Tax Credit Calculation

hardupjonny

I'm a little confused about my final tax credit decision and have queried it over the phone but fear I may have been fobbed off. I earned slightly under £19,000 last year (18-19) and have had a 'final decision' notice for that year which quotes Total Child Tax Credit Elements £6,110 and a reduction due to income of £1,392 leaving £4,718 for the year (~£91/wk). However when I looked at the 'provisional decision' for 19-20 which was based on the same income it quoted Total Child Tax Credit Elements £6,108 and a reduction due to income of only £362 leaving £5,746 (~£111/wk) - over £1,000 more!
I rang the helpline and was told that Tax Credits are calculated on the basis of an average of the previous 2 years income and not on a single year. Is this for real???? I would expect that each financial year would be treated individually and I am not aware of this being made clear either on the government/hmrc website or any of the independent calculation websites.
I put my details into both the HMRC calculator and an independent charity one and both suggested that for that level of income I should have received the larger figure.
My earnings dropped from 25k to 19k last year through no fault of my own and just wondered if this was correct as I feel I am being punished for no reason (though I appreciate that it would be of benefit as earnings increase - though surely that debases the whole point of the system?!? Why calculate benefits on an artificially modified figure?

TIA to anyone who can confirm or deny the veracity of this!

sheramber

This is due to the £2500 income disregard when the income for the year changes.

2018/19 income is morel than £2500 less than 2017/18.

2,500 of that drop in income is disregarded

so Tax credit income calculation for 2018/19 is 19000 + 2500 = 21.500

Try a tax credit calculator on 21500. for 2018/19

For 2019/20 the initial calculation is based on the actual income for 2018/19 - 19000.

Hence the payment for 2019/20 is higher than that for 2018/19

zagfles

Yes as above it's due to the disregard. The helpline should have explained it better, it's not the average of the last 2 years, that's utter rubbish.

Tax credits are based on the previous years income, unless this year's income has gone up or down by more than £2500, in which case it's based on the current year's income but disregarding the first £2500 change in income.

So as last year's income was £19k and the previous year's was £25k, it'll be based on £21,500.

It works the other way as well, so if this year's income is £22k, it'll be based on £19,500 (first £2500 increase is disregarded).

hardupjonny

Thank you both for explaining it clearly - I had heard something about disregarding £2,500 but didn't understand the context until now. If only HMRC could manage to explain it!!!