Section 5: Period of awards

46.     Section 5 sets out how long tax credit awards last and what brings an award to an end. A claim made before a tax year starts gives rise to an award for the full tax year (subsection (1)). Otherwise, the tax credit award starts on the date of claim and runs to the end of the tax year (subsection (2)). Subsection (3) makes clear that these provisions are subject to any decision by the Board under section 16 to terminate an award.

Section 6: Notifications of changes of circumstances

47.     Section 6 sets out the arrangements for the notification to the Board of changes of circumstances affecting people's entitlement to tax credits.

48.     Regulations may provide that a change that increases the maximum rate of entitlement to a tax credit takes effect only once the Board has been told about it (subsection (1)). Subsection (2) provides that regulations may allow for the notification of a change to be treated as having been made earlier or later than it actually was and for notification to be made for a period after it is given. Regulations may also allow for a change in the tax credit award to be made contingent on the requirements for entitlement to the amended award being met when the amendment takes effect. This follows the approach taken to claims in section 4.

49.     Section 6 also allows regulations to be made requiring claimants to notify the Board where there is a change of circumstances of a prescribed description which may reduce the rate of entitlement to a tax credit or bring entitlement to an end (subsection (3)).

50.     The section also allows for regulations to make provision about how and when a notification of a change should be given and about who may be entitled, or required, to notify a change. The regulations may also set out the circumstances in which one person can act for another in relation to a notification (subsection (4)).

Section 7: Income test

51.     Subsection (1) of section 7 provides that entitlement to a tax credit is dependent on the income of the claimant or the combined income of persons making a joint claim. The starting point is that an income threshold will be determined in the matter set out in regulations. If the income of the claimant or claimants falls below the threshold, their entitlement is to the maximum rate of the tax credit appropriate to their circumstances. But if their income exceeds the threshold, all or part of that entitlement may be withdrawn (see section 13).

52.     The income test introduced by this section is not to apply in the case of claimants entitled to prescribed social security benefits. Such claimants automatically receive tax credits at the maximum rate for as long as they stay on those benefits (subsection (2)).

53.     The income to be taken into account in determining entitlement to tax credits will be income for a tax year. The basic proposition is that awards are based on the current year income. But the section allows regulations to be made to enable previous year income or an adjusted measure of current year income to be used in certain circumstances. The regulations may set monetary thresholds related to changes in income between the current and previous years. A change in income smaller than the threshold(s) prescribed in regulations would mean claimants received tax credits based on their previous year income. If income moved between one year and the next by more than the threshold(s), the amount of tax credit due would depend either on the current year income, or, if regulations so provided, on current year income adjusted by the threshold (subsection (3)).

54.     The effect of this is to provide flexibility for entitlement to tax credits not always to be based on actual income in the current year. So it would be possible for claimants with relatively small changes in income to have awards based on their known previous year income. The regulation-making powers would also make it possible for changes in income below prescribed amounts to be ignored and for the first slice of a change in income to be left out of account in determining entitlement.

55.     This section provides that, for joint claims, the income for a tax year is the aggregate income of each of the partners for that year (subsections (4) and (5)). Regulations may allow income to be treated as belonging, or not, to a particular tax year (subsection (6)). In particular, they may allow income of particular types for the last tax year but one to be treated as the previous year income of that type, instead of the actual amount for that year (subsection (7)).

56.     Regulations may also make provision as to what is, or is not, income for the purposes of tax credits and as to the calculation of income (subsection (8)). A person may be treated in certain circumstances as not having income which he does have or as having income which he does not (subsection (9)).

57.     The section also enables the Board to make an estimate of the income of an individual claimant, or the aggregate income of joint claimants, in order to make, amend or terminate an award. Such an estimate does not change the actual entitlement of the claimant or claimants to tax credits for the year (subsection (10)).

Section 8: Entitlement

58.     This section sets out the conditions of entitlement for the child tax credit.

59.     Entitlement hinges on the claimant or claimants being responsible for one or more children or qualifying young persons (subsection (1)). Regulations may be made setting out how responsibility for a child or young person is to be determined for the purposes of the child tax credit (subsection (2)).

60.     The section also sets out what is meant by a child or young person for the purposes of the child tax credit. "Child" means someone under 16 or, in prescribed circumstances, someone aged 16. The intention is to continue child tax credit entitlement in respect of a child until 1st September following the child's 16th birthday, so as to cover those children remaining in compulsory full-time education (subsection (3)). A "qualifying young person" is someone aged 16 or more who is no longer a child for tax credits purposes, meets conditions to be set out in regulations and is below an age limit to be set out in regulations (subsection (4)). This will enable support through child tax credit to be available in respect of young people who continue in full-time, non-advanced education.

