Tax credits payment when income has dropped.

boneofo

I am about to submit a prediction for income this year which will converge my working tax credits to near zero due to promotion.
If my estimate of predicated income turns out to be significantly lower and I submit a revised income figure for WTC before the end of the tax year, will I get all the WTC I am due or would have?

debtfree2015_2

I have been underpaid before via tax credits due to earning less than expected, they normally paid a lump sum at the end of the year.
So if you will be getting something - anything then your claim stays open & will be fine.

However if your income takes you over the wtc threshold and payments stop completely, Im not sure that you can then go back on it at the end of the year if that makes sense......

Congratulations on your promotion :T

Icequeen99

boneofo wrote: »

I am about to submit a prediction for income this year which will converge my working tax credits to near zero due to promotion.
If my estimate of predicated income turns out to be significantly lower and I submit a revised income figure for WTC before the end of the tax year, will I get all the WTC I am due or would have?

Yes, you will get whatever you are due when you provide your actual income for 11/12. Tax credits are not finalised until after the tax year ends.

However, don't forget there is a disregard of £10,000 so your promotion might not impact as much as you think.

IQ

50Twuncle

There appears to be considerable arguments over what "DISREGARDED INCOME" actually means

Could someone with knowledge please explain ?

Icequeen99

21Twinkle wrote: »

There appears to be considerable arguments over what "DISREGARDED INCOME" actually means

Could someone with knowledge please explain ?

I'm not sure what arguments you are referring to, but the disregard is set out very clearly in the Tax Credits Act 2002 (Section 7 if anyone is interested) and there isn't much room for any other interpretation.

Tax credit claims last a maximum of one year. Each claim starts off being based on previous year income. It remains that way until after the end of the tax year when HMRC will finalise the claim.

The claim is finalised by comparing income for the year just ended (current year) and previous year income.

Then a simple test, as set out in the Act is applied to decide which income to use to finalise the claim.

If current year income is lower than previous year income - it is finalised using current year income.

if current year income is higher than previous year income, but by less than the disregard figure (currently £10,000) then previous year income is used.

If current year income is higher than previous year income by more than the disregard figure then current year income less the disregard (£10,000 this year) is used.

Of course, these 3 rules will also come into play each time an award is calculated during the year if someone provides an estimated income figure. You apply it in exactly the same way, the only difference is it isn't final.

So if you provide an estimated current year income that is lower than previous year, your tax credits are recalculated to be based on that estimate.

However, where some confusion occurs is what happens if you give an estimate but then you have another income rise in the year and what to give a higher estimate. The disregard doesn't apply when you are looking at two estimated incomes in the same year.

An example of this would be. Your previous year income is £10,000. You estimate that your income will fall to £6,000. You then get more hours at work so you provide a new estimate of £8,000. When you get your P60 your income turns out to be £8,500.

Your claim will be finalised on £8,500 because your current year is less than your previous year of £10,00. You will also have an overpayment because for part of the year you were paid on estimated incomes of £6,000 and £8,000 that were too low and the disregard doesn't help you out in that situation.

You always have to compare current year (whether estimated or actual) vs. previous year income. Only in that circumstance does the disregard apply.

It is really complicated, apologies if the explanation doesn't help!

IQ

50Twuncle

Icequeen99 wrote: »

I'm not sure what arguments you are referring to, but the disregard is set out very clearly in the Tax Credits Act 2002 (Section 7 if anyone is interested) and there isn't much room for any other interpretation.

Tax credit claims last a maximum of one year. Each claim starts off being based on previous year income. It remains that way until after the end of the tax year when HMRC will finalise the claim.

The claim is finalised by comparing income for the year just ended (current year) and previous year income.

Then a simple test, as set out in the Act is applied to decide which income to use to finalise the claim.

If current year income is lower than previous year income - it is finalised using current year income.

if current year income is higher than previous year income, but by less than the disregard figure (currently £10,000) then previous year income is used.

If current year income is higher than previous year income by more than the disregard figure then current year income less the disregard (£10,000 this year) is used.

Of course, these 3 rules will also come into play each time an award is calculated during the year if someone provides an estimated income figure. You apply it in exactly the same way, the only difference is it isn't final.

So if you provide an estimated current year income that is lower than previous year, your tax credits are recalculated to be based on that estimate.

However, where some confusion occurs is what happens if you give an estimate but then you have another income rise in the year and what to give a higher estimate. The disregard doesn't apply when you are looking at two estimated incomes in the same year.

An example of this would be. Your previous year income is £10,000. You estimate that your income will fall to £6,000. You then get more hours at work so you provide a new estimate of £8,000. When you get your P60 your income turns out to be £8,500.

Your claim will be finalised on £8,500 because your current year is less than your previous year of £10,00. You will also have an overpayment because for part of the year you were paid on estimated incomes of £6,000 and £8,000 that were too low and the disregard doesn't help you out in that situation.

You always have to compare current year (whether estimated or actual) vs. previous year income. Only in that circumstance does the disregard apply.

