Tax credit paid in error taken into account for HB

I have a client who for a 4 week period has been determined as not entitled to HB because of an excess income.  This is because her tax credits increased significantly for this period in error.  They added her new husband as a child and as such paid an additional amount.  Now she did receive these payments but they are now being recovered as an overpayment. 

I think that HB should take into account what she was actually entitled to for this perid but as yet they havent done this and i cant find anything to back me up if in fact i am correct???

Also if this is the case will the LA be happy with the current tax credit award letter which just says overpayment for current year but doesnt say why??

Thanks for your help

[Edited to add ground 6]

This isn’t straight forward.  The crux question is whether Tax Credits should be treated in the same way as any other income.

HBR 32 (& the CTB equivalent) provides that tax credits shall be calculated over a preceding period in relation to the payment of TC.  All LAs took that to mean a 4-weekly payment of TC must be taken into account over the 4 weeks immediately preceding the payment date.  At the time, I didn’t think twice about agreeing with that view.  CH/1450/2005 followed and appeared to firmly endorse that view to the extent that TCs were taken into account in relation to the payment, not entitlement.

To all intents and purposes, CH/4371/2006 and CIS/1813/2007 followed the same principle (notwithstanding the latter decision finding that payments could be treated as “voluntary payments” where a clmt had made repeated attempts to stop payments).

However, since then, CH/0653/2009 has appeared.  In that decision, Judge Ramsay seems to suggest that changes in circs are not driven by HBR 32; it is HBR 79 that applies.  The facts in that decision are not the same as in your case but, in my view, it *may* be open to argument that CH/1450/2005 was wrongly decided - especially as the HBR 79 aspect wasn’t directly addressed.  Grounds of appeal could go something like this (copied and pasted from other stuff):

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1)  Overpaid Tax Credits (where recovered) should not be taken into account as income; this approach being consistent with the treatment of other sources of income.  The affected period in this case is “X to Y”.

2)  HBR 32 simply provides for the “Calculation of average weekly income from tax credits”.  It is submitted that HBR 32 is purely about the METHOD of calculation and does not in any way provide powers for determining the effective date of a change in circumstances.

3)  The relevant provisions for determining the effective date of changes in circumstances, insofar as they are relevant, are contained within paras (1), (6) and (7) of HBR 79.

4)  In light of the above provisions, the retrospective change to Tax Credits must be reflected in the level of HB and CTB.

5)  Relevant legal authorities:  In CH/1450/2005, it was found that retrospective changes to Tax Credits could not be taken into account for HB/CTB (contrary to the grounds of this appeal).  However, in CH/0653/2009, Judge Ramsay observes that powers to determine the effective date of a change in circumstances is contained in HBR 79, not HBR 32.  The latter observation does not appear to have been considered in CH/1450/2005.  It is submitted that Judge Ramsay’s view should be preferred on the grounds her decision considers the relevant provision.  In turn, it is respectfully submitted that CH/1450/2005 is wrongly decided.

6)  In the alternative, the overpayment(s) of Tax Credits should be treated as a “voluntary payment” on the grounds it was made on the back of a direct error by HMRC over which the clmt had no control.  Such payments are disregarded in full under Sch 4 of the HB Regulations.  Legal authorities in which the matter of whether overpaid Tax Credits can be treated as “voluntary payments” are CIS/1813/2007 and CH/4371/2006.

It is submitted that the two authorities cited in ground 6 do not consider argument about the distinction between the separate purposes of HBR 32 and HBR 79 respectively and, as such, they may or may not be of assistance to the Tribunal in relation to grounds 1 to 5.
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Obviously, there is no guarantee the above argument would be successful.  But, until/unless there is further legal authority to clarify the HBR 79 issue, what is there to lose?