Can Council Tax Support be backdated?

The legal framework for backdating Council Tax Support

The Compensation Allocation mechanism or backdating of Council Tax Support was created by Law No 92-125 of February 6, 1992. This mechanism is provided for in IV and V of Article 1609 of the General Tax Code CGI.

With the Compensation Allocation Mechanism the EPCI is intended to pay back to the municipality(council) the amount of professional tax revenue collected by the latter, the year preceding that of the first application of the FPU scheme. This AC amount can however be set freely on the basis of an agreement between the EPCI and its member municipalities9councils). Once the CA amount has been set the legislator has provided for several scenarios in which this amount can be revised, It is necessary to distinguish between four types of CA amount procedures

-The free revision which requires concordant between the EPCI and its member municipalities. 

-The unilateral revision of the CA amount carried out with an agreement between the EPCI and its member municipalities(councils)

-The individualized revision which requires an agreement between the EPCI and a qualified majority of its member municipalities.

Load Assesment transferred between an EPCI and its member municipalities(councils) by the Commission Local Load Assessment Transferred CLECT. IV of article 1609 of the CGI provided for the creation between the EPCI and its member municipalities of a commission responsible for assessing the amount of charges transferred (CLECT). This assessment is a necessary prerequisite for setting the amount of compensation allocation (AC) between a municipality and its EPCI.

What are the major factors taken into account in the calculation of Council Tax Support backdating?

The amount of compensation allocation is increased by the following amounts collected by the municipality (council)the year preceding that of the first application of the FPU

Salary share compensation allocation (DCPS) capped.

  • Historical compensation paid for the reduction in the taxable portion of the income holders of non commercial and similar profits by employing fewer than five employees
  • Historical compensation linked to the significant loss of business tax bases or resources from mining royalties provided that this repayment has been a subject of unanimous deliberation by the EPCI board
  • Historical compensation linked to business tax exemptions in revitalized zones and urban free zones as well as the free zone of Corsica
  • Compensation linked to the loss of revenue for a municipality(council) that is attached to an EPCI at FPU resulting from the transfer of the departmental share of housing tax to this EPCI

Accounting entry of the allocation of backdated Council Tax Support

Given the legal nature of backdating allocations, which constitute repayments of taxation both for the person who pays them and for the person who benefits from them, specific subdivisions of the “Taxes and duties” account (73) have been created They are tracked in the following accounts

Payment of the allocation of compensation by the ECI73921173211
Payment by the commune of the allocation of compensation (backdating) to the EPCI73211739211

Example :

An EPCI pays 1000 pounds in compensation allocation to one of its member municipalities (tax councils) in year N.The municipality transfers responsibility for the roads to the EPCI in year N+1. The cost of this skill assessed by CLECT at 900 pounds including 500 pounds of investment expenditure linked to the renewal of transferred equipment and 400 pounds of operating expenditure.

Option 1 : No free revision of the Compensation Allocation amount

The EPCI : receives a charge of 900 pounds and pays a compensation allocation of 100 pounds (1000-900) allocated to the municipality section of the municipality’s budget

For the municipality ; it transfers a charge of 900 pounds and receives a compensation allocation reduced by 900 pounds

Option 2 : Within the framework of the free revision the EPCI and the member municipality(council) can decide to charge the investment expenses related to the renewal of equipment transferred to the investment section

The EPCI receives a charge (operating and investment) of 900 pounds

The municipality pays an allocation of investment compensation ACI to the EPCI of 500 pounds allocated to the investment section of the municipality

The EPCI reduces the amount of the initial AC by 400 pounds and therefore pays 600 pounds of compensation allocation charged to the operating section of the municipality (Council)

Accounting allocation of financial flows relating to the option 2 an EPCI 

Count of EPCIRisingAccount of the CommonRising
Allocation of compensation739211(expenses of working)40073211 (Receipts from working)400
Allocation of compensation investment13146(receipts investment)5002046 (expenses investment)500

How is the amount of compensation (backdating) allocations in the Tax Integration Coefficient(CIF) taken into account?