It is really complicated, apologies if the explanation doesn't help!

IQ

Our problem is that we were only claiming WTC for 7 months last TY - There is no "continuation" into the new tax year - and HMRC got the amount wrong (despite my informing them of a comparitively small change in income) - and are now trying to claw it back - which I am obviously not happy about !!
You mentioned that if the current years income is less than the previous year then the amount is finalised - in our case, we definitely brought in less last TY than the previous - so why wasn't the amount of WTC finalised ?

zagfles

Icequeen99 wrote: »

I'm not sure what arguments you are referring to, but the disregard is set out very clearly in the Tax Credits Act 2002 (Section 7 if anyone is interested) and there isn't much room for any other interpretation.

Tax credit claims last a maximum of one year. Each claim starts off being based on previous year income. It remains that way until after the end of the tax year when HMRC will finalise the claim.

The claim is finalised by comparing income for the year just ended (current year) and previous year income.

Then a simple test, as set out in the Act is applied to decide which income to use to finalise the claim.

If current year income is lower than previous year income - it is finalised using current year income.

if current year income is higher than previous year income, but by less than the disregard figure (currently £10,000) then previous year income is used.

If current year income is higher than previous year income by more than the disregard figure then current year income less the disregard (£10,000 this year) is used.

Of course, these 3 rules will also come into play each time an award is calculated during the year if someone provides an estimated income figure. You apply it in exactly the same way, the only difference is it isn't final.

So if you provide an estimated current year income that is lower than previous year, your tax credits are recalculated to be based on that estimate.

However, where some confusion occurs is what happens if you give an estimate but then you have another income rise in the year and what to give a higher estimate. The disregard doesn't apply when you are looking at two estimated incomes in the same year.

An example of this would be. Your previous year income is £10,000. You estimate that your income will fall to £6,000. You then get more hours at work so you provide a new estimate of £8,000. When you get your P60 your income turns out to be £8,500.

Your claim will be finalised on £8,500 because your current year is less than your previous year of £10,00. You will also have an overpayment because for part of the year you were paid on estimated incomes of £6,000 and £8,000 that were too low and the disregard doesn't help you out in that situation.

You always have to compare current year (whether estimated or actual) vs. previous year income. Only in that circumstance does the disregard apply.

It is really complicated, apologies if the explanation doesn't help!

IQ

It's going to get even more complicated next year when they introduce the disregard for income falls! There will be some circumstances where you could be worse off earning more money :eek:
In fact that could apply to earnings this tax year...

Example:

2010/11 income £20000
2011/12 income estimate £30000 (eg partner gone back to work).
2012/13 income likely to be the same, £30000

Opportunity comes up this year to do overtime and earn an extra £2000. Likely to be a one off.

Effect of doing it?
Extra income £2000
Tax/NI on the extra income £640.
Loss of tax credits this year, £820
Loss of tax credits next year, £820

You'd be £280 worse off working the overtime!!

A fairly contrived example but it will happen...

zagfles

21Twinkle wrote: »

Our problem is that we were only claiming WTC for 7 months last TY - There is no "continuation" into the new tax year - and HMRC got the amount wrong (despite my informing them of a comparitively small change in income) - and are now trying to claw it back - which I am obviously not happy about !!
You mentioned that if the current years income is less than the previous year then the amount is finalised - in our case, we definitely brought in less last TY than the previous - so why wasn't the amount of WTC finalised ?

I think you've misunderstood...she was talking about the amount it's finalised on, ie current year. If your income dropped from one tax year to the next, there is no disregard (yet), as the disregard (currently) only applies if there is an increase from one tax year to the next.

Icequeen99

21Twinkle wrote: »

Our problem is that we were only claiming WTC for 7 months last TY - There is no "continuation" into the new tax year - and HMRC got the amount wrong (despite my informing them of a comparitively small change in income) - and are now trying to claw it back - which I am obviously not happy about !!
You mentioned that if the current years income is less than the previous year then the amount is finalised - in our case, we definitely brought in less last TY than the previous - so why wasn't the amount of WTC finalised ?

Hard to say without seeing the paperwork.

So you are saying that in 10-11 your total income (for the whole year, not just the period you claimed tax credits) was lower than your 09-10 income?

If that is correct, have HMRC got your final 10-11 and 09-10 incomes down correctly on the form?

If so, then your 7 months should have been finalised using your 10-11 income. In the calculation it would have taken 7/12 of the income.

When your award stops mid year it is possible to end up with an overpayment depending on what income you had after tax credits finished as income is treated as spread out evenly across the year which sometimes confuses people.

Say for example you claimed for 7 months and in that period your household income was £15,000. Then in the 5 months after tax credits finished your household income was £30,000.

It isn't the £15,000 that is relevant for calculating the 7 months of the claim, it is £26,250 which is 7/12 of £45,000.

That might not be at all relevant in your scenario but I am sure if you can give more details someone can help. You should have a finalised award notice for 10-11 which was sent after you completed your renewals.

IQ