I work for Tax Credits

Lozz

Hi Taxcredits/irs

Just wondering if you are able to help me with trying to give some money BACK to the IR Our award notice states that we don't have to tell them if our income goes up by less than £2500. My other half has just received a fairly large performance related pay rise which means our income is going to be £2485 more for this year than the amount our award is based on. I've done all the calculations and it means our award is £919 more than it should be this year. Next year our award will be reduced to the minimum. I've called the IR office and they say as the amount is under £2500 they won't adjust our payments, but surely that means I'll owe them the £919 at the end of this financial year ??? How will they recover the £919, will it be taken out of future awards (meaning I'll receive no TC for 2 years) or will they want it back in a lump sum?

Thanks for any help you can give.

Lozz x

Spendless

Hi Lozz

I asked this exact question on another thread on this board cos i thought what you've already worked out - you'll receive an overpayment.

The answer i got back from someone working at tax credit (not taxcredit herself as she hasn't posted back) is that the overpayments would be taken into account on the next financial year.

I take it on your partners new salary you will only be entitled to £545 p.a - so as you say it'll take two years to pay back.

I''ll go bump the thread where i ask this question so you can read the reply

Spendless

i've bumped the thread Lozz - working tax credit started by Sanchez
posts 8 and 9

Lozz

Hi Spendless,

Thanks for bumping the other thread. Talk about give with one hand and take with the other, they'll insist you keep it this year but take it back again next year and the year after We will be reduced to the £545 so it will take nearly 2 years to clear.

As they wont take it back I think I'll just bank it and pay it to myself as they would have done next year, it might as well sit in my account saving me mortgage interest

Thanks again, at least now I know not to go on a mad spending spree with it ;D

Lozz x

jellyhead

hi,
we're entitled to the 545 a year award but they made a mistake on our renewal and decide to set our incomes to zero, lol! they overpaid us by more than a thousand before we managed to stop them from paying us any more. they won't take it back, what they are doing is stopping our money for around 3 years so i've left it in the bank, it covers our overdraft so we're not paying any interest at the moment, and am taking my usual amount out every month (i need to spend it lol!).

irs101

Spendless/Lozz

This £2,500 thing seems to cause a lot of confusion.

You have reported your income for 2003/04 and your amount for this year (2004/05) is based on this amount. If your actual income for 2004/05 turns out to be less than £2,500 more than your income for last year, you will not have your award reduced and you won't owe any money. If your income this year turns out to be, say, £3,000 more than last year, you will lose £185 at the most (37% x £500) i.e. you get the benefit of the £2,500 disregard.

IR brought this income disreagrd in because they wanted to avoid lots of overpayments and recalculations in year - good job too, as they have enough on their plate as it is

However, what the IR person is getting at is that your award for 2005/06 will be based on your income this year (04/05), meaning that the extra income will be taken into account next year. So, Lozz, assuming you don't get anymore pay rises this year, your current award will stay as it is until April, and it will then reduce (as you have worked out) by around £17.50 a week. You will not owe IR any money.

I hope that's clear, but feel free to play it back to me to make sure you understand. It's a very difficult thing to comprehend!

IR's explanation of this is here http://www.inlandrevenue.gov.uk/pdfs/wtc2.htm#e4 although they haven't updated it so for 2001/02 read 2003/04 and for 2003/04 read 2004/05

Lozz

Hi Irs,

Thanks for your explanation, you're right, I think an accountant's degree would come in handy to work this out  :)  If I explain in a bit more detail, our award is based on what I expected our income to be this year as I informed the IR in April of this year's expected income as I didn't want to be overpaid. Because of hubby's pay rise we are actually going to have an income £2485 above what our current award is based on. By my calculations we will lose 37% of that from this years award which is £919. Everytime I have informed the IR about a change in income (5 times over the past 2 years) we have lost/gained the equivalent of 37p to the £1.

I had exactly the same problem last year when I started to receive carers allowance in April 2003 which amounted to £2,200. I informed the IR I had been awarded carers allowance and they told me it was under the £2,500 threshold, so it wouldn't affect my award. Four months later they took £90 per 4 weeks off me! When I phoned to find out why they told me I wasn't under any obligation to tell them about the extra £2,200 but as I had they were obliged to change my award  ??? Has the £2,500 income disregard changed since then?

Sorry for the ramble, but just when I think I've got my head around this CTC something else comes along to confuse me all over again  ;D

Lozz x

irs101

Income disregard is a key part of the policy, so you will be benefiting from it.

First thing, the IR person is right that you were under no obligation to tell them your true income at that point in time. You only have to tell them when you complete your annual review in the June-September following the end of the tax year. In fact you can tell them whatever you like in-year. You could have phoned up in April 2003, told them that you are expecting to get a massive pay cut, get a huge tax credit award and then pay it back in installments out of this years award. Sort of like an interest-free loan - but I digress.

You've got to remember that it is normally the overall increase in income this year compared to last year less £2,500 multiplied by 37%. But for the first year of the new tax credits (last year) it was the increase compared to your income two years ago. This could be what is happening - last year they were taking into account a much bigger income rise than you realise, because it was two years worth of income rises. This year, that won't be the case. Perhaps it'll be clearer if I give an example.

Jan 2003 - you apply for TCs using 2001/02 income of £10K. But in fact you have already had a pay rise this year of £1,500. Your initial award is still based on £10K though.

April 2003 - tax credits begin. You get an income rise of £2,200. You only have £1,000 of your income disregard left for 03/04, so you lose £1,200 x 37% = £444 or £34 off your 4-weekly award.

October 2003 - you get another income rise of £500. Your total income for this year is now £10K + £1.5K +£2.2K + £0.5K = £14,200. You've used up your income disregard so you lose £500 x 37% = £185. However, because you lose this amount from your annual award, but you are half-way through the year, you'll lose £28.50 off your 4-weekly award.

April 2004 - your award is renewed, but is now based on your previous year income of £14,200, so your award may be lower again.

July 2004 - you get a pay rise of £2,000 - but no change to your award because you get a new income disregard for this year.

October 2004 - you get another income rise of £2,000, you lose £1,500 x 37% = £555

I could go on forever, but hopefully you get the idea.

Other things could be triggering changes to your award other than income changes - child leaving education, baby turning one year old?? You didn't happen to be one of the ones who got interim payments from your local tax office when TCs started did you? That had some very strange effects indeed on people's award!!

So as for this year, if you have had no other pay rises since last year then your husband's current pay rise should not change this years award. But if you have any further income rise this year, they will affect the amount you get. So don't worry for now - but keep reporting the income rises. You'll end up with mulitple award notices, but it'll keep you on track and make sure any amounts you owe IR are small. Your husband's pay rise will be taken into account from April next year.

Tania_2

Me & hubbie both work, have 2 kids and earn around £36K between us. I'm gonna be laid off soon and wonder how it will affect our payment. I think we get £545 ish. I only earn peanuts (£6760 for 20 hour week). Do we both have to be earning to qualify. Don't understand at all.

Fran

Hi Tania,

Your payment of WTC and/or CTC for this tax year will only be changed if your income increases or decreases by £2,500. (So your award will be altered.)

Your joint income is taken into account.