61.     The section allows regulations to be made to enable child tax credit to continue for a period after a child or young person has died (subsection (5)).

Section 9: Maximum rate

62.     Section 9 provides for regulations to be made setting out the elements making up the child tax credit. The section provides that child tax credit must include an element available to everyone entitled to child tax credit and an element for each child or young person that the claimant is or claimants are responsible for. The first of these elements is known as the "family element" and the latter as the "individual element". The individual element must be a higher amount for a child or young person with a disability and higher again for a child or young person with a severe disability. Regulations may set out the criteria for deciding whether a child or young person is disabled or severely disabled.

63.     The section allows for regulations to set out other elements of child tax credit. Regulations may also provide for the family element to differ according to the age of children in the family, or other factors, or for the amount of the individual element to vary according to the age of the child or young person, or other factors.

64.     If regulations under section 8(2) about the circumstances in which a person is, or is not, responsible for a child or qualifying young person, mean that more than one claimant (other than the partners in a couple) is entitled to child tax credit in respect of the same child or young person, regulations under this section may provide, in effect, for entitlement to child tax credit to be divided between them.

Section 10: Entitlement

65.     Section 10 sets out the conditions of entitlement relating to the working tax credit. It provides that a person, or either or both persons in the case of a couple, must be engaged in qualifying remunerative work.

66.     The section allows regulations to be made setting out what is meant by qualifying remunerative work and the circumstances in which a person is to be treated as engaged, or not engaged, in such work. For example, a person will have to work at least a certain number of hours to be regarded as being in qualifying remunerative work. The regulations may make different provisions according to the age of the claimant or claimants, whether he or she has a disability, whether he or she is responsible for a child or qualifying young person, or any other factors. Regulations may also be made setting out how responsibility for a child or a young person is to be determined for the purposes of the working tax credit.

Section 11: Maximum rate

67.     Section 11 provides for the elements making up the working tax credit to be set out in regulations.

68.     The working tax credit must include an element available to any person entitled to working tax credit. This is to be known as the "basic element" of working tax credit. A person entitled to working tax credit must also be entitled to an extra element, to be known as the "disability element", if they have a disability that puts them at a disadvantage in getting a job and they satisfy such other conditions as are set out in regulations.

69.     The section then enables regulations to be made setting out the other elements of working tax credit available. These may include:

• an element for being engaged in remunerative work to a certain extent, for example, working a certain number of hours;

• an element for couples, or for lone parents;

• an element for adults who are disabled or severely disabled;

• an element for adults over a prescribed age, meeting prescribed criteria and returning to work after a prescribed period.

Section 12: Child care element

70.     Section 12 provides that one element of the working tax credit may be an element in respect of child care costs, to be known as the "child care element". The section provides for regulations to be made setting out the child care charges which may be taken into account, and the proportion of them which is to be taken into account, up to a prescribed maximum.

71.     The regulations may set out the types of qualifying child care whose costs may be taken into account by reference to the children for whom, and the persons by whom, the care is provided. The section allows for the appropriate national authority (in England, the Secretary of State, in Scotland, Scottish Ministers, in Wales, the National Assembly for Wales, and in Northern Ireland, the Department of Health, Social Services and Public Safety) to make schemes under which child care providers can be approved for the purposes of the child care element (subsection (3)).

Section 13: Rate

72.     Section 13 provides that claimants whose income (or aggregate income) does not exceed the income threshold are entitled to the maximum rate of tax credit for which they are eligible according to their circumstances. Similarly, a claimant entitled to certain social security benefits (to be prescribed under section 7(2)) is entitled to tax credits at the maximum rate.

73.     For other cases, the section allows for regulations to be made setting out how the rate of entitlement is to be calculated. This provides the scope to set out the rate or rates at which tax credits are to be withdrawn depending on the income of the claimant or claimants, and allows for rounding.

74.     The section also allows for regulations to specify circumstances where minimal entitlement may be reduced to nil.

Section 14: Initial decisions

75.     Subsection (1) of section 14 provides that, when a claim is made, the Board must decide whether an award of tax credit should be made and, if so, the amount of that award. Subsection (3) makes clear that the Board may make an award at a nil rate. This ensures that awards may be made to people whose relevant income is expected to be too high for there to be any rate of entitlement in accordance with regulations under section 13, so that they may nevertheless have their entitlement finally determined at the end of the year in accordance with sections 18 to 21 when the actual level of their relevant income can be established.

76.     Subsection (2) provides that, before making a decision under subsection (1), the Board can require the person or persons making the claim to provide, within a specified time, information or evidence that the Board consider they need to make their decision. The Board may also require, in accordance with regulations, information or evidence to be provided by third parties in order to reach a decision.

