I had a client last week who was working and getting partial HB. He had claimed WTC at the end of last year but HMRC have still not made a decision.

His HB was initially suspended until he provided proof of WTC income. When we objected that this was not currently income, and he could not provide any further information as he did not yet have entitlement determined they restarted HB with just his wages as income. However they warned that if WTC is eventually paid for a past period that they would revise the decision and recover the overpayment.

Is this correct, as my initial thought was that tax credits arrears are treated as capital. A look at regulation 46 of the HB regs confirms this.

But then I found CH/1561/2005 and wondered if it is still good law, as it comes to the opposite conclusion. It is based on the 1987 HB regs so may not be valid any longer, but does anyone know?

You'll be pleased to know that CH/1561/2005 is irrelevant - it refers to Working FAMILIES Tax Credit, not WTC/CTC.

And you are right about arrears OF WTC/CTC; they count as capital. HBR 32 directs the method of calculating tax credits income that are not "of" arrears. There was never an equivalent reg for WFTC.

Based on what you have stated, the advice given by the LA is wrong, plain and simple.

Excellent, many thanks. I was worried that there may have been an equivalent reg which had been interpreted unfavourably.