Tax Credit Briefing discussion

Tight_Fist wrote: »

Can someone offer some advice on Child Tax Credits. My wife and I started claiming about 5-6 years ago when our daughter was born and we got about £1500 in the 1st 12 months but then nothing for the last 4-5 years due to over payments. To our amazement my wife received £49.46 in Child Tax Credits at the end of April so I assume we have finally court up. When we complete the new form to show our earnings and childcare costs do we need to state which year they changed or do they only look back 12 months? It's just that our financial position has changed quite a bit in the last 5 years and we never looked at the forms when they came because we weren't getting anything

You have to check the forms every year to ensure that tax credits have your details correct. There is a checklist enclosed with the form that tells you exactly when to call them and when you can just ignore the form.

When you complete the new form - you need to include the details for the year 6th April 2010 - 5th April 2011 - they will then use this to check if you were paid correctly for 2010/2011 (which would actually depend on what you earned in 2009/2010) and they will use it to work out your payments for 2011/2012.

Tight_Fist wrote: »

Thanks for that Pipscot. I have just checked on their website and we are not eligable so I assume we will have to pay back what we have received. Will it be a case of paying back what we owe at £3.26 a month for the next 5 years or will they just take the whole lot?

Not sure about that - depends on how much you owe them, when its from etc. If you are definitely not eligible for tax credits anymore, they may want to close the claim and get back what they are owed.

I would ring them to check what the situation is (but be prepared to sit in a queue at this time of year when everyone is renewing their tax credit claims!).

tracylong wrote: »

:mad:I have just received my renewal from HM Revenue and Customs. I only get the basic tax credit of approximately £545 a year which came about when the Revenue scrapped the Married persons allowance and gave the cash to the mother instead as a tax credit. My renewal now states that the limit for the 2010/2011 tax year is a joint income of between £24136 and £40,000, and the joint earnings for myself and my husband have exceeded this by approximately £8000. This means that we have received tax credits to which we were probably not entitled although I do not see why as, like I said above, the money we were getting was not tax credits, just the married persons allowance given in a different way. The second issue is that the Revenue are asking if our joint income for 2011/2012 is likely to be between £24032 and £50,000, which in effect is increasing the upper limit, meaning that we are entitled to tax credits for the 2011/2012 tax year. I am really confused by all this and have tried unsuccessfully to get though on the helpline on a number of occasions to obtain clarification. I should be grateful if you could shed any light on what appears to be totally incorrect and illegal in my eyes as I completed my tax credits form in 2010 in good faith and gave all the information that was requested of me at the time. If the Revenue have reduced the upper limit to receive tax credits for the 2010/2011 tax year, this means that many unsuspecting parents like myself are now going to be a lot worse off in the 2011/2012 tax year when the Revenue will, no doubt, expect to recoup their (what they consider to be) overpayments.
please advise

Leaving aside the politics!:) Your tax credit award is based on your joint household income for the previous year, the number of children you have and your childcare costs. There isn't an "across the board" upper earnings limit - it all depends on your circumstances. You can estimate your entitlement for 2010/2011 and 2011/2012 by putting in your details at https://www.entitledto.co.uk. If you then compare your entitlement with your actual payments you will be able to check if you were overpaid in 2010/2011 or are being overpaid at the moment for 2011/2012.
Bear in mind that there is an income disregard rule which should protect against overpayments so you may not have been overpaid at all. Have a go at the calculators before getting too worried. :):)

rrobbo wrote: »

I'm set up as a Ltd company but spent most of 2009/10 fighting aggressive (unfounded) legal actions from a very large competitor, meaning that I worked 40 hours a week and still only netted £5k. This was the first time I used tax credits and it was a godsend. My wife also worked part-time and was setting up a business so had all the initial overheads and again little income. Luckily things picked up in 2010/11 and I was working 50 hour weeks to get back on top of things and clear the debts. When I had to increase childcare I rang tax credits to give the details and explain that our income had now increased. I didn't have the exact income details but said that I could get them. The person on the phone said that there was no need to provide income details until I received the renewal form as the current year's income wouldn't impact this year's tax credit payments. I already thought that this was the case and all the paperwork that lists the changes that must be informed excludes changes in income.

I received a letter this morning saying that I need to repay £8k in tax credits from last year. When I called them I was told that you effectively lose your right to tax credits if your income increases by £25k from one year to the next. When I said that I'd been told that my income details for that year wouldn't impact my tax credit payments he said that I should have told her that my income was going to increase by more than £25k - how I should have know this I do not now.

