Secretary of State for Work and Pensions v LM
[2023] UKUT 72 (AAC)
HMRC v AS
13 March 2023
[2023] UKUT 67 (AAC)
Upper Tribunal
The government (HMRC) disagreed with a court's decision on how much tax credit a person should get. The court calculated it wrong by splitting up the person's monthly pay. The government's new calculation, using the whole of their monthly pay, meant the person got less tax credit.
Key Facts
- •HMRC appealed a First-tier Tribunal (FTT) decision regarding a claimant's tax credit entitlement for a 17-day period (6 April 2019 - 22 April 2019).
- •The claimant's tax credits ended when she applied for Universal Credit.
- •The FTT calculated the claimant's earnings for the 17-day period by apportioning her monthly income, resulting in £693.43.
- •HMRC calculated the earnings as £1,127.85, based on income actually received during the 17-day period.
- •The dispute centered on the correct method for calculating income for a 'part tax year' under the modified tax credits legislation following a Universal Credit claim.
- •The claimant's annual income varied between £10,413.30 and £15,352.52 in the preceding tax years.
Legal Principles
Tax credits entitlement is assessed at the end of the tax year, based on 'relevant income'. For 'in-year' final decisions (following a Universal Credit claim), the calculation uses 'notional current year income'.
Tax Credits Act 2002, sections 7(1)-(5), and the Universal Credit (Transitional Provisions) Regulations 2014 (SI 2014/1230)
For 'in-year' final decisions, the calculation of 'notional current year income' is based on the income actually received in the part tax year, not income apportioned to that period.
Schedule 1 to the 2014 Transitional Regulations, modifying section 7(3), 7(4A) of the Tax Credits Act 2002 and Regulation 3(1) of the Tax Credits (Definition and Calculation of Income) Regulations 2002.
Outcomes
HMRC's appeal was allowed.
The FTT erred in law by using an apportionment method to calculate the claimant's income for the part tax year. The correct approach, under the modified legislation for in-year final decisions, was to use the income actually received during the part tax year (£1,244).
The FTT's decision was set aside.
The FTT's calculation was based on an incorrect interpretation of the relevant legislation for calculating income in 'in-year' final tax credit assessments.
The claimant's final entitlement was £0.00 WTC and £36.74 CTC for the 17-day period.
This reflects the recalculation using the correct methodology based on the income actually received in the part tax year.