Tax credits and the £25k extra income disregard?

bestpud

I'm hoping someone can give me an answer to this potential problem we have! I've asked before (in case we may need to find out) but never really got a straight answer, and now I definitely need to know!

I realise we can earn up to £25k over last years final income and not accrue an overpayment, but if we lower the estimated figure when we renew, that would no longer apply? So, for example, if I rang and said DH is working slightly less this year, or whatever, and our income is going to be £xk less, and we did end up earning more, then the £25k may not apply?

But what happens if the figure is lowered because DH changed his job in May (before we renewed the award)?

I renewed our award and said our income would drop because his basic income was less in his new job. However, now he has been given a pay rise of almost £1.20 an hour and also he has done loads of overtime (been an expensive few months). This is going to take our income above last years income and, obviously, way above the basic income estimate I gave them!

Do I need to tell them this and get the award adjusted now, or not? I really don't want to have an overpayment to deal with at the end of the year!

I know I could have just left it, had I not reduced our estimated income, but as I did...? Is it ok because he changed jobs and that was his new wage?

Has anyone else had this situation?

[Deleted User]

You are correct in what you have said about losing the £25k disregard due to the lowered income.

You should let TCO know ASAP about the increased income now - even slightly over estimate in case you earn a bit more than you estimate.

If you earn less than your estimate, you will receive any underpayment of tax credits when you complete your annual declaration next year.

bestpud

Ok, that's what I thought.

Thanks, I'll ring them asap.

So, what would the new award be based on?

Would it be an estimated income for this year, or the original annual figure for last year?

It seems a bit unfair when it is due to a change in jobs tbh.

We knew he might do some overtime so over estimated a bit and left mine as it was even though I dropped 2 hours a week when he changed his job. We just didn't realise we'd have the bills we have had and/or there would be the level of overtime there is, or the payrise.

Ah well, rules is rules and all that!

Thanks again.

CIS

which piece of legislation cover the loss of the £25K disregard if you make an in-year adjustment to the claim ? the main TC act doesn't seem to cover the loss of the disregard nor does the TC manual.

Awards made for all or part a year will be assessed initially on a previous year income (PY) basis. Awards will be re-assessed where the current year income (CY) is different to the PY income.

1. If the current year income (CY) is less than the previous year income (PY) the current year income will be used.(CY)

Tax Credit Act section 7(3)(e).

1. If the current year income (CY) is more than £25,000 higher than the previous year income (PY) the income used will be the current year income (CY) minus £25,000.

Tax Credit Act section 7(3)(b)

1. If the current year income (CY) is less than £25,000 higher than the previous year income (PY) the income used will be the previous year income (PY).

bestpud

I hope you are right CIS!

It does seem very unfair given the change was made based on dh's income as we knew it at the time (just checked and he started his new job on 21st april, so right after the new tax year).

If we'd just randomly lowered it to get more money, then I'd understand it better, but we really did think he and I would earn less! He took the job as he hated his old one and I had to lessen my hours to fit in dd's school run as well, but we were willing to take less income for him to be happy at work iyswim.

As it turns out, the company relies on employees working overtime and this has been a blessing over the summer, plus he had a much better pay rise than we anticipated!

The income disregard must start somewhere though and they cannot surely say we have no disregard this year, just because he changed jobs, and take everything over our estimated amount as an overpayment?

The worst they should do is take us back to last years income, and so take back all we have been given extra because I lowered the estimate iyswim?

[Deleted User]

You technically dont lose the disregard. Instead your award is adjusted to base it on your current year estimate instead of your previous year actual income.
Once your award is based on the current year income it wont be adjusted back to the previous year income.

bestpud

Thanks for the replies subsoniccoyote.

So (sorry about this - I'm sure I'm being thick!), I changed our amount at the normal renewal time - ie when I finalised last years income etc. It wasn't changed during the award period, unless that includes the provisional bit?

So, when I tell them now that we will earn more this year than we did last year, and certainly more than our estimate, what will happen?

We receive wtc at the moment but we will only be entitled to ctc on our true income for this year, I do know that much.

So, will they say everything we earn over the estimated (lower than last year) income I gave them at renewal time is an over payment?

Or are we allowed to earn £25k over the estimated (lower) income I gave when I renewed?

Or £25k over last years income, as this years is going to be higher than estimated, and higher than last years?

When I phone them tomorrow, what will they do?

[Deleted User]

Technically you dont "lose" the £25k disregard, but in reality you do.

Whatever estimate you give them for this year, this is the income they will base your award on.

bestpud

So, even though DH had changed jobs and therefore had a different income, which I gave them when we renewed the award, everything over and above that figure now becomes an overpayment?

No leeway at all - not even the £2500 there used to be?

Please would you tell me where that rule is written, as like CIS, I cannot find it?

Because, as far as I am concerned, that is, technically or otherwise, removing the income disregard because we had a change in circumstances. And, the more I think about it, the more 'wrong' it seems!

If they are going to do that then it should be clearly stated somewhere and/or people should be warned when they make changes. As far as I can see, the information does not state this will happen at all.

Thanks again.

[Deleted User]

To be honest, I do not know exactly where it is written. I have been made aware of this as I work for TCO and when viewing overpayments this is a regular cause.

I will try to find it for you though.

I am sure that when you lower your estimate you should have wording on your amended award that states that if you earn more than the estimate you will be overpaid.

[Deleted User]

I am unale to find it online right now, once you notify TCO of your increased income you should check your award. If it shows a lower entitlement than you had when it was based on last years income - even though you are within the £25k disregard - you should appeal against the amount of tax credits you are awarded.

You can request an appeal form from TCO or download it from here - http://www.hmrc.gov.uk/leaflets/appeal_form_from_wtc_ap.pdf