Tax credit questions

mitchaa

TotallyBroke wrote: »

So for example and this is purely made up figures.
If you estimated your earnings to be £25k for this year Apr 09 to Apr2010 and got paid £20 per week tax credits then when you come to renew in July 2010 that you see you actually earned £35k they will ignore the extra money.
If you then estimate Apr 10 to Apr 11 will be £35k you may only get £15 per week tax credits but there will be no overpayment for the previous year.

No, No, No, No, No..

You are giving out advice that will land someone in hot water with overpayments.

If you estimate anything you instantly lose your right to the £25k disregard, it has to be on actual P60 evidence.

You would get all those on £40k pa for example estimating their income as £15,001 in order to claim max TC awards but still be protected by the £25k disregard.

[Deleted User]

Explanation of the £25k disregard

Note: CY = current year & PY = previous year

You can earn up to £25k more in CY than you did in PY without reducing your CY award or causing a CY overpayment.

Example 1:
PY income £15,000 & CY estimated income £35,000
Your CY award will be based on £15,000 as the CY estimate is within the £25k disregard. You award for CY+1 (next year) will be based on the £35,000 estimate until you provide the actual income details when you complete your renewal.

Example 2:
PY income £15,000 & CY estimated income £10,000. You then declared an actual income of £10,000 when you receive your renewal at the end of CY.
Your award would have been based on the CY estimate £10,000 and would have increased to more than what it was previously as your income has obviously reduced. As you declared this income at the end of the year there will be no overpayment.

Example 3:
PY income £15,000 & CY estimated income £10,000. You then declare an actual income of £12,000 when you receive your renewal at the end of CY.
You will have been overpaid as you under-estimated your income. Your award would have been increased as it would have been based on the £10,000 instead of the £15,000 but then you actually earned £2,000 more than your estimate. The overpayment will be calculated between the £10,000 & £12,000 figures.

Example 4:
PY income £15,000 & CY estimated income £10,000. You then declare an actual income of £20,000 when you receive your renewal at the end of CY.
You will have been overpaid as you under-estimated your income. Your award would have been increased as it would have been based on the £10,000 instead of the £15,000 but then you actually earned £10,000 more than your estimate and £5,000 above your PY income. The overpayment will be calculated between the £10,000 & £15,000 figures. The overpayment will only be calculated between the PY income of £15,000 and your under-estimated figure of £10,000 as you still have the £25k disregard over and above the initial £15,000. This means you could have actually earned £40,000 and still only have been overpaid the difference between awards calculated on £15,000 and £10,000.

I have previously advised that if you under-estimate your income you “lose” the £25k disregard but that’s not really the case but is sometimes easier to explain it that way as it is quite complex to explain. So as I said, you don’t have it in the first place between a lowered CY estimate and the actual PY income. You still do have the £25k disregard – but only on the income earned above your PY actual income.
I will add this as a new thread too so that I can try to answer additional questions if I haven't made myself clear enough in my explanation.