So, basically you could earn 10K in one tax year, work like heck to get in £36k the next year and then have all the tax credit payments from the second year taken off you. If I'd had the slightest idea that they could have done this I would have dropped my hours and kept the kids at home a bit more. Because the money I got was a dividend from the Ltd Company I could legitimately have kept part of it in the business ad not gone over the £25k increase. If I'd been particularly keen on maximising tax credits in the future I could have paid no dividend at all and kept getting the tax credits next year. I played it straight down the line though and did exactly what they said and you get a kick in the teeth.

So, that's a big warning to anyone else who might be in this situation - be careful as the last few £'s that you make could cost you an absolute fortune!!! I'm putting in an appeal due to the fact that I was misled - anyone else had any experience of this or even been told about the £25k increase limit before?

There are plenty of threads on this board regarding the £25K disregard. It is well publicised and most people are aware of it even if they don't fully understand exactly how it works.

I do have some sympathy for you since it seems you were incorrectly advised. The advice given on this board is always to inform tax credits if you suspect your income is increasing. It does also say on the back of the tax credits awards "things you must tell us about" to let them know about increases in income.

However - I'm not quite so sympathetic to the idea of manipulating your earnings by keeping back capital in order to qualify for tax credits!

BTW, increasing your income by an amount over the £25K disregard does not always cause you to automatically lose your right to tax credits in that year.
Example: Couple with 2 children earn £10K in 2009/2010 so initially their tax credits award for 2010/2011 is paid based on a joint income of £10K and they receive approx £8400 during 2010/2011. At renewal, they explain they actually earned £45K in 2010/2011 so their award is recalculated since they had an increase of over £25K. Their award will be based on a joint household income of £20K (£45K minus the disregard of £25K). They are awarded approx £4400 and therefore have been overpaid by £4000. Their tax credits for 2011/2012 is based on an income of £45K and their entitlement is zero. Therefore they must pay back the £4000 they were overpaid in 2010/2011 AND any payments they have received in the period April-Jun 2011. Obviously this is just an example and circumstances will vary according to number of children and childcare costs.

Thanks PIPSCOT. It's interesting that you say that most people are aware of this £25k limit I only realised that I might be eligible for tax credits from what I read on this website a couple of years ago. I did read quite a bit in the forums as well and can only say that I never heard of the £25k limit. I was actually so surprised that one year's tax credit could be based on the previous year's earnings even if this year's earnings are higher that I actually rang the tax credit helpline to confirm this, which they did without making any reference to the £25k limit. Now that I'm aware of it I can search on the £25k limit and find it everywhere. Unfortunately it's back to the old adage tht you don't know what you don't know.

I actually thought my circumstances were quite unusal as we also had a new baby in that year who had a disease that we thought was terminal and we spent 2 month's doing split shifts at the cotside in the hospital so that he was never on his own. Fortunately he recovered (Great Ormond Street hospital really is Great) but it meant that we couldn't earn and had to put the other kids into full-time childcare. Nearly losing one of your kids does give you a sense of perspective and losing this cash is nothing by comparison but I still resent being misled (at least I felt that I was). Reading through the web I can now see that lots of other people fall foul of this for lots more mundane reasons. It would be interesting to have a poll to find out how many people actually had heard of the £25k limit and if they knew of the change to £10k that you mentioned. If many people were unaware then this is something that this site could really help with - possibly even pushing HMRC to more explicitly spell out this part of the rules.

Back to the information provided by HMRC, the form accompanying the tax credits notice lists the "changes you must tell us about" and income isn't listed on this. The separate heading of "other changes to tell us about" states that "you don't have to tell us about the following changes, but it is in your interest to do so because they may increase the amount of tax credits you are due.". It explicitly says that the change could increase and not decrease the amount - if they even said that it could change the amount then it might make more sense. Under the list of things that you can notify it says says "your income goes up. This may not affect your current tax credits, but will affect how much we should pay you for next year.". It really does depend how you interpret the word "may" in the sentence as to whether you think there's anything to be concerned about, unfortunately it didn't leap out to me and I read this form several time.

I do get your point about letting tax credits influence my dividend payments and I can see that some people may question the ethics about such an approach (which I obviously didn't actually do, just to be clear). To a degree I see it as little different to all the advice to reduce earnings to stay under the 40% limit in order to retain child benefit. There are lots of valid reasons to retain capital in a business (corporation tax is paid regardless) and I probably won't get much work this tax year so probably should have retained more to pay my salary and keep the business afloat. Neither myself nor my wife have ever claimed anything other than child benefit and these tax credits, even when there was no money coming in, so it's not as if we're out to fleece the system at every step. It's simply that I think that my personal tax/benefit position could reasonably be something that influences when and how I receive my income. I'm open to be put right on that though!!!