Help, are tax credits being dropped for anybody over £25,000 in 2012

Bernie_Flint

spaceman5 wrote: »

... and would just literally be earning just over £25,000

So what? Many earn "just" over the threshold, and end up in the 40% tax bracket. Cest la vie.

This benefit bandwagon is an out of control monster.

zagfles

mummyroysof3 wrote: »

my OH works 36 hours a week and i dont work, so that wont affect us will it, does it mean in a couple only 1 of you has to work more than 24?

That's right, you'll be OK.

mummyroysof3

thank you Zagfles for taking the time to answer and put my mind at rest

benjaminsmam

Im so stuck in a rut I wondered if anyone can help?

DH earns £23k and I earn £22k per year, we have a childminder too, we don't get any WTC only CTC equalling £73 p.w. we have to pay our childminder £195 per week so we consequently need to look for the rest of the cash to pay her. I am so fed up of the rat race day in day out and working for my wage only to hand it over to the childminder that my children dont even like! is this all life has to offer? only to be told that we lose money in April 2011 as we earn over £40k! only just though!!!

Can anyone help? just explain this to me in laymens terms, HMRC's site is just too confusing!

Blue22

benjaminsmam wrote: »

Im so stuck in a rut I wondered if anyone can help?

DH earns £23k and I earn £22k per year, we have a childminder too, we don't get any WTC only CTC equalling £73 p.w. we have to pay our childminder £195 per week so we consequently need to look for the rest of the cash to pay her. I am so fed up of the rat race day in day out and working for my wage only to hand it over to the childminder that my children dont even like! is this all life has to offer? only to be told that we lose money in April 2011 as we earn over £40k! only just though!!!

Can anyone help? just explain this to me in laymens terms, HMRC's site is just too confusing!

Hi BenjaminsMum

I'm not sure how well I will be able to explain this, but I will have a go anyway. The main change to Tax Credits that will effect your award after April will be the reduction in the percentage of childcare costs allowable from 80% to 70%

In your case, with childcare costs of about £10,000/annum, you will only be able to claim £7000 of this rather than the £8000 you claim at present (I know that you do not currently see all of this £8000 because this is reduced by 39p for each extra £1 you earn) Nevertheless, the net effect of this one change will see your Tax Credit Award for next year reduced by £1000

I know I will not be popular with many posters on this board for pointing this out but from April your family will not be any better off by you working the hours you do. This is because the cumulative effect of 70% allowable childcare costs, 32% Income Tax + NI and the 41% Working Tax withdrawal rate will means the more you earn, the less money you will have after paying for the child minder! So as you say, you are just working to pay the childminder, oh and to contribute to the treasury.

The best case scenario for your family (assuming that neither you or your partner are likely to be getting a pay rise of £6000 + anytime soon) would be to work 2 days a week, earn no more than £7500 and reduce your childcare bill by 2/5th i.e down to £4000 year. Or even better, get a part time job around your partners working hours and have no child minder to pay.

lawley1010

I am really confused by Tax Credits, can someone explain what we will get in 2011 and 2012. I work part time (28 hours) earn £12000, hubby works full time (40 hours) and earns £17,500 (he can earn more with bonus etc, max of £2000 per year more), so rough total £29500. We have 1 child, dont pay for childcare. At the moment we get the basic £545 per year Child Tax Credit and nothing else.

What are we likely to get in 2011 and 2012. I was overpaid in 2007 and it took until Aug 2010 to pay it all back and dont want to be in that situation again.

Blue22

lawley1010 wrote: »

I am really confused by Tax Credits, can someone explain what we will get in 2011 and 2012. I work part time (28 hours) earn £12000, hubby works full time (40 hours) and earns £17,500 (he can earn more with bonus etc, max of £2000 per year more), so rough total £29500. We have 1 child, dont pay for childcare. At the moment we get the basic £545 per year Child Tax Credit and nothing else.

What are we likely to get in 2011 and 2012. I was overpaid in 2007 and it took until Aug 2010 to pay it all back and dont want to be in that situation again.

For next year you will still get the basic £545, from April 2012 you will probably loose this amount, assuming your circumstances remain the same.

zagfles

benjaminsmam wrote: »

Im so stuck in a rut I wondered if anyone can help?