Section 15: Revised decisions after notifications

77.     Section 15 requires the Board to make a decision whether to amend a tax credit award after notification of a change of circumstances which may increase the maximum rate of tax credit has been given in accordance with regulations under section 6. It provides the same information powers in respect of notified changes as apply to claims.

Section 16: Other revised decisions

78.     This section gives the Board the power to amend or terminate an award of a tax credit during a tax year if they have reasonable grounds for believing the claimant is or claimants are entitled to the tax credit at a different rate to the rate at which it has been awarded or that they are no longer, or never were, entitled to the tax credit.

79.     If the Board believe that claimants are entitled to the tax credit at a different rate to that awarded or that they are no longer, or never were, entitled to the tax credit, they may require information or evidence to be provided. The information powers are similar to those under sections 14 and 15.

Section 17: Final notice

80.     Section 17 provides that the Board must give a notice to a person or persons to whom a tax credit has been awarded for the whole or part of a tax year.

81.     The notice must require the claimant(s) to declare that the circumstances affecting their entitlement are as stated by the Board or, if they are not, to state how they differ. This must be done by a time specified in the notice. Alternatively, the notice must inform the claimant(s) that, if they do not declare any respects in which their circumstances differ from the information in the notice, they will be treated as having accepted as accurate the circumstances set out by the Board (subsection (2)).

82.     The circumstances to be referred to in the notice are the circumstances affecting entitlement to tax credits for the tax year and the amount of tax credits to which the claimant(s) were entitled for the tax year (subsection (3)).

83.     Section 7 makes clear that entitlement to a tax credit for a tax year is dependent on relevant income for that year. Section 17 therefore makes similar provision in relation to income as it does about relevant circumstances. "Relevant income", which is defined in section 7(3), depends on a comparison of the income for the tax year to which the award (or awards) relate ("the current year income) and the income for the preceding tax year ("the previous year income"). A final notice under section 17 must either require the claimant(s) to confirm that their current year income is as set out in the notice (or, if not, to state the correct level of that income) or inform them that, unless they correct the information about current year income set out in the notice by a specified date, they will be treated as having declared their current year income was as set out in the notice (subsections (4) and (5)). The notice may specify a range of income and require people to report changes only outside that range. Section 17 allows people to provide an estimate of their current year income. Any such estimate must be corrected within a specified time if it turns out not to be correct (subsection (8)).

84.     In most cases, the Board will already hold details of previous year income at the time they issue a final notice under this section, but that may not always be the case. The section therefore provides that, at the Board's discretion, the notice may also require claimants to provide confirmation or details of their previous year income (subsections (6) and (7)).

85.     The section enables regulations to be made setting out the circumstances in which one person may act for another in responding to a notice under this section or in which one partner in a couple is to be taken as acting also for the other (subsection (10)).

Section 18: Decisions after final notice

86.     Subsections (1) to (4) of section 18 provide that, after giving a notice under section 17, the Board must make a decision about the entitlement of a person or persons to a tax credit for the tax year. The Board may not make a decision before the deadline for responding to that notice, unless the claimant has, or claimants have, already responded to all the relevant provisions of the notice.

87.     Section 17 allows for estimates of income to be used in notices issued by the Board and in claimants' responses to those notices. Where an estimate is included in the response made, or treated as made, to the final notice, the Board will make an interim decision about entitlement under subsection (1) of section 18 pending final figures. Once those final figures are provided, or the time allowed for correcting the estimate has expired, the Board will make a final decision about entitlement in accordance with subsections (6) to (8) of that section.

88.     In some cases, a claimant or claimants may respond to a final notice before the deadline for making such a response has been reached. In those cases, if the Board make a decision but, subsequently, the claimant makes, or the claimants make, a further declaration or statement within the original deadline, subsections (5) and (9) allow the Board to revise its decision accordingly.

89.     Subsection (10) enables the Board to obtain any further information from claimants that it needs in order to be able to make a final decision about their entitlement. Subsection (11) provides that a final decision taken under this section is conclusive as to the entitlement of the person or persons to whom it relates, subject to any revision of that decision under subsections (5) or (9), and to the provisions on enquiries, discoveries and official error, and to any appeal.

Section 19: Power to enquire

90.     Section 19 gives the Board the power to make enquiries into the entitlement of a person or persons to a tax credit for a tax year, so long as they give notice to that person or those persons within the time limit allowed. The Board may require information or evidence from the claimant(s), or from a third party, for the purposes of an enquiry. The nature of the information or evidence that may be required from a third party, and the type of third party from whom it may be required, must be set out in regulations (subsection (2)(b)). Following an enquiry, the Board must reach a decision about the entitlement of the person or persons to the tax credit for the tax year (subsection (3)).

