This £2500 allowance

irs101

If you think about it, one of the reasons a substantial 'disregard is necessary is because the I.R. makes an 'interim' award each year - always working with last year's income figures once these become available. If no disregard [or only quite a small one] was made then they would have to amend final awards in about 100 per cent of cases - because almost no one earns exactly the same figure from one year to the next!

The alternative approach - which they should have adopted really - is simply to go on last year's figures as 'final' [since last year's income does change, after the eventl] and 'fix' this year's award once and for all from that. Then next year's award could be fixed on this year's income once it becomes known and so on... It is because of the IR's need to 'justify' that the award you receive is based on the current tax year, therefore, that they are obliged ot introduce a very large 'fudge' factor in the form of this disregarded £2,500.

They weren't obliged to introduce the disregard as such, but they recognised the point you make in your first para - that readjusting everyones awards for final income wouldn't be worthwhile.

They estimated that 60% of TC families would see a rise in income from one year to the next, and that 40% of these would have a rise of less than £2,000 and then they went a bit further in setting the disregard at £2,500. Of these 30% or so of TC recipients who will see an income rise of more than £2,500, many will receive the Family Element only, so no adjustment would be needed. So the Government estimated that (only) 750,000 families a year would need their awards adjusting because of income rises - actually 1m families in the first because initial awards were based on 2001/2 incomes. Interestingly, stats are due to be released this month that should (I hope), show for the 1st time how close these estimates were and how many people received overpayments on their 2003/04 awards....should be interesting!

While I accept the point that it would be simpler to base actual awards on last years income, NTCs were specifically designed not to do this so that they could respond to changes in peoples circumstances - the main criticism of WFTC. While it's hugely complex, I can't argue with the idea that if the benefit system is to be of any real use, it should be able to give more to families immediately if the suffer a fall in income - either because something happens to their job, or they decide to cut their hours to look after children etc. While cumbersome in its operation (and how they explain it to people) the disregard seems a sensible compromise to me.

irs

Curry_Queen

irs101 wrote:

While I accept the point that it would be simpler to base actual awards on last years income, NTCs were specifically designed not to do this so that they could respond to changes in peoples circumstances - the main criticism of WFTC.

And also stops those who, under the WFTC system, manipulated their income by increasing/reducing hours and OT in order to gain maximum benefits

chinagirl

The main problem with the Tax Credit system, is that when you actually inform them of a change in circumstances, be it large or small, they suspend payments whilst they sort it out. Example: A neighbour's husband left her. She informed Tax Credits of the change and subsequent drop in income, and received no Tax Credit at all for weeks. This caused quite considerable hardship as you can imagine.

People are put off interfering with their award in case it dissapears all together.

foreversummer

Suppose your rise in income is £3000, would they disregard the first £2500 and therefore just work out your overpayment on the £500, or would the overpayment be calculated on the whole £3000?

cheepskate_2

foreversummer wrote:

Suppose your rise in income is £3000, would they disregard the first £2500 and therefore just work out your overpayment on the £500, or would the overpayment be calculated on the whole £3000?

Just on the £500.00 over the threashold.


To complicate matters worse,

the I.r now disregards £25,000 over the p60 details .

So say

2005/2006 joint household income was 15,000
then for 2006/2007 it went up you would still get the same amount of tax credits for 06/07 as you did 05/06 even if you earned £25000 more for that year.
the award for 2007/2008 would then be based on the 06/07 figures and thus the credits reduced accordingly for that period onwards

cheepskate_2

chinagirl wrote:

The main problem with the Tax Credit system, is that when you actually inform them of a change in circumstances, be it large or small, they suspend payments whilst they sort it out. Example: A neighbour's husband left her. She informed Tax Credits of the change and subsequent drop in income, and received no Tax Credit at all for weeks. This caused quite considerable hardship as you can imagine.

People are put off interfering with their award in case it dissapears all together.

This wasnt cos she changed details . details changes should only knock your payments out by about 4 days or so.

The resason she did not get payment for ages was her old award would have been cancelled as she was no longer a couple and would receive no payments until she sent in a new award for herself and it was processed