Tax Credits Disregard (wage increase) Help

chelle_bell

In tax year 12/13 if you claim tax credits and your income increases, you had a £10,000 disregard (if your income goes up by less than £10,000 your tax credits don't change).

For tax year 13/14 the disregard changed to £5,000.

If income changed in the last week in March (approx. 1 week before new 13/14 tax year) but HMRC aren't informed of change until this week (w/b 14th April- 13/14 tax year) what would this fall under - 12/13 disregard of £10,000 or 13/14 disregard of £5,000.

Many Thanks

Shiloe

Imo it would fall in the 2012/2013 disregard rules as the money was earned in the 2012/2013 tax year

chelle_bell

That's what I thought.

Even though they would be informed of this change in 13/14 tax year, there would be wage slips/tax proof that the change happened in 12/13.

Wasn't sure if they worked it out from when the change happened, or from when they were informed.

Thanks

Icequeen99

The £10,000 disregard applies when finalising 12/13 claims (so finalising 12/13 by comparing against 11/12 income.

The £5,000 disregard will apply when setting 13/14 award and then when 13/14 awards are finalised next year (comparison with 12/13 income).

In your case, the income rise is in 12/13 tax year so relevant to finalising 12/13 against 11/12.

IQ

chelle_bell

Hi thanks for your response.

Could you simplify what you have said please?

What do you mean by finalising claims and also setting awards.

Sorry for being a pain.

Thanks

zagfles

I think you're confused about what the disregard applies to. It's income over the tax year that is relevant, not your annual salary. So even a very big pay rise in late March isn't going to have much effect on your 2012/13 income. But it will on your 2013/14 income.

Example: you've been on £10k for ages and get a payrise to £20k in late March 2013.

2011/12 income was £10k

2012/13 income will be about £10,500, well within the £10k disregard, so you'll be assessed on last year's £10,000 for 2012/13

2013/14 income will be £20,000, well over the new £5k disregard, so you'll be assessed on £15,000

chelle_bell

Ok, thanks, that makes sense regarding the tax years.

Does the disregard not apply to the difference in income?

So for example - income 12/13 was 9000, income for 13/14 is 18100, so 9100 of an increase in earnings. Does the 5000 disregard come off the increase? So 9100 increase - take off 5000 disregard, so assessed on 4100 (previous 9000 + 4100)? OR does the 5000 disregard come off the total earnings - so 18100 minus 5000 = tax credit claim based on 13000 income?

Once again sorry, im clueless about all this, asking on behalf of a family member. Trying to help calculate future tax credits (website is down)

zagfles

chelle_bell wrote: »

Ok, thanks, that makes sense regarding the tax years.

Does the disregard not apply to the difference in income?

Yes.

So for example - income 12/13 was 9000, income for 13/14 is 18100, so 9100 of an increase in earnings. Does the 5000 disregard come off the increase? So 9100 increase - take off 5000 disregard, so assessed on 4100 (previous 9000 + 4100)? OR does the 5000 disregard come off the total earnings - so 18100 minus 5000 = tax credit claim based on 13000 income?

They're exactly the same. If income has gone up by more than the disregard, then both work out to the same.

Either 9000+4100 = 13100, or 18100-5000 = 13100.

Once again sorry, im clueless about all this, asking on behalf of a family member. Trying to help calculate future tax credits (website is down)

Don't worry, it takes some time getting your head around - once you have it isn't really that complicated, honest!

chelle_bell

oh, sorry, lol I just read that back and realised I didn't even do the maths myself! Thank you!!

Another stupid question if you don't mind (sorry)

So in hmrc's eyes - tax credits will be assessed on income of 13100? Therefore it will be the same tax credits amount as someone who starts a fresh claim earning 13100?

How long does the disregard go on for? For all of 13/14? Then what?

Thanks

zagfles

chelle_bell wrote: »

oh, sorry, lol I just read that back and realised I didn't even do the maths myself! Thank you!!

Another stupid question if you don't mind (sorry)

So in hmrc's eyes - tax credits will be assessed on income of 13100? Therefore it will be the same tax credits amount as someone who starts a fresh claim earning 13100?

Yes. Though if you start a new claim you still declare the previous year's earnings and the disregard still works in the same way.

How long does the disregard go on for? For all of 13/14? Then what?

Thanks

The disregard just applies for one tax year, so 2014/15 would be based on £18100 initially.

chelle_bell

That's excellent!!

Thanks very much.