Compensation Allocations are taken into account in the calculations of the CIF for EPCIs with FPU of third year and above. The CIF of an EPCI is calculated as follows:

Tax Integration Coefficient = Amount of tax collected by the EPCI/Amount of tax collected on the territory of the EPCI

Tax integration coefficient for third year FPU EPCI’’s = [Amount of taxation collected by the EPCI + Amount of negative AC – Transfer Expenditure]/[Amount of taxation collected in the territory of the EPCI]

Thus negative Compensation Allocations increase the CIF while positive ones reduce it.

Example two FPU EPCI’s A and B receive the same amounts from intermunicipal taxation i.e 8000 pounds.

On the territory of EPCI A : EPCI, municipalities and syndicates collect a total amount of aggregate taxation of 15000 pounds. The amount of aggregate taxation levied on the territory of EPCI B is identical

EPCI A receives 500 pounds of negative Compensation allocation from its municipalities and has no transfer expenses : 

Its CIF will therefore be equal to 

Tax Integration Coefficient = (8000 + 500)/15000=0.56

EPCI B reverses 500 of transfer expenses

Its CIF will therefore be equal to 

CIF = (8000-500)/15000=0.50

What is the only one attribution of backdating said to be negative?

Backdating of council tax support is said to be negative when the amount of charges transferred to the EPCI by the municipality is greater than the business tax proceeds transferred “when the allocation of compensation is negative, the public institution for intermunicipal cooperation may ask the municipality to make a payment in its benefit, in proportion” (V of Article 1609 of the CGI)

Tax council support can be backdated or reimbursed but the claim must be valid and acceptable By making the payment affective from a date earlier more money or compensation can be claimed from the Council.

How far back can the tax office check backdating for council support?

There is a statute of limitations of ten years. The extended assessment periods also begin three years after the council  tax liability arises – in the case of violations of the tax liability for the year 2019, i.e. in 2021.

Housing Tax Rebate (backdating)

Automatic rebate (backdating) of the housing tax relating to the principal residence (Art 1414 C-1-2 and 1414 C-1-3 of the CGI. Article 5 of law No 2017-1837 of December 30,2017 on the 2018 Budget provides for a total abatement of the housing tax on the principal residence and its outbuildings. As of 2019 in terms of property tax in terms of property tax on nonbuilt properties the partial exemption of agricultural land is perpetuated and the exemption rate is increased to 80%. This rebate concerns households whose resources do not exceed 27,432pounds of reference tax income (RFR) for one share, increased by 8,128pounds for the next two half-shares, then 6,096pounds per additional half-share. Unlike the other TH reductions, the income requirement to benefit from this reform takes into account the sum of the RFR of each of the taxpayers or cohabitants who occupy the premises as their main residence.

For households whose resources are between 27,432 pounds and 28,448 pounds of RFR for one part (increased by 8,636 pounds for the next two half parts, then 6,096 pounds for each additional half part), the right to tax relief is degressive in order to limit the threshold effects.

People living in institutions for the elderly who retain the use of their main home can also benefit from this tax reduction.

Taxpayers who have to pay the tax on wealth tax (IFI) – which replaces the solidarity tax on wealth (ISF) since January 1, 2018 – are not concerned by this rebate.

The State covers the cost of the rebates on the basis of the rates and allowances in force for the taxes in 2017 so as not to penalize the resources of local authorities.

The Law of backdating Council Tax

Regarding ordinary jurisdiction, the issue of non-retroactivity in the tax field, where it has reached some degree of discussion, is about the scope of the retroactivity of the Subjective Exemptive Law. In accordance with numeral 63 of the Code of Tax Norms and Procedures, it is established that, although there is an express provision of the Tax Law, the exemption does not extend to taxes established after its creation. In this regard, the First Chamber of the

Supreme Court of Justice, in judgment No. 446-F-01 of 3:00 p.m. on June 20,

2001, established the following:

The interpretation in Tax Law of exemptions is restrictive. TheTax Code (article 6, second paragraph) says: ‘The analogy is inadmissible procedure to fill legal gaps but by virtue of it no taxes or exemptions can be created’. On the other hand, even if there is an express provision in the tax law, the exemption does not extend to taxes established after their creation (article 63 ibid) and may be repealed or modified by subsequent law, without responsibility for the State (article 64 ibid). . The protection of the principle of legality in matters of exemptions is derived from the list of these norms, through the impossibility of broadly interpreting the norms referred to them. Thus, things have not operated the infractions alleged by which the reproach is rejected. Nor has the alleged violation of article 129 of the Constitution occurred, since the Legislative

Assembly limited itself to approving a municipal tax law, referred to by whoever had the power to do so.

