WTC / Last Years earnings ??

50Twuncle

So - starting again
Last TY (09/10) - I was made redundant and received a fairly large lump sum (counted as income ?)
This TY (10/11) - So far no income - other than Contribution based ESA - But I am starting a job in September (16 hours per week paying £8.50 per hour) - can I claim WTC this year ?

mitchaa

flashnazia wrote: »

What am I hearing here? I'm sure this is all wrong!

Firstly, tax credits are based on previous year's earnings but if earnings increase in the current year the next year's tax credits will reduce.

The 25k disregard does not mean someone can earn up to 25k more free of deductions in tax credits! It's just the threshold under which you don't have to declare straight away; but next year's tax credits will take the increased earnings into account.

Correct me if I am wrong as I'm not a benefit expert but I'm 90% sure I'm not barking up the wrong tree!

You are confusing yourself here and you are barking up the wrong tree.

An example of the £25k disregard as follows...

08/09 income of £15k so 09/10 TC award based on this £15k. A month after the award being given they are promoted at work and pay is increased to £39k.

They do not need to phone up and delcare this thus they will be earning the equivalent of £39k in June/July/Aug/Sept...... upto March 2010 whilst still getting an award based on the original £15k.

Come renewal in 2010, income is declared as £39k and award for 10/11 is reduced accordingly.

mitchaa

21Twinkle wrote: »

So - starting again
Last TY (09/10) - I was made redundant and received a fairly large lump sum (counted as income ?)
This TY (10/11) - So far no income - other than Contribution based ESA - But I am starting a job in September (16 hours per week paying £8.50 per hour) - can I claim WTC this year ?

You will need to declare your 09/10 income, however you have had a change in circumstance which will enable you to give an estimate to which will enable you to WTC. If you are promoted or work overtime or are given a bonus within that time you are not protected by the disregard so it's important you overestimate rather than underestimate.

mitchaa

Reading your statement back flashnazia, you have completely misread my post. Your statement is correct, but mines was not wrong. You confused the situation by making assumption. I never once stated that the award the year after would not be affected. Post 13 above is correct and this is what the O.P was asking for.

50Twuncle

mitchaa wrote: »

You will need to declare your 09/10 income, however you have had a change in circumstance which will enable you to give an estimate to which will enable you to WTC. If you are promoted or work overtime or are given a bonus within that time you are not protected by the disregard so it's important you overestimate rather than underestimate.

But when I tried to see what I would get on "entitledto" - It told me that due to last TY's lump sum - and assumed interest - I was not entitled to any WTC !!
I am confused ...

karenx

Thats because it is based on last years income. So put down your income for last year as this years earnings and see what it says. Although you may have to be working 30hours per week to get WTC depending on your other circumstances

flashnazia

mitchaa wrote: »

You are confusing yourself here and you are barking up the wrong tree.

An example of the £25k disregard as follows...

08/09 income of £15k so 09/10 TC award based on this £15k. A month after the award being given they are promoted at work and pay is increased to £39k.

They do not need to phone up and delcare this thus they will be earning the equivalent of £39k in June/July/Aug/Sept...... upto March 2010 whilst still getting an award based on the original £15k.

Come renewal in 2010, income is declared as £39k and award for 10/11 is reduced accordingly.

But doesn't this mean the 09/10 award has been overpaid because the change was not reported straight away?

I seem to understand from your suggestion that:

If don't declare income right away (using 25k disregard) you are better off; if you do then you are worse off because the payments reduce straight away?

I thought it worked like this:

Declare at once and be paid the rate that is correct.

Delaying it is allowed in the rules (25k disregard) but doing so will result in overpayment for the year the income increased resulting in payback (reduction to recoup previous year and reduction for increase in salary) come renewal time?

Icequeen99

flashnazia wrote: »

But doesn't this mean the 09/10 award has been overpaid because the change was not reported straight away?

I seem to understand from your suggestion that:

If don't declare income right away (using 25k disregard) you are better off; if you do then you are worse off because the payments reduce straight away?

I thought it worked like this:

Declare at once and be paid the rate that is correct.

Delaying it is allowed in the rules (25k disregard) but doing so will result in overpayment for the year the income increased resulting in payback (reduction to recoup previous year and reduction for increase in salary) come renewal time?

I think you have misunderstood the disregard. MitchAA has the right example that was posted above.

The disregard is just that, you can earn up to £25,000 more than your previous year income and it won't affect your current years tax credits.
They raised the disregard from £2500 to £25,000 in order to stop overpayments that occurred in the early years of the system.

So, if your income for last year (2009-2010) was £10,000 and your income for this year (2010-2011) is expected to be £30,000 it makes no difference whatsoever whether you report it or not as this years award is going to be based on 10,000 (09-10 income) because your income has not risen by more than £25,000.

As Mitch AA said, it will impact dramatically on your tax credits next year (2011-2012) when they will be based on this years ACTUAL income of £30,000.

As someone else has said, this generous disregard will be decreased to 10,000 and then £5,000 in the coming years.

To the OP - if you expect this years income to be lower than last year then you can apply anyway. Your first award will show NIL (as last years income is too high) but you simply call the tax credit helpline and give an estimate of this years income and your WTC will be revised. A note of caution, don't overestimate the fall in your income otherwise you may be overpaid.

IQ

flashnazia

So, to clarify, tax credits are always based on previous year regardless of earnings in current year?

Not

Tax credits are estimated and paid based on previous year but worked out properly and adjusted come renewal time (when, what was the current year's earnings are shown on p60)

Sorry if I now seem like a troll. . .

Icequeen99

flashnazia wrote: »

So, to clarify, tax credits are always based on previous year regardless of earnings in current year?

Not

Tax credits are estimated and paid based on previous year but worked out properly and adjusted come renewal time (when, what was the current year's earnings are shown on p60)

Sorry if I now seem like a troll. . .

Nearly, tax credits are initially based on previous year income. They will be finalised on previous year income unless:

Current year income is lower OR current year income is higher by more than 25,000

if either of these things are true, they switch to current year income.

Lots of people, even HMRC staff, talk about being estimated on previous year income and then adjusted to current year earnings at renewal time. That isn't what the legislation says when you look carefully. The renewals process is about comparing current year income to previous year income and then applying to the rules above to decide which one to finalise on. For most people that will be previous year.

Hope that makes sense!

IQ