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Tax credit overpayments & Disregards

My tax credit for this year has reduced significantly after I submitted my renewal last week. They say I owe £800 in overpayments and it is due to my income & income disregard. I spoke to hmrc who say they calculated my income for 2016-2017 as £15680 and the £2500 disregard is taken off the estimated income of £18180 I provided.I thought income disregard of £2500 is used when you submit your actual income at renewal. Which was £20450.

Can someone please help me and confirm to me if the income disregard is used on your estimated earnings or the income you provide at renewal.
My income is as followed

2017-2018
Estimated income: £19570
Total income for 2016-2017: £20450

2016-2017
Estimated income: 18180
Total income for 2015-2016: £5898

Comments

  • Darksparkle
    Darksparkle Posts: 5,465 Forumite
    The disregard applies when comparing the previous year's income to the current year's. So for a claim in 2016/27 they'd compare 2015/16 and 2016/17.

    The disregard isn't the issue in this case. You estimated £18,180 and actually earned £20,450. So an increase of £2,270.

    If you estimated £18,180 for 2016/17 you'd have got tax credits based on an income of £15,680.

    When you updated the actual income for 2016/17 your tax credits would be revised based on an income of £17,950. So an increase of £2,270.

    So as you can see, the disregard isn't the issue, just that you underestimated your income.
  • System
    System Posts: 178,227 Community Admin
    10,000 Posts Photogenic Name Dropper
    Thanks for your reply. I still don't understand how my income has created a overpayment. I always thought your income is allowed to increase by £2500 without creating an overpayment.

    So if I estimated £18180 for 2016/17 and they based my income on £15680 with the disregard. I actually earned £20450 and they based this income on £17950. So this is an increase of £2270.

    This increase is less then £2500. Even HMRC website says they allow this increase in unexpected income before reducing tax credits.
    This is a system account and does not represent a real person. To contact the Forum Team email forumteam@moneysavingexpert.com
  • Darksparkle
    Darksparkle Posts: 5,465 Forumite
    You are comparing your estimate to the actual figure. That's not how the disregard works.

    It compares your income from the previous year to the current year which increased by almost £15,000
  • Icequeen99
    Icequeen99 Posts: 3,775 Forumite
    proffk wrote: »
    Thanks for your reply. I still don't understand how my income has created a overpayment. I always thought your income is allowed to increase by £2500 without creating an overpayment.

    So if I estimated £18180 for 2016/17 and they based my income on £15680 with the disregard. I actually earned £20450 and they based this income on £17950. So this is an increase of £2270.

    This increase is less then £2500. Even HMRC website says they allow this increase in unexpected income before reducing tax credits.

    As DS says the disregard only applies to increases from previous year - your income in 15/16 was 5898 - you estimated 18180 - they will apply the disregard between the 5898 and 18180.

    You finalised on income of 20450 - which is compared to 5898 with the 2500 disregard applied.

    So in other words, they are applying the disregard - but it is applied to the 5898 and 20450.

    IQ
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