Child Tax Credit - NEVER GIVE AN ESTIMATED INCOME

steadynerve

I don't know if this is common knowledge among Money savers who claim CTC/WTC but it is something i've just found out that has cost at least a few £1,000s in the last few years.

When you telephone the Tax credit help line you should **NEVER** GIVE AN ANNUAL FINANCIAL ESTIMATE OF INCOME FOR THE CURRENT/NEXTYEAR even though they are often very insistent on asking for one.

The only exception to this is if you really need the tax credit payments to live on and have no other savings you can use and can't wait til the end of the year for a lump sum payment or can't afford to pay back any possible overpayments (although in preactise these will be taken out of reduductions in future CTC awards any way if you can show financial hardship).

If you don't give an estimate your tax credit is award is based on the exact figure you earned for the last tax year. But if you earnings increase they do not claw back any payments made for next years award due to your earnings increase up to an increase of £25K (THE INCOME DISREGARD).

What i didn't realise is if you do give an estimate the estimate is now used to caluculate your payments but by giving an estimate you loss the right to have the income disregard fugure applied. So if your estimate is wrong and is lower than your actual incone you actually lose out on benefit.

Silly me for thinking an estimate was unimportant and had no impact on benefit paid other than timing differences!!!

So bascially give an estimate and you could be worse off but don't give an estimate and you are never worse off (but the worse that can happen is you may have to wait till the end of the year to get an extra payout if your income has fallen or pay have to pay some overpayments back if you income has increased by more than £25,000k!! but then you can probably afford it!!).

I got this info from a chap at the CTC helpline who seemed fairly confident on how it works and it does seem to make sense to me. I not found anything on the CTC website about this issue with how estimates impact the income disregard to contradict this.

Pepzofio

You are not losing benefit, you will have been overpaid benefit.

The £25k disregard (which, incidentally has just dropped to £10k) is there to prevent overpayments occurring if your income increases during the year.

If you give an estimated income which is lower than the previous year's earnings they will increase your Tax Credits as you are expected to have a lower income. If your income is then higher than you anticipated, they take back the difference.

I haven't got time to go do the calculations, so these figures are purely for illustration & plucked out of thin air but:

Award based on last year's income of £15k = £4,000

Award based on estimate of £10k = £5,000

Award based on actual income of £12,500 = £4,500

In scenario (A), no estimate is given. Claimant gets £4,000 throughout the year, then an additional £500 after the annual declaration is completed. Net benefit: £4,500.

In scenario (B), an estimate is given. Claimant gets £5,000 throughout the year, then is required to repay £500. Net benefit: £4,500.

They can't apply the disregard to an estimated income, or the system would be wide open to abuse - people could just give an 'estimated' income up to £25k less than their actual earnings and get extra money that they weren't entitled to.

zagfles

Yes - the thing to watch out for is giving an estimate which is lower than last year's actual income. You don't lose the disregard by giving an estimate, it's just that it doesn't apply to estimates, it applies to the difference between last tax year and this.

steadynerve

OK i understand that the income diregard is not applied to the estimates as this could be open to abuse.

(a) I have the CTC operative saying that if you give an estimate than the income disregard is not used and doesn't apply. The actual figure is just used.

(b) And i have these posts saying you don't lose the disregard its just applies to last years figures and the estimate is ignored.

so if (a) is right real benefit can be lost (not just timimg differences) if your estimate is lower than actual.

and with (b) no real benefit is lost its just different amounts paid at different times.

So are zigfles and pepzofio sure there viewvis right because the CTC operator on the helpline though he was right. Can you quotes any references to back up how its done?

zagfles

Yes. See http://www.hmrc.gov.uk/manuals/tctmanual/TCTM07042.htm

Paying on an estimate is offically at TCO's discretion. But I think they always do unless it is clearly wrong. But what you are actually end up being entitled to is not changed by giving an estimate.

What the CTC operative probably means is that the income disregard isn't applied to the estimate (ie difference between estimate and actual income), and that is correct. But it is still applied to the income increase between previous tax year and this tax year.

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

athensgeorgia

I was going to ask a question along these lines so I'm glad someone's started a thread.

In year 2010/11 I did a lot overtime and kept Wtc updated at all times increasing my estimate each time.

In year 09/10 I earned £10,800. In August 10 I estimated £11,500 when I rang to change my hours then in February 11 I changed my hours again and gave another estimate of £12,500. My actual earnings are £12,670.

But this year 2011/12 because the person I was covering for is not coming back we've taken on another member of staff and I won't be doing any overtime my earnings will be back to about £10,500. Last time I rang Wtc with an update I asked if I'd be able to ring in the new tax year with my new estimate because my earnings will actually be lower and our payments are lot lower than last year (until we do our review) and we could really do with the money now.

Is it worth doing another estimate now? Should I wait until we do our review and struggle along? Has the disregard come into effect with us or not seeing as though I kept updating it?