91.     Subsection (4) sets out the period allowed for beginning an enquiry. The period begins with the date on which a decision under section 18 is made. Where an estimate of income is given, this means the decision taken under section 18(6); otherwise, it means the decision under section 18(1) (subsection (5)). In the case of an enquiry relating to a person or persons, either of whom is required to make a self assessment tax return under section 8 of the Taxes Management Act 1970, the period ends on the day that tax return becomes final (or, if both persons make self assessment returns, the later of those two days) (subsection (4)(a)). A return becomes final when an enquiry into that return is completed or, otherwise, on the last day of the period during which an enquiry may be made into that return, as set out in section 9A(2) of the Taxes Management Act 1970 (subsection (7)). In any other cases, the period ends one year after the date by which a response to a notice issued by the Board must be made or, where an estimate of income is relied on initially, one year after the date the estimate must be corrected if it is incorrect (subsections (4)(b) and (6)).

92.     Subsection (8) provides that an enquiry is completed when the Board gives notice of their decision about the entitlement of the person or persons to whom the enquiry relates. Subsection (9) provides that a person to whom an enquiry relates has the right to apply for an enquiry to be closed. This application must be heard in the same way as an appeal against a decision made following an enquiry (subsection (10)).

93.     The entitlement of a person, or the joint entitlement of a couple, to a tax credit for a tax year cannot be enquired into more than once (subsection (11)).

94.     A decision on an enquiry is conclusive as to entitlement to a tax credit, subject to the provisions on appeals, discovery or official error (subsection (12)).

Section 20: Decisions on discovery

95.     This section provides for two circumstances in which the Board can revise a conclusive decision about entitlement to a tax credit where they discover that the decision was not correct.

96.     The first part of section 20 allows the Board to revise a conclusive decision where they discover, as a result of a revision of a claimant's income tax liability, that the original decision was incorrect. This must be done within a year of the revision to the claimant's income tax liability.

97.     The later part of section 20 allows the Board to revise a conclusive decision where they discover that the decision was incorrect because of fraud or neglect on the part of the claimant or claimants. This must be done within five years of the end of the year to which the decision relates.

Section 21: Decisions subject to official error

98.     Under section 21, the Board may provide by regulations for the revision of decisions to correct official error when the revised decision would be in the favour of the person or persons concerned.

Section 22: Information etc. requirements: supplementary

99.     This section enables regulations to be made detailing the manner and form in which information or evidence must be provided when required under the provisions of the preceding sections. Regulations may also make provision as to the time limits that may be specified for providing such information or evidence.

Section 23: Notice of decisions

100.     This section provides that the Board are obliged to give notice of a decision to any person to whom the decision relates. The section also provides that the notice must state the date of the decision and details of any right of appeal against it (under section 38)

101.     However, subsection (3) provides that the Board need not give notice, or further notice, of a decision made under section 14(1) or 18(1) or (6) on the basis of a declaration made or treated as made under section 17, provided that the claimant has, or claimants have, already been given proper notice of what the decision would be and when it would be made. Where the Board issue a notice under section 17(1) informing the claimant(s) that, in accordance with section 17(2)(b), (4)(b) and (where relevant) (6)(b), they will be treated as having confirmed the information in the notice unless they correct that information by a certain date, it will be possible for the Board to tell the claimant(s), at the time they issue the notice, what their decision about final entitlement will be, and when it will be taken, in the absence of such a correction being made. The Board will also be able to tell the claimant(s), at that time, what their decision under section 14 in respect of the award for the coming year will be in the absence of such a correction. Similarly, the Board may be able to tell the claimant, either at the time the notice is issued under section 17(1) or at the time they make their initial decision about final entitlement under section 18(1), what their decision under section 18(6) will be, and when it will be made, in the event that any estimates are not corrected by the specified date.

Section 24: Payments

102.     This section provides that payments of a tax credit, or of an element of a tax credit, must be made to the person to whom the award is made (subsection (1)). In the case of a couple, or where one person acts on another's behalf, regulations are to prescribe the person to whom payments are to be made (subsections (2) and (3)). For example, regulations may provide that payments of an award made to a person who is incapacitated may be made to the person acting on their behalf.

103.     Regulations under subsection (4) may prescribe circumstances in which payments may be continued after the end of a tax year for which a tax credit award was made. These payments are to be treated as payments of the tax credit for the next tax year (subsection (2)). This will enable tax credit payments to continue to be made, without interruption, at the start of each tax year when claims are being renewed.

104.     Payments of a tax credit must be made by the Board, except where regulations under section 25 require payments of working tax credit to be made by employers (subsection (6)). Regulations may be made about when and how tax credit payments are to be made by the Board (subsection (7)). In particular, regulations may make entitlement to a tax credit, or to an element of a tax credit, dependent on the claimant(s) providing details of a suitable account into which payments can be made (subsection (8)).