Tax Credits Based on Last Year's Income?

bumpoowee

Hi,

I'm filling in the form(s) to apply for tax credits following the birth of my daughter, however all the income details it asks for are for the 2008/09 tax year - based on these details we will be eligible for little if anything, however in the current tax year (2009/10) I am taking 2 weeks paternity leave and my partner is taking 5 months maternity leave so our income will be substantially less and we would be eligible for more.

Does the projected income for the current tax year get taken into account? Since this information is not requested on the form how is this assessed?

Thanks.

JMerch

When Tax Credits are calculated, it is usually based on the Previous Year (PY) income. The only exceptions to this are if you Current Year (CY) income increases by more than £25,000 from the PY, or if your CY income decreases.

So in your situation, put your PY income on the form (They need this so your initial award is based on an "actual" figure rather than an estimate), then once you receive your first award notice, call the helpline to tell them your income has dropped.

Remember you can deduct £100 for each week you and your partner receive SMP and SPP!

Pepzofio

If you ask TCs to base your current year award on an estimate, rather than previous year's income, you will lose the £25k earnings disregard, meaning it is far easier to clock up an overpayment (if you accidentally underestimate your earnings/earn more than you thought you would due to overtime, unexpected payrise etc).

I would only advise giving an estimate if you know it will make a difference to your claim* and know how much you are going to earn with a reasonable degree of certainty (e.g. neither of you work overtime). Even then, I would err on the side of caution and increase my estimate by £500-£1,000 to allow for any unforeseen additional income (small payrise, bonus etc).

*Even taking 5mths m/leave, depending on your current income, how much m/pay your wife gets and whether the m/leave is all in one tax year or split over 2, you could find your award doesn't actually increase. For a couple with 1 child & no disabilities in family, working combined total of 30+ hrs per week (but no childcare), once their annual income hits £22,800ish the award will be fixed at the basic Family/Baby (if applicable) element until their income hits £50k.

lovesavingmoney

That's the one thing I hate about the TC system. It always asks for last years earnings. If you know you are going to earn less, you need the extra help, but you have to make loads of calls etc, rather than just tell them from the off...

I know there's prob no other way of doing it, but it's just so annoying...