Tax Credits Muddle!

jeff2102

Good morning all.
First posting so please be kind....cannot cope with anymore stress.
Have been claiming Tax Credits since 2005 all has gone well until about two weeks ago.
Had a letter regarding a difference between my declared earning and what they had been given from HMRC.

I am part of "Salary Sacrifice" scheme and buy various optional benefits.

I have misunderstood how this is being sold to us by the company.

Gross Salary minus Options Benefits reduces gross salary and then we get taxed and pay NI on remainder. This actually happens.
I declared the salary after Options and it is wrong! I dont earn lots of money I declared £8,550.00 and it should have been £10,595.00 So I have been over paid (gulp)...
Have written a letter to them to explain but am worried how and when they will take the over payment.
I have just successfully completed an IVA and dont want to now be in further debt...(IVA was to sort out very messy divorce) but I am!!!

Also they claim they have found earnings on my NI number which I have apparently not told t hem about...but I have!!! I rang and advised them of these earnings. However was told not to keep ringing as they cant keep sending out awards willy nilly or words to that effect.
Obviously if I have earned more money then I had to work more hours.
I have only ever been contracted to work 25 hours but adhoc work accumulated extra hours, I average out the value of hours worked to be just over 30 but I have only every told them about 25 because I could never predicate when I would need to work outside my contracted hours.
If I have been over paid I know and want to pay back the over amount, but only if the info they have is correct and that I am not being bullied, the office I spoke to was helpful and seemed informed but I have been let done by the main tax credit line so am very doubtful and wonder if they just want results. Also I dont want to be ear marked as some one who does not give correct info.
Have just sat down and calculated if I could manage with out and I most probably could HELP!! What would any of you guys do xx

Thank you

Aarons_mummy

Call them up and ask for details of the overpayment. They'll send this out and if everything seems in order then you can ask them to set up a repayment plan where they would take a small amount off of your weekly entitlement.

If something is wrong then you would have to go down the dispute route for it to be put right it took well over a year for the joint claim I had with my ex partner to be put correctly through the dispute route, it's a long slog but if it's incorrect then you have to do it we in fact owed less than a 1/4 of what they proposed we owed as they had incorrect earnings but it took a long dispute for it to be corrected.

jeff2102

Just a quick one will all tax credit payments stop until or if you go into dispute do they pay your award just wanting to budget and unsure all the in's and outs x

Aarons_mummy

My claim got reduced at the time to reflect the correct amount that I should have recieved. The dispute would only be the amount of overpayment not the fact that there is an overpayment (same as mine was) once it's resolved and you have the right information then you can discuss repayment but until then it'll be 'on hold' effectively (only the dispute not the tax credits)

zagfles

What were the benefits you sacrificed for? Were they taxable, eg private health insurance, or non taxable eg pension, childcare vouchers?

There's 2 possible problems here. If the benefits were taxable then you normally need to declare their value, as it counts as income for tax credits purposes. Your employer should have given you a P11D detailing the value of taxablebenefits.

Salary sacrifice for non-taxable benefits seems to be a grey area. The guidance seems to deliberately be very woolly, the only thing that they make clear is that salary sacrifice for childcare vouchers is OK. The tax credits manual says they need to refer all cases of salary sacrifice (except for childcare vouchers) to the technical advice line.

http://www.hmrc.gov.uk/manuals/ntcmanual/changes_income/ntc0175030.htm

There is the concept of "notional income" in tax credits and I think that's what the TAL make a decison on. See http://www.hmrc.gov.uk/manuals/tctmanual/TCTM04800.htm which shows various ways that sacrificed salary could be regarded as notional income.

melly1980

A question from me on the subject.

I work full time and my regular pension contribution is a part of a salary sacrifice scheme (by default)

When declaring my income I (correctly IMO) declare my taxable income. There are no other totals that I can quote them, I dont get a section on my pay slip for gross pay before and after ofsetting. Surely they cant claim back an alleged overpayment in such circumstances, I have provided correct information that they asked for.

zagfles

melly1980 wrote: »

A question from me on the subject.

