Tax credits and Prisoners

New Rules

Amendments to the tax credits regulations made on 6 April 2007 remove entitlement to Working Tax Credit (WTC) from those serving a custodial sentence. Child Tax Credit continues to be available to those prisoners who meet the eligibility criteria.

The regulations now make it clear that

• any work done by a prisoner, either within prison or outside prison on licence, is not ‘qualifying remunerative work’ for tax credit purposes
• any income received by a prisoner for any work done, either within prison or outside prison on licence, is employment income.

These changes do not affect those prisoners who have been released into the community to be supervised by probation staff or electronic tag, post custody. These people are, at that point, no longer prisoners but ‘citizens under supervision’ and, as such, are entitled to tax credits as long as they satisfy the usual eligibility criteria.

Childcare element of Working Tax Credit

Mother and Baby Units provide crèche or nursery facilities to support a mother’s rehabilitation back into the community. As a result of the changes made, mothers who choose to pay private childcare costs are not entitled to the childcare element of WTC because they are no longer entitled to WTC itself.

We have liaised closely with the Home Office, the Northern Ireland Office and the Scottish Government to publicise these changes within the prison environment. The arrangements with the Home Office include the revising of their Prisoner Induction Process so that new prisoners will get the message too.

What action do claimants need to take?

To help ensure the correct entitlement for prisoners (and, where appropriate, their families), as soon as they know they are to serve a prison sentence claimants need to tell us:

• the commencement date of their sentence, and
• its duration.

It is important they do this straight away, as entitlement to WTC comes to an end when someone receives a custodial sentence and any tax credits overpaid will have to be paid back.

In addition, as any income received for work done is employment income, prisoners should continue to report their income in their annual tax credit declaration.

Claimants should ‘phone our Helpline on 0845 300 3900 or write to us at the Tax Credit Office, Preston, PR1 0YP.