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Forum Home  →  Discussion  →  Children and childcare  →  Thread

How do you close a tax-free childcare account?

Jeremy Barker
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Citizens Advice North Lincolnshire

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It’s not possible to claim UC and use the Tax-free Childcare (TFC) scheme. I know that if you set up a TFC account when you have a UC or tax credits claim that claim is terminated. However I’m trying to find how to go the other way - cancel the TFC account and claim UC. I cannot find any information about closing down a TFC account - the CPAG handbook says on p.864 “The government says that you will be able to leave the tax-free childcare scheme (and possibly get UC or tax credits again), but can only do so a limited number of times, unless there has been a relevant change of circumstances - e.g. a change in the make-up of your household or a change in your work.”

My client has been using TFC but their relationship has ended and she needs to claim UC. As she can’t have both TFC and UC she needs to close the TFC account but I can’t find anything anywhere about how to do that. Does anyone know whether simply making a claim for UC will close the account?

LITRG
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My understanding is that it is possible to close a TFC account - have you tried phoning the childcare helpline? They should be able to action it. https://www.gov.uk/government/organisations/hm-revenue-customs/contact/childcare-service-helpline

Victoria

Jeremy Barker
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Thank you for that - I have informed my client

DebbieS
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Following on from the original post, does anyone know if it is in fact possible to get tax credits re-instated following opening a TFC account “by mistake”? Or would a person be forced to claim UC?
Many thanks

Mark Willis
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Hi DebbieS

I think it would be difficult to get tax credits reinstated in this scenario but may be arguable. Section 30 of the Childcare Payments Act 2014 ( http://www.legislation.gov.uk/ukpga/2014/28/contents ) indicates that tax credits would be automatically terminated:

30 Termination of tax credit awards
(2)This subsection applies where—
(a) a person (“P”) has made a valid declaration of eligibility for an entitlement period,
(b) an award of a tax credit is or has been made—
(i) to P or to a person who is P’s partner on the relevant day (whether on a single claim or a joint claim), or
(ii) to both of them on a joint claim, and
(c) the award is for a period that includes the relevant day.
(3) Where subsection (2) applies, the award of the tax credit terminates immediately before the relevant day, regardless of whether the decision on the claim was made before or after the relevant day.

Challenging this decision would be tricky, for one thing because it’s not clear there is a right of review/appeal under the Tax Credits Act s21A /s38 against a decision apparently made under the Childcare Payments Act, but also because the decision would appear at first glance to be correct. The similar rule on tax credits automatically terminating due to a UC claim was considered in HMRC v LH (TC): [2018] UKUT 306 (AAC) although this was an appeal against an in-year final decision on tax credits after the award was terminated, rather than the decision to terminate tax credits. It’s also different with tax-free childcare as there is no provision for ‘in-year finalisation’ of tax credits unless a UC claim is made, so the final decision would not be made until the end of the tax year.  Presumably a mandatory reconsideration would have to be based on an argument that the person had not made a valid declaration of eligibility under section 4 of the Childcare Payments Act and Reg 6 of the Childcare Payments Regulations 2015. Or perhaps a complaint/judicial review if mis-advised by HMRC.

A new claim would likely be rejected because although the TC Claims & Notifications Regs, Reg 7A(2A) was amended to allow backdating where a childcare account is closed and no payments made, a new claim for tax credits is no longer possible under Article 7 of the WRA Commencement No 23 Order (unless claimant is entitled to the SDP in existing benefit) which also says the backdating provisions are irrelevant.

Re-applying for tax credits after 6 April 2019 could be worth a try because Article 7(6) of the WRA Act Commencement No.23 order says the provision that prevents new claims “does not apply to a claim for a tax credit where a person is or was, or persons are or were, entitled to child tax credit or working tax credit in respect of a tax year and that person or those persons makes or make (or is or are treated as making) a claim for that tax credit for the next tax year.” In practice this is intended to cover renewals so likely to be a struggle to be accepted by HMRC.

