CCM10650 - Penalties and Interest
Provisional Nil Awards and Penalties
WTC and CTC are annual awards that are based provisionally by reference to the previous year's income (PY-1 for 2003/2004 claims) and this is then revised at the year end. At the end of the year the award is set by reference to the actual income for the whole of the year.
Example 1
- Bibi and Carly are single mothers and each applies for tax credits in March 2003. Bibi earns £800 per month and Carly earns £900 per month but all other factors are the same. Bibi receives a larger award because she earns less. Bibi’s income remains the same throughout the year but Carly has a pay cut at the end of the sixth month and her pay goes down to £700. At the year end their final tax awards will be identical because their annual income is identical.
- Bibi - £800 x 12 = £9,600
- Carly – (£900 x 6) + (£700 x 6) = £9,600
If a claim has not been made by 6 July it can only be backdated
for up to 3 months, assuming the circumstances applied during that
period. A single person or a couple with no children and with
income over the threshold for WTC might decide not to apply for
WTC. The same could happen with someone or a couple with children
if their income is over the threshold for CTC. However, if their
circumstances change throughout the year they can only backdate a
claim for up to 3 months.
Some people have therefore decided to submit a claim even
though they will receive a nil award. This is known as either a
provisional claim. You might also see them
referred to as protective claims. By doing this they protect their
right to 52 weeks worth of credits if their income changes during
the year.
Example 2
Mandy and Jay live together with their 5 year old son. They each earn £30,000 per year so they exceed the threshold for CTC but they decide to lodge a provisional claim for 2003/2004 and receive a nil award. On 6 October 2003 Jay decides to take unpaid leave for a year to help care for his elderly mother. His income for 2003/2004 is therefore £15,000 bringing their total income to £45,000. They have made a provisional claim so they are now entitled to 52 weeks worth of CTC which is £10.48 x 52 = £545. Had they not made a provisional claim they could only have backdated the claim from 6 October 2003 to 6 July 2003 and received £10.48 per week from that date, but they would have lost 3 months worth of CTC.