I work full time and my regular pension contribution is a part of a salary sacrifice scheme (by default)

When declaring my income I (correctly IMO) declare my taxable income. There are no other totals that I can quote them, I dont get a section on my pay slip for gross pay before and after ofsetting. Surely they cant claim back an alleged overpayment in such circumstances, I have provided correct information that they asked for.

It's strange that the manual only mentions childcare vouchers as an allowable salary sacrifice, not pensions even though pension contributions are specifically allowable as a deduction from total income. And that it doesn't list other allowable and non allowable sacrifices. A friend of mine asked about this and was told exactly as the manual states - salary sacrifice for pension would need to be referred with full details of the scheme inc payslips and contract change.

The following is pure speculation on my part. I have no inside information.

The only reason I can think of for the manual and guidance to claimants being so vague is that they want to make a "notional income" judgement. There are 3 possible classes of notional income they could use, see the link I posted earlier, it could be any of TCTM04803-4805: deprivation, income available on application, or providing services for less than full earnings.

Sacrificing salary for pension (or anything) could be caught by this - you are not making the contribution yourself, you are willingly accepting a lower salary and your employer is making the contribution.

As I understand it if you contribute to a pension yourself in the normal way, you can contribute as much as you like and there is nothing TCO can do about it. If you earn £50,000 and contribute £45,000 to a pension then your income for tax credits purposes is £5000. Period. You will get tax credits in full with no taper. They can't pull the notional income rules because pension contributions are deducted after the income is totalled - so you aren't depriving yourself of any income, the deduction occurs after all income is calculated. To pull the notional income rule they would need to count the same income twice, once as employment income and once as notional, before deducting the pension contribution. Which probably wouldn't stand up in law.

But if someone making large contributions switched to salary sacrifice, they've now "got the b**tard" as they can pull the notional income rule!!

My guess (and remember the above is speculation) is that they wouldn't pull the notional income rule for a salary sacrifice of a normal level for workplace pensions, say 5%, but they would if it's 50%.

It'd be interesting to get comments from anyone who works in TCO...

melly1980

Right.

Now I thought I was better on salary sacrifice because it would in effect reduce my real salary, however from what you say if I was on a regular pension this is deducted anyway from my taxable income.

The thought had occurred to me to knock 10K off my earnings and claim more tax credits thus benefiting from a low cost pension. Should have known it wouldnt be that simple.

Now, heres the big one (or at least it is for me), can I use my salary sacrifice to avoid loss of Child benefit or will that be pretty much the same.

melly1980

Hang on.

I started this job a year ago that has a salary sacrifice scheme. In my previous employment I had a regular pension yet declared my salary as is. Does this mean Ive been underpaid tax credits and if so can I get anything back?

zagfles

melly1980 wrote: »

Right.

Now I thought I was better on salary sacrifice because it would in effect reduce my real salary, however from what you say if I was on a regular pension this is deducted anyway from my taxable income.

The thought had occurred to me to knock 10K off my earnings and claim more tax credits thus benefiting from a low cost pension. Should have known it wouldnt be that simple.

Now, heres the big one (or at least it is for me), can I use my salary sacrifice to avoid loss of Child benefit or will that be pretty much the same.

It's too early for child benefit as the technicalities haven't been announced yet (personally I think it'll be too hard and they'll abandon it - just like Gordon Brown did 10 years ago).

zagfles

melly1980 wrote: »

Hang on.

I started this job a year ago that has a salary sacrifice scheme. In my previous employment I had a regular pension yet declared my salary as is. Does this mean Ive been underpaid tax credits and if so can I get anything back?

If you made contributions via your pay then the contributions should still have been deducted from your P60 income. The taxable pay on your payslips & P60 should have been after pension contributions were deducted. But (unlike salary sacrifice) NI would have been charged on your contributions.

If you contributed to a personal pension then you should have deducted conributions from your income see http://www.hmrc.gov.uk/forms/tc825.pdf