Since 6 April 2007 working tax credit (WTC) has continued to be payable, in some circumstances, for four weeks after a person has ceased work or reduced their working hours. In an attempt to ease the burden for those who find themselves without a job, or who have a sudden fall in hours, from August 2009 this ‘four week run-on’ payment of WTC has become available to more people.
Qualifying for working tax credit
A payment of WTC is made up of a number of component parts, or ‘elements’. Claimants qualify for each element if their circumstances are such that they come within its scope. For example, a person will qualify for the childcare element of WTC if they use registered or approved childcare and work the right number of hours. Similarly they will qualify for the 30 hour element if they work at least 30 hours a week.
In order to be entitled to WTC at all everybody has to meet the conditions attached to the basic element. The overriding condition is that you are engaged in ‘qualifying remunerative work’. This means that you must:
- be working at the date of claim, or have accepted an offer of work which you expect to start within seven days of claiming;
fulfil certain age qualifications and be working for a minimum number of hours per week (see below);
- expect to continue working for at least four weeks after making your claim, or after the job starts;
- do the work 'for payment or in expectation of payment'
Even if you meet all of these conditions there are still situations where you will not be regarded as in qualifying remunerative work (see our website commentary for a list of these conditions).
To fulfil the requirements as to age and hours of work (the second condition above) you must work at least 16 hours a week if you are:
- a couple with children,
- a lone parent,
- a person aged at least 50 returning to work after a period of unemployment during which you were receiving certain benefits, or
- a person with a disability which puts you at a disadvantage in getting a job and you meet the qualifying benefit conditions, and you are at least 16 years of age.
Otherwise you must work at least 30 hours a week and be at least 25 years of age, to be entitled to WTC.
If you are a couple without children making a joint claim, only one of you need be aged at least 25 and working for at least 30 hours a week in order to qualify.
The old rules
The old four week run-on rules were introduced in April 2007. Prior to that date, if you finished work, or if your hours fell below the minimum, then you ceased to be entitled to WTC from the date that work stopped or your hours fell below the required amount.
However, these rules meant that in certain circumstances you could be treated as though you were still working and therefore still entitled to WTC for four weeks after you had actually stopped work or reduced your hours. Those circumstances were:
- you had been working for at least 16 hours a week, and your hours dropped to less than 16 a week or you stopped working altogether; or
- you had been working for at least 30 hours a week and your hours dropped to less than 16 hours a week or you stopped working altogether.
The problem with the old rules
These old rules only applied where your hours dropped below 16 and your entitlement to WTC ceased because of it. They did not apply if working hours fell below 30 a week but remained above 16; nor if someone lost particular elements of their WTC payment due to a fall in hours but kept their basic entitlement to WTC.
So this gave rise to the following scenarios:
- a single man without children working 35 hours a week whose hours dropped to 25 would lose all WTC entitlement but get no run-on payment;
- a single mother working 35 hours a week whose hours dropped to 15 would lose all WTC entitlement but would get the run-on;
- a childless couple who both worked over 30 hours a week and who both dropped to 29 hours a week would lose all WTC entitlement but get no run-on.
The new rules from August 2009
Some of the problems with the current run-on provisions were acknowledged in Budget 2009. In order to help those who experience a change from full time to part time work, it was announced that the four week run-on would be extended to include more people from August 2009.
The new regulations make two major changes to the current four week run-on rules.
- Firstly, if your entitlement to WTC rests on your working at least 30 hours a week, and your hours drop to less than 30 but remain at 16 or above, you will qualify for a run-on of all of the elements payable when your hours fall. So the single man in scenario (a) and the couple in scenario (c) above would now get the four week run-on which would have been denied them previously.
- The second change relates to members of a couple who claim the childcare element of WTC where both are in qualifying remunerative work for at least 16 hours each, and one starts to work less than 16 hours or stops work altogether. In this situation, the couple would normally lose their entitlement to the childcare element and potentially lose some of the other WTC elements such as the 30 hour element. Entitlement to basic WTC would remain. The new rules mean that a four week run-on of the childcare element and any other elements lost (if applicable) will be given in such circumstances.
The new regulations also clarify that where a person is treated as being in qualifying remunerative work during the four week run-on period all elements payable prior to the change in hours should be payable during the run-on. The same clarification is given in respect of people who are treated as in qualifying remunerative work during periods of sickness or maternity, paternity or adoption leave.
Complexities of the new rules
We are pleased that the run-on is extended to those who have to work 30 hours a week or more to qualify for WTC and whose hours fall below 30. Previously they only got the run-on if their hours fell to below 16 a week.
The introduction of a run-on for those who lose entitlement to the childcare element (and sometimes the 30 hour element) is also welcome as it allows claimants to keep their childcare whilst they look for a new job or an opportunity to increase their hours again.
However, that is the only situation in which a run-on is payable to someone who ceases to qualify for one of the elements of WTC, but remains entitled to basic WTC.
For example, a couple with children who both work 16 hours per week and who have no qualifying childcare costs will be in receipt of the 30 hour element. If one person’s working hours fall below 16 a week, entitlement to the 30 hour element will be lost and no four week run-on will be given.
Similarly, a lone parent who works 35 hours and has a fall in hours to say 20 will also lose the 30 hour element but will not receive any run-on of this element as their basic entitlement to WTC continues.
The new rules are very complex. Our understanding is that the current run-on is paid manually, and we hope that the extension of the run-on does not lead to delays in people receiving payment.
In addition, the WTC received during this run-on period will be taken into account as income under the normal rules for most DWP benefits such as Income Support, Income Based Job Seekers Allowance and Pension Credit. This means that if you receive too much WTC, you may not be paid any benefit during this four week period.
However, recent changes in relation to free school meals mean that receipt of the four week run-on will not disqualify a family from receiving free school meals (as would receipt of ‘normal’ WTC).
These highly technical rules will be complex even for many advisers. Great reliance will have to be placed on HMRC’s processes and communication skills if everyone is to receive that to which they are entitled. HMRC will need to be supported in these efforts by Jobcentre Plus.
Contact: Victoria Todd (0844 579 6700 Fax 0844 579 6701)