So in most cases if people need help with childcare costs it seems they would have to claim UC, in which case there would be definitely be no way back to tax credits.

Mark

PS Does anyone else hear Al Green singing the title of this thread, or just me?

Charles
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Mark Willis - 14 March 2019 10:00 AM

Re-applying for tax credits after 6 April 2019 could be worth a try because Article 7(6) of the WRA Act Commencement No.23 order says the provision that prevents new claims “does not apply to a claim for a tax credit where a person is or was, or persons are or were, entitled to child tax credit or working tax credit in respect of a tax year and that person or those persons makes or make (or is or are treated as making) a claim for that tax credit for the next tax year.” In practice this is intended to cover renewals so likely to be a struggle to be accepted by HMRC.

Hi,

I would like to try this, as I have a client who was entitled to tax credits last year. They have nothing to lose (they have significant savings, so UC is out the question), so they’re happy to try this.

My question is, how do I get HMRC to make a decision on a claim for us to appeal?

DebbieS
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Thanks Mark for your very helpful reply. I was concerned that our client (who speaks little English) had been left with the unrealistic expectation that tax credits would simply be handed back to her.

Charles
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Has anyone had any luck with getting tax credits reinstated after a TFC childcare account was opened in error?

WillH
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victoriatodd - 12 February 2019 05:40 PM

My understanding is that it is possible to close a TFC account - have you tried phoning the childcare helpline? They should be able to action it. https://www.gov.uk/government/organisations/hm-revenue-customs/contact/childcare-service-helpline

Victoria

Going back to the basic issue - I’ve got a case where the client would be (much) better off on UC. Can you in fact stop being eligible for TFC within an entitlement period? Or do you have to wait until the next declaration of eligibility is due and not make one (thereby indicating that you wish to stop using the scheme at the end of the entitlement period, & that you are no longer prevented from getting UC by s31 of the act as there is no valid declaration).

I’ve looked through the various childcare payments regs & cannot find anything which would end an entitlement period early in these circumstances - or that would undo a declaration of eligibility early. Am I missing something?

(I am also checking to see if she was misadvised, & if so by whom, when she first went for TFC - I’m currently not sure why she opened an account in the first place).

Charles
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There is nothing to stop a claim for UC being made at any point.

S.31 of the Act is not relevant. It just gives HMRC the power to provide for a seamless transfer from UC to TFC (it simply allows for a pre-existing UC award/claim to be closed automatically at the point that a declaration of eligibility is made for TFC). This power has anyway never been exercised by HMRC.

[ Edited: 20 Aug 2019 at 06:47 am by Charles ]
WillH
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Thanks Charles - do we KNOW it has never been exercised by HMRC? If they are stopping tax credit claims when someone makes a declaration of eligibility, why wouldn’t they stop UC in the same way?

In any case, this client has been told she can’t get UC - and if she were to claim (which I accept isn’t prevented by the section), any claim she made wouldn’t be proceeded with under s31(1)(b).

So I still think she needs to not have a valid declaration of eligibility at the time she claims UC.  What I’m not sure about is whether she can just opt out of TFC via a phone call (as suggested above), or whether she has to wait til her next renewal would be due in TFC and not make a declaration of eligiblity for the next period of entitlement.

Charles
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Tax credit claims could also always be made at any time. There was only ever a restriction on backdating the claim to include a period within a TFC entitlement period. See Reg 7A of the Tax Credits (Claims and Notifications) Regulations.

The government’s intention was always to provide TFC for fixed 3-month entitlement periods, and it was always recognised that this would lead to an overlap in support when moving from TFC to UC or TC. This was discussed in the consultation at the time, and during the bill’s passage through parliament.
Due to this possibility, they included sections 32-34 of the Act, to stop people trying to repeatedly game the system and benefit from these overlap periods multiple times.
The power in section 31 was only intended to be used to terminate UC claims/awards already in existence at the point of making a declaration of eligibility (or the start of the corresponding entitlement period). This is equivalent to what section 30 does for TC claimants.
That is why section 31(1)(b) uses the phrase “has made for universal credit” and not “makes for universal credit”.

