system would implement changes as soon as it recomputed a claim – cutting out at least four weeks of payment at the wrong rate and reducing overpayment issues.

In early November the employee arrived for work looking even more concerned. Having understood the position regarding overpayment she was now horrified to find that in addition to the tax credits paid in her wages, and the notification that these were excessive, she had last weekend discovered a credit in her bank from the tax credits office! Horrors!

What on earth is going on? I advised her to check her bank statement at the end of the week, and if this happened again I would contact the tax credits office for an explanation. I hoped that it was a “one off” adjustment.

By Monday 14 November I was not entirely surprised to be having this conversation for the second time and decided to take action. My telephone call to the employer helpline was fielded by a helpful and knowledgeable employee, clearly working under pressure. She was aware that two sets of payments were being made at the moment, in spite of the fact that the employee concerned had been advised that she had been overpaid before this happened.

I had visions of my poor employee’s tax credit debt spiralling out of control. “Can’t you stop payments?” I asked, naively. “No, as if we cancel the direct credit the computer will just issue a Girocheque for the money instead” was the reply. “OK, then I’ll just stop paying her now” was my next attempt. “No that won’t work either, as when the final reconciliation is done, another Giro cheque will be issued”.

We finally agreed that I would advise my employee to keep the money on one side and get ready to repay it, and that both sides would continue to pay as planned. I am pretty relieved that this employee is not a client of my practice, as I suspect she by now suspects me of complete incompetence!

What is happening? I suspect that after a week’s thought I have stumbled on the answer. The employee concerned has had a change in circumstances that has triggered a new claim. Her new claim was such that it fell into immediate payment by HMRC, but I as her employer was already in my “six weeks notice period” so there is no mechanism to revise the payments I am making.

Thus the employee had been advised of an overpayment, and then started to receive two payments of tax credits per week rather than one – mine in respect of her “old” claim, and from HMRC in respect of her new claim.

At least my experience may serve to be of help for any other poor employers dealing with worried employees this winter! Good luck!

Rebecca Benneyworth is a freelance writer and tax consultant.

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