WTC and Income Drop

ComeTheRevolution

Am I right in thinking that a temporary rise in income could mean the loss of wtc the following year? Nightmare scenario is a few months on a good wage followed by a minimum wage job without subsistence.

Apologies if this is already done to death but I'm still confused about the 'disregards'. Thanks.

Horseunderwater

With tax credits of any kind it is the whole gross income for the year in total that is taken into account. Not the fact that you income has gone up or down. The disregard will take effect at the end of this tax year and if a rise is £5k or fall would be £2.5k - but that is set against last years income. So long as you meet the eligibility criteria of hours worked & are aged over 25 (and if single do the 30 hours), then there should be no problem.

ComeTheRevolution

Thanks for your reply. Unfortunately I still can't fathom it which is no reflection on your efforts. What I am scared of is my gross pay dropping and despite this wtc being denied or limited due to earning more the previous year.

Icequeen99

ComeTheRevolution wrote: »

Thanks for your reply. Unfortunately I still can't fathom it which is no reflection on your efforts. What I am scared of is my gross pay dropping and despite this wtc being denied or limited due to earning more the previous year.

Yes, that could happen.

You are allowed a rise of up to £5000 without it affecting your current tax credits, but you are correct it would affect the following year.

If it was a temporary rise, and the next year you expected your income to be lower, in the past you could have just estimated your lower earnings and tax credits would have been recalculated. However from April 2012 a disregard for income falls has been introduced, so the first 2,500 of the fall is disregarded.

An example might help.

Say your income is normally £10,000 a year. You have 5 months where you do a massive amount of overtime that bumps your pay to £15,000 for the year.

Your 13/14 tax credits will still be paid based on 12/13 income of 10,000. This is because the 5,000 rise is covered by the disregard.

However your 14/15 tax credits will initially be based on the 13/14 actual income of 15,000. If you expect your income only to be 10,000 you can ring TCO and give them that as an estimate. But they will ignore the first 2,500 of the fall and use 12,500 as your estimate for 14/15. If you do in fact only earn 10,000 in 14/15, they will still finalise on 12,500. It wouldn't be until 15/16 that tax credits would be back to being based on 10,000 (14/15 income).

Hope that helps.

IQ

ComeTheRevolution

It does help, thank you!

zagfles

Yes, the bottom line is that you don't lose out through the way it works, you gain overall, because in the example above £5000 of your income ignored this year and the pay back next year is that you get £2500 added to your income. So you "gain" twice as much as you "lose".

You're better off having variable income in tax credits! As long as you understand what's happening so you can plan for it.

Icequeen99

zagfles wrote: »

Yes, the bottom line is that you don't lose out through the way it works, you gain overall, because in the example above £5000 of your income ignored this year and the pay back next year is that you get £2500 added to your income. So you "gain" twice as much as you "lose".

You're better off having variable income in tax credits! As long as you understand what's happening so you can plan for it.

Quite. Although you gain less than you would have before they brought in the 2,500 fall!

IQ