How our tax credits will be affected?

zagfles

In which case don't do the OT this tax year - you'll be worse off overall if you do!

If possible start doing it in April.

HappyMJ

zagfles wrote: »

In which case don't do the OT this tax year - you'll be worse off overall if you do!

If possible start doing it in April.

No they wouldn't as in the OP last years income was £28,000 so they would get more tax credits next year no matter what.

Generally the 41% works no matter when in the tax year you start overtime.

At £27,100 they will get £369 more tax credits next year
At £27,700 they will get £123 more tax credits next year. A 41% difference.

What you are basically saying to me that it is never worth working at all. I get maximum tax credits and just taking a minimum wage job would mean I would lose more than I earn.

oliviarosejackson

Aren't they lowering the thresh hold again next year though? As in we won't receive the same amount we have this year as we will next yr?

It really does confuse me tax credits does and I hate the fact that we are relying on them now, we never have done in the past. Buy nursey fees are so damn expensive. And as much as I would love to be a SAHM, I don't want to let this job go either.

HappyMJ

oliviarosejackson wrote: »

Aren't they lowering the thresh hold again next year though? As in we won't receive the same amount we have this year as we will next yr?

It really does confuse me tax credits does and I hate the fact that we are relying on them now, we never have done in the past. Buy nursey fees are so damn expensive. And as much as I would love to be a SAHM, I don't want to let this job go either.

No the thresholds aren't changing except if you earn over £40,000. You will also get an extra £60 per child per year due to the child elements amounts increasing. Plus any rise in the CPI index so a little more than that but based on 2011-2012 money you will get more anyway.

zagfles

HappyMJ wrote: »

No they wouldn't as in the OP last years income was £28,000 so they would get more tax credits next year no matter what.

Generally the 41% works no matter when in the tax year you start overtime.

At £27,100 they will get £369 more tax credits next year
At £27,700 they will get £123 more tax credits next year. A 41% difference.

Yes, but as well as that the same will apply to this tax year (since income is lower than last).

If the OP is being paid based on last year's income, then there will be an underpayment as this year's income has dropped. So they'll get a lump sum of £369 on renewal if she doesn't do the OT, or £123 if she does. As well as affecting next year's tax credits by the same amounts.

So the OP would earn £600 extra, £408 after tax and NI, and tax credits over the 2 years would be £492 lower. So £84 worse off overall!

What you are basically saying to me that it is never worth working at all. I get maximum tax credits and just taking a minimum wage job would mean I would lose more than I earn.

No, what I'm saying is that in particular short-term situations like the OPs it is financially not worth doing a bit of OT. It might be worth it for other reasons, eg climbing the career ladder etc. And it should be worth doing it after April.

oliviarosejackson

I am even more confused now, lol.

So we will be better off by April next year? I thought that they were slowly phasing tax credits out for most people unless you were on a very low income.

How would it be worth me doing it after April? As they ask for an estimate of your years earnings when you renew. If I was to give a higher income, would next tax ears tax credits not be affected?

Man thanks aain for your help.

zagfles

oliviarosejackson wrote: »

I am even more confused now, lol.

So we will be better off by April next year? I thought that they were slowly phasing tax credits out for most people unless you were on a very low income.

This is not true, don't believe everything you read. There's been a lot of hugely biased reporting on the changes to tax credits. Tax credits will still be claimable by some people on very high incomes. They are getting rid of the separate threshold for the family element in April, but this will only affect those who only get the family element (545 a year).

Your situation has nothing to do with the changes, it's to do with how the disregard works and always has. In fact the upcoming changes will mean this particular disincentive to work won't apply in the future...

How would it be worth me doing it after April? As they ask for an estimate of your years earnings when you renew. If I was to give a higher income, would next tax ears tax credits not be affected?

Man thanks aain for your help.

OK this is a bit complicated.

First off forget estimates, they only affect when you get paid, not how much.

At the moment tax credits are based on the lower of your current year income and previous year income, unless your current year income exceeds previous year by more than the disregard (currently £10k).

You say your income next year will be higher but not more than £10k higher than this year. This means next year's tax credits will be based on this year's earnings. OK?

But because your earnings this year are less than last year's, that means this year's tax credits are also based on this year's earnings, not last years. (they are probably paying you based on last years income at the moment, but if they are you'll get a lump sum on renewal).

That means if you increase your earnings this year, it will lower your tax credits entitlement in 2 years, this year and next year.

This won't apply in the future as the govt are introducing a disregard for income falls. Although there will be certain other (unusual) situations where it may not be worth it.

Also in general it does pay to earn more, and it's certainly always worth taking a payrise/higher paid job as that gives you higher earnings long term. Tax credits will reduce but by less than the gain in income long term.

oliviarosejackson

Thank you very much for the help zagfles. I read it a couple of times and it sunk in a little I think, lol.

You know so much about it all. I have never understood them. I have just always just go en them the info asked for and left it at that.

Yes our income will increase next year as I will get my full years wages and not just 7 months. And if I did do the overtime it would be more on top, but still would not exceed 10k.

When I renewed this year and they asked for our estimate for this years earnings I told then it would be the same as last years earnings. But since I have been being paid, my wages are only just over £600 for the month.

I don't want to commit to working extra hours. Just would like to do one or two shifts per month. My two children are 8 & 1 and I want to be at home as much as possible. My oh works funny shifts, so I want to be there for them to keep some stability.

So are tax credits making it better for people that do work now?

zagfles

oliviarosejackson wrote: »

So are tax credits making it better for people that do work now?

If you mean the changes this govt are making, then generally not, the income withdrawal rate is up and the % of childcare costs claimable is down, and the child element of CTC is substantially up which is of greater benefit to those who don't work.

It's because they haven't had the guts to ditch (or redefine) the "child poverty" targets set by the last govt, which I've ranted about in other threads. These targets naturally lead to a system which makes it less worth working.

skibadee

zagfles wrote: »

This is not true, don't believe everything you read. There's been a lot of hugely biased reporting on the changes to tax credits. Tax credits will still be claimable by some people on very high incomes. They are getting rid of the separate threshold for the family element in April, but this will only affect those who only get the family element (545 a year).

Your situation has nothing to do with the changes, it's to do with how the disregard works and always has. In fact the upcoming changes will mean this particular disincentive to work won't apply in the future...



OK this is a bit complicated.

First off forget estimates, they only affect when you get paid, not how much.

At the moment tax credits are based on the lower of your current year income and previous year income, unless your current year income exceeds previous year by more than the disregard (currently £10k).

You say your income next year will be higher but not more than £10k higher than this year. This means next year's tax credits will be based on this year's earnings. OK?

But because your earnings this year are less than last year's, that means this year's tax credits are also based on this year's earnings, not last years. (they are probably paying you based on last years income at the moment, but if they are you'll get a lump sum on renewal).

That means if you increase your earnings this year, it will lower your tax credits entitlement in 2 years, this year and next year.

This won't apply in the future as the govt are introducing a disregard for income falls. Although there will be certain other (unusual) situations where it may not be worth it.

Also in general it does pay to earn more, and it's certainly always worth taking a payrise/higher paid job as that gives you higher earnings long term. Tax credits will reduce but by less than the gain in income long term.

Thank you for that information, my son and his GF are claiming TC's for the first time as she is on maternity leave ( due to go back next month ) and I nor they could get heads round the TC's as their income is down by approx 10k a year at moment but their TC's are based on GF's income whilst working.