TAX CREDITS: Explanation of the £25k disregard

dktreesea

We had a small profit this year, but when I rang the tax office to tell them, they didn't want to know, because they said moving from a loss to a profit of £3,000 still meant we were under the income threshold for maximum WTC. My problem now though is with the housing benefits. During the 2008/09 year, i.e. the one just finished for filing tax returns, I rang the housing benefits office and said to them that it looked like our income would be around £3,000. They too didn't want to know, because they base everything on the HMRC award notice.

So now that it has come in for that year at £3,000 profit, does that mean I am looking at an overpayment of housing benefit that I will have to pay back for all of the 08/09 year and for this year to date? They said when I asked them to reduce our HB that until we had filed our accounts they couldn't accept the increase in the income because our circumstances hadn't changed - we were just expecting "more profit". Why doesn't that qualify as a change of circumstances? They said they could foresee a scenario where that profit might not eventuate. So, if they reduced the HB at our request, they couldn't then backpay it at a later date, if it transpired we hadn't made a profit.

For WTC the profit disregard is over £6,000, but for HB, any profit can start reducing your benefit - the disregard only seems to be around £1,000. Both the council and HMRC say that what they are most interested in is not small businesses with revised profit figures, unless they increase by more than £25K over that year's estimate, i.e. the previous year's profit/loss, but people who move onto working for someone else.

I don't understand how I go about avoiding the overpayment of HB. Even for this coming year, say I estimate our profit at £3,000, and then the recession really ends and we end up making £20K. I'm not going to know that with any certainty until well into the year, say by after Christmas 2010. The HMRC says it doesn't matter - they will disregard the profit unless we make over £28K in the current year. But what about the HB? And how do I get the council to take into account our projected increase in profit, even if the HMRC won't? I too don't want to be faced with having to pay back an overpayment, even if it is paid back at a silly amount of around £10 a week forever.

Can anyone shed any light on what the procedure should be for increasing projected income if all you have is self employment income?

flea72

dktreesea wrote: »

We had a small profit this year, but when I rang the tax office to tell them, they didn't want to know, because they said moving from a loss to a profit of £3,000 still meant we were under the income threshold for maximum WTC. My problem now though is with the housing benefits. During the 2008/09 year, i.e. the one just finished for filing tax returns, I rang the housing benefits office and said to them that it looked like our income would be around £3,000. They too didn't want to know, because they base everything on the HMRC award notice.

So now that it has come in for that year at £3,000 profit, does that mean I am looking at an overpayment of housing benefit that I will have to pay back for all of the 08/09 year and for this year to date? They said when I asked them to reduce our HB that until we had filed our accounts they couldn't accept the increase in the income because our circumstances hadn't changed - we were just expecting "more profit". Why doesn't that qualify as a change of circumstances? They said they could foresee a scenario where that profit might not eventuate. So, if they reduced the HB at our request, they couldn't then backpay it at a later date, if it transpired we hadn't made a profit.

For WTC the profit disregard is over £6,000, but for HB, any profit can start reducing your benefit - the disregard only seems to be around £1,000. Both the council and HMRC say that what they are most interested in is not small businesses with revised profit figures, unless they increase by more than £25K over that year's estimate, i.e. the previous year's profit/loss, but people who move onto working for someone else.

I don't understand how I go about avoiding the overpayment of HB. Even for this coming year, say I estimate our profit at £3,000, and then the recession really ends and we end up making £20K. I'm not going to know that with any certainty until well into the year, say by after Christmas 2010. The HMRC says it doesn't matter - they will disregard the profit unless we make over £28K in the current year. But what about the HB? And how do I get the council to take into account our projected increase in profit, even if the HMRC won't? I too don't want to be faced with having to pay back an overpayment, even if it is paid back at a silly amount of around £10 a week forever.

Can anyone shed any light on what the procedure should be for increasing projected income if all you have is self employment income?

i thought you only had to declare profit, if you took it as income - just because your business has money in the bank, it doesnt mean you class it as personal income

F

dktreesea

flea72 wrote: »

i thought you only had to declare profit, if you took it as income - just because your business has money in the bank, it doesnt mean you class it as personal income

F

Not for sole traders or partnerships. It's much the same as contracting, i.e. you declare your revenue less allowable expenses. The only difference is you are trading goods instead of your labour.

The thing is with having a business, even though you know pretty much what your fixed expenses, like rates and rent, electricity, telephone etc are going to be for the whole year, what is difficult to predict is when you will break even. So I can't tell HMRC at the beginning of the year what our net income will be, because I don't know until well into the year. I rang them today - and this dilemma would be much the same for most contractors and small traders, I would think - to find out what to do and their advice was just to over estimate the income, because that way they wouldn't overpay us. Then, if it turns out we make less, just tell them before the year end and they will adjust the tax credits up.

Well, that is all very well for the HMRC just to see it from their point of view. This also has implications for housing benefit and council tax bnenefit, which isn't backpaid if you over estimate your income and get it wrong.