Leaving aside the constitutional legal controversy of whether the Legislative Assembly has the power to exonerate a tax whose creation originates in the Council, which only requires an act of approval from the representative body for it to enter into force, the truth of the matter is that the

First Section of the Contentious-Administrative Court, in its judgment No.364-2002 of 4:00 p.m. on October 28, 2002, reaffirmed the provisions of numeral 63 of the Code of Tax Norms and Procedures, in the sense that all objective tax exemptions and subjective provided for in the different laws, they only apply to the preceding laws, not to future ones; however, in this case, Law No. 7293 of March 31, 1992 “Regulatory of All Current Exemptions,

Summing Summing up, the ordinary courts have followed the doctrine found in article 63 of the Code of Tax Norms and Procedures; ergo, the objective and subjective tax exemptions only operate in relation to the preceding laws, not against the tax laws that may be enacted in the future.

Council Tax Reduction(backtracking) schemes in England

From 2013/14, local authorities have been required to publish a scheme setting out Council Tax Support in their area, detailing the classes of individuals eligible, the reductions they may receive, the procedures through which they can apply, and an appeals process.

The Council Tax Reduction Schemes (Prescribed Requirements) (England) Regulations 2012 state councils must make reductions for certain classes of pensioners. No other groups are required to receive reductions under the Regulations.

The New Policy Institute (NPI), with funding from the Joseph Rowntree Foundation, has monitored the schemes designed by the 326 English local authorities from 2013/14 to 2018/19. Their data shows:

• In 2018/19, only 36 councils continued to provide the levels of support available under the former Council Tax benefit system;

• The most common change was to introduce a “’minimum payment”, which requires everyone to pay at least some Council Tax regardless of income;

• In 2018/19, 215 councils had reduced or removed the second adult rebate. This is the benefit homeowners not on a low income are entitled to if they share their home with someone on a low income;

• Around a third of councils (110) had introduced a band cap. This limits the amount of benefit received in higher value properties to the amount provided to those in lower value properties. The most common band cap applied is D.

Institute for Fiscal Studies (IFS) and NPI analysis found that the most commonly protected groups, aside from pensioners, were veterans (protected by 70% of councils in 2018/19) and disabled people (88% of councils in 2018/19).

The Local Government Finance Act 2012

Section 10 of the Local Government Finance Act 2012 added Section 13A to the Local Government and Finance Act 1992 so that, in respect of dwellings in England, a person’s liability to pay Council Tax is reduced in accordance with the billing authority’s Council Tax Reduction Scheme. Liability may be reduced “to such an extent as the billing authority […] thinks fit.” This includes reducing liability to nil.

Billing authorities are required to make a scheme specifying the reductions which are to apply in each financial year. Its reductions can apply both to persons whom the authority considers to be in financial need or to certain classes of persons who the authority considers to be, in general, in need.

The Ministry of Housing, Communities and Local Government’s (MHCLG) quarterly snapshot data for England show that the total number of claimants for Local Council Tax Support fell from 4.4 million in the third quarter of 2015/16 to 3.9 million by the final quarter of 2019/20, before rising to 4.0 million in the first quarter of 2020/21. Local authorities have cited the economic conditions arising from the Coronavirus outbreak, changes to the state pension age, and impact of Universal Credit as factors influencing claimant numbers. The number will also be impacted by any changes to eligibility at a local level.

Pensioner claimants declined from 1.8 million in 2015/16 to 1.5 million at the start of 2020/21. Working-age claimants also declined, from 2.5 million in 2015/16 to 2.3 million in 2019/20 but rose back to 2.5 million in the first quarter of 2020/21

Let’s Talk About Council Tax: Discounts, Exemptions and Council Tax Support