However, for UC this is not currently relevant. At the moment, UC claimants are not stopped from claiming TFC by section 31, but rather by section 11. This explains the differences between the paragraphs about TC and UC on this page.
Section 31 was included to give HMRC the power to change the system to automatically terminate UC, as is done for TC. Hence the power in section 31(2)(a) to repeal section 11.
You ask why UC was treated differently to TC. I believe this was due to the fact that UC is administered by DWP and not HMRC. Also, at that time, UC was still in its infancy, with two parallel systems being used, so it was probably considered impractical to create an automatic system to terminate UC automatically.

In summary, there is nothing to stop a TFC recipient from claiming UC. They will simply not be able to make a declaration of eligibility when it is next required. There is however potential for sections 33-34 of the Act to disqualify the claimant from being eligible to TFC in future.

[ Edited: 22 Aug 2019 at 01:36 am by Charles ]
WillH
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Thanks Charles for taking the time to post this. That had always been my understanding (that a UC claimant cannot be eligible for TFC if they get UC or have a claim that would result in payment of UC - s11). However I was worried about s31 - I should be more familiar with all of this, but it’s been 3 years since I had much to do with TFC.

I think what you are saying is that s31 only operates if after claiming or whilst getting UC someone makes a declaration of eligibility.

Anyway for the case in question, the client has been advised not to make a further declaration, and also to complain to JC+ (who told her she couldn’t claim UC because ‘she earnt too much’ - which is definitely not the case).

I’m going to go through your post in detail to ensure I have my head round it, and thanks again.

Will

Charles
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WillH - 22 August 2019 11:37 AM

Thanks Charles for taking the time to post this. That had always been my understanding (that a UC claimant cannot be eligible for TFC if they get UC or have a claim that would result in payment of UC - s11). However I was worried about s31 - I should be more familiar with all of this, but it’s been 3 years since I had much to do with TFC.

Considering the low level of take-up with TFC, I’d be surprised if anyone is truly familiar with TFC! My knowledge is almost all theoretical - the only experience I’ve had is with people who have mistakenly opened TFC accounts, and lost their tax credits…

I think what you are saying is that s31 only operates if after claiming or whilst getting UC someone makes a declaration of eligibility.

You could probably squeeze wider regulation-making powers into the legislation, but I’m pretty confident that is not how the government intend to use the powers. They always compare it to s30 (explanatory notes, debates in parliament etc), and that certainly only applies to existing claims/entitlement to TC.

WillH
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Belated further thanks Charles.

Have now had the chance to look at your previous post in more detail & completely see what you mean. Understood that it is hard to know exactly how s31 would be used (ie how widely) as no regs under it as yet.

I did once think I had got on top of this when I worked for the charity Working Families & went to HMRC meetings to discuss TFC policy, but I left before the scheme was fully launched…anyway I feel I should have remembered the points you’ve been making & wanted to thank you again for doing my homework for me!

It will make a big difference to the client in question :-)

WillH
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Almost exactly a year on, a client had a similar problem. Already on UC, she mistakenly applied for tax-free childcare because it continues to be part of the 30 free hours (in England) application platform.

She then panicked in case this meant her UC would end. Thanks to the above discussion, I was able to reassure that it wouldn’t, & she simply won’t be eligible for TFC.

However, to give her further reassurance she tried ringing the childcare service helpline as suggested. They said she wouldn’t be eligible for TFC & the system ‘should’ just decline her application, but it ‘might’ set up an account. However, she wasn’t to worry because the government wouldn’t put any money into it (obviously, as she wouldn’t be putting any money into it!)

It may be that she can close her account if one is indeed set up, but the helpline were not able (or said they were not able) to stop the process of her application. It looks like another example of computerisation preventing this, at least at this stage. Hopefully, it won’t have any adverse effects but:

- is there any way we can put pressure on HMRC to separate applications for TFC & the free 30 hours in England? This is a problem which keeps happening

- surely you should be able to withdraw an application, at any stage, if you no longer wish to proceed…?