Many thanks

P.S I was going to ring tomorrow with my new estimate so hopefully it'll be in place in time for next weeks payment, Am I being too eager?

partysis81

hi, i would like some advice on this also, as i am now panicking about my award

i only started claiming tax credits in nov 2010 when my twins were born, our joint income for 09/10 was £27,582.
when i applied for tc in november, i gave an estimated income for 10/11 but once they had taken the allowances for maternity and paternity pay off, it came to £27,382.(my estimate was based on the 09/10 figure plus some extra)

Our actual joint income works out at 32,400, this is due to some overtime my husband did in jan.

will the new figure be covered by the 10k disregard??

zagfles

I was searching for a thread explaining the disregard and I came across the following which would seem to back up what the OP has been told! By subsoniccoyote who seems to know what he/she is talking about.

https://forums.moneysavingexpert.com/discussion/1869725

But I can't see anything in the manuals to back this up.

Pam17, Allen35, anyone else know for certain??

If a current year (CY) estimate is given lower than previous year (PY), but actual CY is higher than PY, then does the disregard apply to difference between CY and PY?

Eg:
PY actual £20k
CY estimate £18k
CY actual £25k

Will the final CY award be based on £20k or £25k?

Apologies to the OP if I'm wrong... am I??

System

zagfles wrote: »

I was searching for a thread explaining the disregard and I came across the following which would seem to back up what the OP has been told! By subsoniccoyote who seems to know what he/she is talking about.

https://forums.moneysavingexpert.com/discussion/1869725

But I can't see anything in the manuals to back this up.

Pam17, Allen35, anyone else know for certain??

If a current year (CY) estimate is given lower than previous year (PY), but actual CY is higher than PY, then does the disregard apply to difference between CY and PY?

Eg:
PY actual £20k
CY estimate £18k
CY actual £25k

Will the final CY award be based on £20k or £25k?

Apologies to the OP if I'm wrong... am I??

The final CY award will be based on £20K and an overpayment will have been made.

Basically the reason for this is that if the disregard still applied when supplying a lower estimated income than the PY then everyone would be ringing up to reduce their income and getting paid much more tax credits that they weren't entitled to.
It's always better if your income has dropped to over-estimate than under-estimate.

It is also worth bearing in mind that giving several estimates which go up and down during the tax year could mean that an overpayment still occurs or you end up in the last couple of months with no payments at all.
This scenario occurs when someone gives a reduced estimated income in say September of £9500 and then in January calls and ups the estimate to £13000. The new entitlement based on £13000 say works out at £4700 but the claimant has already received £4950 based on £9500 and so has already been overpaid.

[Deleted User]

The wording on my post in the other thread was not great, I've deleted it and I hope this one is better.

You do not actually lose the disregard.

If you give an estimate of your income for the current year (CY) which is lower than your actual previous year (PY) income you will normally get more tax credits.

If you earn more in CY than you estimated you will be overpaid. The overpayment will be calculated between the estimate you gave for CY and the actual PY income. If you earn more in CY than you did in PY you will still have the disregard between the actual PY income and what your actual CY income is.

Eg.
2009/10 I earned £10,000.
2009/10 I estimate I will earn £7,500.

When I get my P60 it shows I earned £9,000. I will be overpaid as have had more tax credits due to under-estimating my income. The overpayment will be calculated between the £7,500 tax credit award and the value of an award based on an income of £9,000.

If my P60 showed I earned £12,000, I will have been overpaid the difference between the £7,500 award value and the £10,000 award value. I earned £2,000 more than last year but this is less than the £25k disregard so this part wont be used when calculating my overpayment.

If my P60 showed I earned £40,000, I will have been overpaid the difference between the £7,500 award value and the value of an award based on £15,000 (£40k - £25k disregard).

I have always advised to never lower your current year income estimate to below what you earned last year unless you are very sure as it will likely result in an overpayment otherwise.

NOTE: The income disregard will be dropping to £10,000 instead of £25,000 for the 2011/12 financial year. It will then reduce further to £5,000 from 2013/14.

[Deleted User]

zagfles wrote: »

I was searching for a thread explaining the disregard and I came across the following which would seem to back up what the OP has been told! By subsoniccoyote who seems to know what he/she is talking about.

https://forums.moneysavingexpert.com/discussion/1869725

But I can't see anything in the manuals to back this up.

Pam17, Allen35, anyone else know for certain??

If a current year (CY) estimate is given lower than previous year (PY), but actual CY is higher than PY, then does the disregard apply to difference between CY and PY?

Eg:
PY actual £20k
CY estimate £18k
CY actual £25k

Will the final CY award be based on £20k or £25k?

Apologies to the OP if I'm wrong... am I??

I will answer as though PY=2009/10 and CY=2010/11.

The award would be finalised on an income of £20k so there will be an overpayment calculated on the £2k difference.

The 2011/12 (CY+1) award would be based on £25k unless a new lower estimate was provided.