Tax credit won’t be auto-renewed this year – what to do now to ensure you don’t miss out

Martin Lewis on working from home tax allowance extension

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Tax credit claims will need to be actioned soon as the Low Incomes Tax Reform Group (LITRG) warned HMRC recently completed the sending out of 2.5 million renewal packs. Additionally, the group “is also reminding” those who are renewing their claims to check all coronavirus related payments they have received to see if they count as income for tax credits.

If this proves to be the case, they will then need to find out how they need to declare the payments, amid concerns about confusion as to what does, and does not, count.

For those who claim tax credits, they should have already received their annual renewal pack for 2021.

HMRC usually sends them out by post between April and June each year, with HMRC expected to complete this by June 4.

In 2020, HMRC auto-renewed most claims due to the pandemic but LITRG reiterated HMRC is not doing that this year.

This means more people will be receiving “reply required” renewals this year which they must act on and declare their income for the 2020/21 tax year (or an estimate) by July 31 2021.

Additionally, more complications have been added to the process this year due to coronavirus, as LITRG explained: “It is also important this year that tax credit claimants check whether they need to declare any COVID-19 related support payments as income for tax credits.

“People should also check their circumstances carefully. Various concessions in the rules were introduced during the 2020/21 tax year to help with the impacts of the COVID-19 outbreak – for example in relation to temporary reductions in usual hours of work.

“Broadly speaking, any temporary changes to work/working hours because of COVID-19 do not need to be reported to HMRC at present, but you must report any permanent changes.”

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Victoria Todd, the Head of LITRG, commented on these changes.

She said: “We are concerned that some people may wrongly assume that their tax credits will be renewed automatically this year and that there will be potential confusion about the various COVID-19 payments, whether they count as income for tax credits and how they should be declared.

“Whatever type of renewal pack HMRC send you, make sure you follow the instructions and complete any actions by July 31 2021.

“It is especially important this year to check your income carefully and make sure any COVID-19 support payments that you received have been properly declared.

“HMRC have published some information on the GOV.UK website outlining some of the payments to include as income for tax credits.

“However, the GOV.UK page does not explain how these payments should be declared.

“You need to check carefully whether they are already included in any of the figures HMRC hold or that you have already calculated – so that you do not double count them.”

As an example, LITRG detailed the bonus payments for health and social care staff, which count as income for tax credits, were paid through the payroll and should be already included in a P60 figure and in the figure shown on an award notice if HMRC have received earnings data from the tax system.

Those who are self-employed will also need to factor in any payments from the SEISS scheme.

Victoria concluded by providing guidance on this: “If you are unsure about whether a grant or payment should be included as income for tax credits or how to declare it as income – contact HMRC.

“We are also taking the opportunity to remind people that they may be able to make deductions from their income figure for tax credits – for example for weeks they were receiving certain statutory payments such as statutory maternity pay, for qualifying pension contributions or allowable work expenses. You should check the renewal notes carefully to see if you can make any deductions from your income figure.

“You may not have your actual income figures for 2020/21 ready by July 31, for example if you complete income tax Self Assessment where the deadline for submission is January 31 2022. If you do not yet have your actual income figure for 2020/21, it’s very important that you provide HMRC with an estimate of your 2020/21 income by July 31 2021 and you will then have until January 31 2022 to provide them with your actual figure.

“If you have already completed your renewal and think you have made a mistake with your income declaration or anything else on your renewal – as long as you contact HMRC before July 31 they should be able to correct things and issue you a new award notice based on your updated information.”

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