I asked them about the £25K income difference disregard, but I didn't get what I would consider a straight answer. This whole disregard thing seems to be for people who get a good job during the year. So say you start out the year expecting to make £4,000 for the whole year. Then half way through the year, you get a job paying £40K a year, so now, for the whole year, your estimated income comes in at £22K (first six months £2K and next six months (estimated) £20K). You have to tell them, they said to me, that your circumstances have now changed. The say then that they recalculate your award, and if it turns out, up to when you got your job, that they overpaid you, you don't have to pay that money back.

sgx.saint

Hi Folks,

Just trying to get my head around the £25K disregard, and was hoping someone could take a look at our situation, and advise me from there.

We started to claim child tax credits due to the birth of our child on the 27/01/2010. They asked us for our 2008/09 income, which I got from both our P60 as we are in paid employment. Our total income for that year was £25177.00.

We were then awarded £207 for the remainder of 2009/10 based on the above.

My salary however has increased in the 2009/10 tax year, so I notified them of this change, and our joint income is now £30K approx.

However my partners salary has dropped by 50% due to being on maternity leave, and our joint income is now £23490.00 from the 1st March.

I was advised to phone up after the 6th April to provide this information, and they will reassess our award.

So, should I be doing anything different here, than providing them with the £23490 figure at the start of the 2010/11 tax year?

boots1_2

Hi everyone,I hope noone minds me posting this here but I have read the sticky and I am possible been dumb but was hoping if someone could advise me ?
Partner was made redundant last march,but found a job in may ,because our income had dropped signifigantly we had to estimate income for 09/10 tax year for tax credits,we estimated these to be £9500 and £12500 for OH,we paid approx £50 childcare a week and cant remember exact amount but over the year was about £5000 we recieved.
When we recieved month 12 payslips rang them but they would not take figures which were actually £14162 OH and £9506 for me , as i have not yet recieved renewal pack to read.
however when i was on the phone informed them as of 1st of may this year partners income would be increasing to £29000 and mine £10000 for 10/11 tax year so joint income of £39000 still with £50 PW childcare.

Today we have recieved a provisional award with all of the updated figures so £39000 joint income but an award of £5332.65 which is childcare £607 abd £5153 child tax credit !
I have rang them to query this as when I had a look on tax credit website I thought we would only get standard amount of about £550 over the year including childcare.They said it sounds absolutly fine and that is what we are entitled to with the £25000 disregard ??

I am really worried that we are going to end up owing them thousands when we renew next year,but she said all it means is provided our income does not exceed the £39000 we have declered as estimated for this year we will not have been overpaid however for 2011/2012 we will probably only get the 550ish we were expecting.

I know this is a bit long winded but didnt want to miss anything out.

Can anyone confirm whether this is correct or whether we will owe them lots of money back if we take the payments and spend them ?
I cannot believe they would give us over £5000 this year with an income of £39000,if they are giving money away like that no the wonder we have a massive country debt !!!

Thanks so much in advance any advice appreciated xx

themonkeybutler

You need to check your award notice for the following: Job seekers alowance, Employment support allowance, Income support, Pension credits. If ANY of these are on there, you must tell them to remove them immediately. Im guessing that your partners JSA details from his unemployment may not have been removed, which is resulting in a total disregard of your income.

TaxCreditHelp

Your award may be so high due to your ChildCare element. ChildCare costs are reimbursed up to a maximum of 80%, based on your weekly costs. About £500 is the basic family element. Your level of income would certainly exclude you from receiving Working Tax Credit.

boots1_2

Hi,

I have checked on the provisional award notice that I am asking about for 2010/2011 and there does not seem to be any reference of any benefits including the contributions based JSA claimed in april last year which was about £245 but it was definately on last years award.

I have had another look at the award and it seems the working tax credit is the childcare element of £2080 with a reduction due to income which brings it down to £607.
The basic family element of £547 and child elements for 2 children £4606.

Can anyone suggest what I should do to confirm 100% that if my circumstances are correct on the details, what I am entitled to ??
I really dont want to live for the next year in fear of me owing them loads ?
Is there someone at tax credits who can send me something confirming this £25000 disregard that she was referring to ?

Thanks again

kerron7

Hi

Sounds right to me as well, the payments you received in 10/11 are based on your income from 09/10. Payments in 11/12 will drop considerably as these will be based on this years income.

Kerron7 x

boots1_2

themonkeybutler wrote: »

Hey again. I checked at work (im a tax credit officer) using the real entitlement calculator, and can happily tell you your award IS correct, so stop stressing. Next year will be a different matter though as that will be based on your earnings this year, so you'll be virtually on the minimum. For now though, youre A-okay!

Thanks,

I just can't believe it,I really was only expecting the minimum amount for this year so this is a massive bonus!:j
It has been a nightmare year for getting everything sorted out,OH took redundancy to go to uni but then got PT job which has now turned into FT hours aswell as uni.We had only just got tax credits student finance sorted out then had to contact them all over again with new figures.I am so paranoid about owing anyone any money so try to keep everything up to date.
Thanks for checking it out for me ,its really appreciated.
We can enjoy a night out now to celebrate my birthday and how hard my lovely OH has been working recently and a nice family day out somewhere too !
Even though I am really happy to be so much better off,I cannot believe they are doing this,It must cost the tax payers an absolute fortune :eek:.
I still feel like I am being dishonest somehow lol
x