Tax Credits advice needed please....:-)

HollyJoe

Hello, I am new to the forums and am after a bit of advice regarding Tax Credits. My background story is as follows : We used to claim Tax Credits but stopped after my husband's self-employed income rose (this was approximately 5 years ago) and he became an employee of his own limited company. Out of the blue, several months after we ceased our claim, we got a statement from TC to say that we had been overpaid by £1,600.00. I was absolutely mortified but couldn't work out how. I wrote to them stating that they had had all our certified accounts etc and how had they come to this conclusion. They ignored it. I wrote again and this was also ignored. About a year later we got another demand so I wrote again with all the information I had provided earlier and asked again how they had reached this figure and where exactly was the overpayment. I got a letter back stating that we needed to make a further application?! We didn't as we didn't qualify and we've heard nothing since. Fast forward to now and due to the effects of the recession, our income has dropped by about 70%. My husband and I both work for our business and we have had to drop our salaries considerably although we are just about ticking over. Our accountants have advised that we will now be eligible for tax credits and we must apply. My worry is that this will open a huge can of worms with the overpayment issue. I find it very odd that they have not chased it in several years if they believe we owe it or that we have never had any further correspondence. If I make an application and they decide we still owe this money, will they just reduce any award accordingly? I should reiterate that if we owe this amount then we will pay it but I was not prepared to pay back an amount that they appear unable to explain when we have always given them all the information they have required and we stopped claiming due to a rise in income. Has anybody else had an issue like this and should we just press ahead with a new claim? I am so sorry for such a long essay! Thank you in anticipation.

themull1

If you claim now, the tax credit office can only take a certain percentage towards the overpayment, approx 20% ish. I would do it that way.

HollyJoe

Thank you so much for your reply, I wasn't aware of that actually. I am still baffled as to why they haven't been in touch in such a long time. I will bite the bullet and call them tomorrow. Thank you.

HollyJoe

Also, I am aware that you have to give your salary details from the previous financial year which wasn't too bad, not great, but not as awful as now. Can you ask the tax credit office to take your current salary into account rather than basing the claim on a previous higher salary? As explained previously, we have had to reduce both of our salaries considerably due to such a hugely decreased workload.

Icequeen99

themull1 wrote: »

If you claim now, the tax credit office can only take a certain percentage towards the overpayment, approx 20% ish. I would do it that way.

That is incorrect.

There is no facility for HMRC to recover one old claim against a new joint claim. Equally, the fact that there is an old overpayment is irrelevant for your new claim, so you should go ahead and make it.

The old overpayment will be sitting with DMB in direct recovery. The fact they haven't chased it doesn't mean you don't owe it. They may write to you at some point. When they do, you can make an arrangement to repay (called a Time to Pay) based on your circumstances at the time.

The recovery % (which are 100%, 25% or 10%) are in legislation and only apply to ongoing claims. Not to old overpayments.

IQ

Icequeen99

HollyJoe wrote: »

Also, I am aware that you have to give your salary details from the previous financial year which wasn't too bad, not great, but not as awful as now. Can you ask the tax credit office to take your current salary into account rather than basing the claim on a previous higher salary? As explained previously, we have had to reduce both of our salaries considerably due to such a hugely decreased workload.

Yes you can. Initially, they will base your new claim on 11/12 income. You can then ring them and estimate 12/13. However, the first 2,500 of the fall is disregarded (so if you think your income will fall from say 20,000 to 10,000, TCO will use 12,500 as the estimate). Secondly, if your estimate turns out to be too low, you will have another overpayment so be careful about estimating it.

IQ

HollyJoe

Thank you for that Icequeen99. I really don't understand why they have not a) answered my correspondence and b) not given me an explanation as to how they reached the figure of £1,600. It's been five years, actually probably a little longer. I am just concerned that a new claim would trigger this issue with the overpayment as that really would be the icing on the cake right at this minute! I think I am just going to have to bite the bullet with this one! Regarding my other question about the claim being based on "now" rather than last year...are you able to help with that at all? I am so grateful for the responses. Thank you very much.

HollyJoe

Sorry, our posts crossed!

HollyJoe

Icequeen99 wrote: »

Yes you can. Initially, they will base your new claim on 11/12 income. You can then ring them and estimate 12/13. However, the first 2,500 of the fall is disregarded (so if you think your income will fall from say 20,000 to 10,000, TCO will use 12,500 as the estimate). Secondly, if your estimate turns out to be too low, you will have another overpayment so be careful about estimating it.

IQ

Right, I am with you. It's actually dropped from about £50K to less than £20K...construction industry, absolutely appalling at the moment!! We have never been this skint! I know it won't be forever but with two small children, it's difficult. However, I know there are others worse of than us. What I have decided to do is any month business picks up and we are able to draw a little extra, I will ring them straight away. As I have no idea where the other overpayment came from, I can't say what I would do that is different!

Icequeen99

HollyJoe wrote: »

Right, I am with you. It's actually dropped from about £50K to less than £20K...construction industry, absolutely appalling at the moment!! We have never been this skint! I know it won't be forever but with two small children, it's difficult. However, I know there are others worse of than us. What I have decided to do is any month business picks up and we are able to draw a little extra, I will ring them straight away. As I have no idea where the other overpayment came from, I can't say what I would do that is different!

That's fine, so they would based it on 22.5k if you estimate 20k.

Ringing them when your income is higher is ok too, but it doesn't always avoid an overpayment because tax credits are based on annual income throughout the year.

Take an extreme example where someone has next to no income for 6 months and then earns £30,000 for 6 months. They get (for example) £1000 a month tax credits for the first 6 months, then when their earnings increase they tell HMRC straight away. Although the 30,000 is earned in the second 6 months, for tax credits it is treated as accruing evenly across the year £15,000 in the first 6 and 15,000 in the second 6 months. So the first 6 months can become overpaid.

That is obviously an extreme example, but it is something many people don't realise.

That is why it is important not to estimate too low.

The old overpayment will not be triggered by re-claiming. Two different parts of HMRC are dealing with them. However they are working through old overpayments at the moment, so don't be surprised if at some point you do get a letter.

IQ

HollyJoe

Right, thank you very much for such a concise and clear explanation. I will have to deal with the other issue as and when it arises. Surely there has to be a better way to administer this system - it really is overcomplicated to say the least! I will let you know how I get on. Once again, many thanks for all of your help.