DH earns £23k and I earn £22k per year, we have a childminder too, we don't get any WTC only CTC equalling £73 p.w. we have to pay our childminder £195 per week so we consequently need to look for the rest of the cash to pay her. I am so fed up of the rat race day in day out and working for my wage only to hand it over to the childminder that my children dont even like! is this all life has to offer? only to be told that we lose money in April 2011 as we earn over £40k! only just though!!!

Can anyone help? just explain this to me in laymens terms, HMRC's site is just too confusing!

Right - for a start forget about the supposed 40k limit, there's so much bullsh*t written about this even in normally reliable media like the BBC and broadsheets. Even financial journalists don't seem to understand tax credits.

It is NOT true that everyone earning over 40k will stop getting tax credits from April. 40k will be the income at which the family element of tax credits starts being withdrawn IF the rest of tax credits have already been withdrawn.

In your situation with high childcare costs and (I presume) 2+ kids you could get tax credits at income much higher than 40k.

That's the good news. Bad news is you are looking at a big drop because on the reduction in % childcare and the increase in the withdrawal rate.

If you have 2 kids and all your childcare costs are eligible (and if the childminder looks after both) then your entitlement next year will be:

http://www.hmrc.gov.uk/rates/taxcredits.htm

1920+1950+790+195*52*0.7+2555*2+545 = 17413
(I'm assuming you pay 195 a week all year)

Reduced by 41% of income over 6420: (45000-6420)*0.41 = 15818

=1595, about £30 a week.

zagfles

Blue22 wrote: »

Hi BenjaminsMum

I'm not sure how well I will be able to explain this, but I will have a go anyway. The main change to Tax Credits that will effect your award after April will be the reduction in the percentage of childcare costs allowable from 80% to 70%

In your case, with childcare costs of about £10,000/annum, you will only be able to claim £7000 of this rather than the £8000 you claim at present (I know that you do not currently see all of this £8000 because this is reduced by 39p for each extra £1 you earn) Nevertheless, the net effect of this one change will see your Tax Credit Award for next year reduced by £1000

I know I will not be popular with many posters on this board for pointing this out but from April your family will not be any better off by you working the hours you do. This is because the cumulative effect of 70% allowable childcare costs, 32% Income Tax + NI and the 41% Working Tax withdrawal rate will means the more you earn, the less money you will have after paying for the child minder! So as you say, you are just working to pay the childminder, oh and to contribute to the treasury.

The best case scenario for your family (assuming that neither you or your partner are likely to be getting a pay rise of £6000 + anytime soon) would be to work 2 days a week, earn no more than £7500 and reduce your childcare bill by 2/5th i.e down to £4000 year. Or even better, get a part time job around your partners working hours and have no child minder to pay.

This is wrong. They will be better off her working, but not much.

The effect on tax credits of the PP working is +7000 (extra for childcare) and -9020 (income withdrawal - 41% of 22k) so about 2000 lower overall.

Take home pay on 22k is about £17470

Minus 10000 childminder minus 2000 tax credits loss leaves about £5470

Whether benjaminsmam considers this worthwhile or not is up to her...

Blue22

zagfles wrote: »

This is wrong. They will be better off her working, but not much.

The effect on tax credits of the PP working is +7000 (extra for childcare) and -9020 (income withdrawal - 41% of 22k) so about 2000 lower overall.

Take home pay on 22k is about £17470

Minus 10000 childminder minus 2000 tax credits loss leaves about £5470

Whether benjaminsmam considers this worthwhile or not is up to her...

Hi Zagfles

I hate to disagree with you because you obviously know tax credits inside out, are an excellent poster and can explain things far better than I can.

But in the scenario I was suggesting, with the OP working 2 days a week, paying 2/5 of her current childcare costs and earning
£7500/annum, my quick estimation is the family would be approximately
£700 a year better off. I'll do the figures when I get to a proper computer rather than a phone.

Btw I think the system is very wrong that it works like that and also very wrong that it is so complex that few people understand it.

This couple are doing what they believe to be the right thing and the best thing for their family. Both working full time and making scarifies with regards their time with their children but as I pointed out the only ones benefiting are the childminder and the treasury.