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Benefit cap exemption via WTC where WTC entitlement = nil?

Tom B (WRAMAS)
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WRAMAS - Bristol City Council

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Hello all,

Where a household is working sufficient hours but earnings are too high to qualify them for payments of WTC (CTC is in payment) and benefit entitlement exceeds benefit cap level - should they be exempt from the benefit cap?

All secondary sources suggest yes they should be exempt and of course this makes logical sense.

HB Regs say exemption applies ‘where the claimant is, or the claimant and the claimant’s partner are jointly, entitled to working tax credit’

With very little experience of Tax Credits in recent years, I’m trying to find a reference to confirm that a household in these circs remains ‘entitled’ to WTC even if payments are not being made.

I’m looking at the TC (Income Thresholds & Determination of Rates) regs. Reg 8 lists the steps used in such a calculation - the calculation will clearly include WTC elements in the maximum rate but then removes these before those of CTC.

Am I missing something really obvious? Anybody have further thoughts?

Gareth Morgan
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Going back to an email I got from the DWP on the 8/4/2011 when I raised this query:

“It has always been the policy intention that this exemption should cover those households who work sufficient hours to qualify for Working Tax Credit but whose high earnings result in a “nil” award. When we have referred to households being in receipt of Working Tax Credit in a number of answers to Parliamentary Questions, this was understood to include those people who may qualify for Working Tax Credit but for the level of their earnings. We will make this clearer in future communications.”

Tom B (WRAMAS)
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I don’t suppose you are able to share that email Gareth?

I’m sure I’ve seen similar sentiments elsewhere but I am really struggling to find any reference at all now!

Gareth Morgan
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Gareth

I’ve been forwarded your query on the benefit cap and the exemption for those claiming Working Tax Credit.

The Government is introducing the benefit cap to promote fairness between those in and out of work and it believes that it is not reasonable that households on out of work benefits should receive a greater income from benefits than the average weekly wage for working households The cap is also intended to increase incentives for people to move into work or increase their hours of employment by making sure that work pays.  In support of these objectives, The Spending Review announced that “working families claiming the working tax credits will be exempt from the cap.”  We believe that under the current benefit and tax credit system this provides a suitable means to differentiate between those families on out of work benefits who should be subject to the cap and those who can be considered “in work” and so should be exempt. 

It has always been the policy intention that this exemption should cover those households who work sufficient hours to qualify for Working Tax Credit but whose high earnings result in a “nil” award.  When we have referred to households being in receipt of Working Tax Credit in a number of answers to Parliamentary Questions, this was understood to include those people who may qualify for Working Tax Credit but for the level of their earnings.  We will make this clearer in future communications.

This issue will only exist up until the time households begin to receive Universal Credit and are therefore unable to qualify for Working Tax Credit.  Universal Credit will be paid both in and out of work and we are still considering the precise criteria for an equivalent exemption under Universal Credit for those in work.

Paul Towers

Universal Credit Division
DWP

HB Anorak
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Benefits consultant/trainer - hbanorak.co.uk, East London

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It is irritating that the HB Regs don’t refer to a certain number of hours rather than the ambiguous “entitled to” WTC.  But I think the exemption does stand up. A quick look around the Tax Credits Act reveals that the concept of “entitlement” for Tax Credits is not the same as it is for true social security benefits: with the means tested benefits you simply are not entitled to them if your income is too high, but the TCA uses the term “entitled” in a different way and it is certainly arguable that a person who satisfies s10(1) is entitled to WTC even if they don’t qualify for it on their income.  They do have to make a claim to satisfy s10(1) though, so it’s not as straightforward as it could have been if the Regs had just specified the appropriate number of hours.

Stainsby
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There is some useful commentary in Findlay Re Reg 75(E).  Findlay cites S14(3) of the Tax Credits Act 2002.(TCA)

S14(3) provides

(3) The Board’s power to decide the rate at which to award a tax credit includes power to decide to award it at a nil rate

It is also worth noting that HB Reg 75(E) is headed;

Exception to the benefit cap: current or recent work

Trouble is the rest of the Regulation only directly refers to past work, not current work, and the only reference to current work is indirectly through the provision in sub paragraph 2 that entitlement to working tax credit will exempt the person from the cap.

Findlay suggests that claimants should make a protective claim for WTC in this situation (in other words so they can take advantage of S14(3) of the TCA)

Tom B (WRAMAS)
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Thank you all for your help.

In case it assists anybody in future, I’ve since learned that an ATLAS notification to HB supports the interpretations above and confirms an entitlement to WTC despite a nil award.