WTC Migration To UC First Payment

Yamor

Just to show you how the difference comes about:

You were getting £35/week on tax credits using a calculation based on about £2,194 net income a month.
The £35/week is about £152/month.

On UC, on that income you would expect to get the same - I.e., £152/month.

In reality, your income was £2,401, which is £207 higher than £2,194.

55% of £207 is about £114.

£152 - £114 = £38.

gandalf24

OK that's great, thanks for your assistance,  I will contact UC tomorrow and make them aware of the £26k savings.

Thank you

jadex

Yamor said:

OK, so that is what I thought.

Your TP is approx. £174 lower than it should be, but your actual UC entitlement is still about right, because they didn't make the equivalent £174 reduction due to your savings in the actual UC entitlement calculation either - i.e., the errors cancel out.

So, coming to your question as to why you are getting much less than you were getting on tax credits:
It is because your tax credits were based on gross income of £27,141, which equates to net monthly income of about £2,194.
Basically, your tax credits entitlement (which was based on past income details) had not yet "caught up" to your true current income.
Unfortunately, there is no transitional protection for this, as the rules are clear that the transitional protection is to be calculated based on what your UC entitlement would have been had your income been equal to what HMRC thought your income was.
As such, there is no protection when your income actually turns out to be higher than that.

This is very educational (for me, at least). Thanks @Yamor for such detailed explanation! (and for your superb spreadsheet from another thread !!!).

Does it mean that net effect of savings is basically zero for managed transition?
You said that TP should have been about £174 higher so Total before deductions should have been higher by that amount. Then £174 (for savings) should have been added to Deductions section?
Or am I getting it wrong?

Is there an easy way to calculate TP?

Yamor

jadex said:

Yamor said:

OK, so that is what I thought.

Your TP is approx. £174 lower than it should be, but your actual UC entitlement is still about right, because they didn't make the equivalent £174 reduction due to your savings in the actual UC entitlement calculation either - i.e., the errors cancel out.

So, coming to your question as to why you are getting much less than you were getting on tax credits:
It is because your tax credits were based on gross income of £27,141, which equates to net monthly income of about £2,194.
Basically, your tax credits entitlement (which was based on past income details) had not yet "caught up" to your true current income.
Unfortunately, there is no transitional protection for this, as the rules are clear that the transitional protection is to be calculated based on what your UC entitlement would have been had your income been equal to what HMRC thought your income was.
As such, there is no protection when your income actually turns out to be higher than that.

This is very educational (for me, at least). Thanks @Yamor for such detailed explanation! (and for your superb spreadsheet from another thread !!!).

Does it mean that net effect of savings is basically zero for managed transition?
You said that TP should have been about £174 higher so Total before deductions should have been higher by that amount. Then £174 (for savings) should have been added to Deductions section?
Or am I getting it wrong?

Is there an easy way to calculate TP?

No problem, @jadex.

You may also find the calculation on this thread interesting: https://forums.moneysavingexpert.com/discussion/6509202/tax-credits-to-universal-credit/p2

The net effect of savings will often be zero, but not always. That is because the transitional element is calculated based on overall entitlement levels, and some people will be better off on UC before the deduction for capital.
Also, the transitional element can be eroded due to increases in UC entitlement, in which case the deduction will still be £174, but the top-up could be less.

Unfortunately, there is no easy way to calculate TP.

the_pink_panther_2

Yamor said:

Just to show you how the difference comes about:

You were getting £35/week on tax credits using a calculation based on about £2,194 net income a month.
The £35/week is about £152/month.

On UC, on that income you would expect to get the same - I.e., £152/month.

In reality, your income was £2,401, which is £207 higher than £2,194.

55% of £207 is about £114.

£152 - £114 = £38.

Thanks Yamor, this is the most useful post on TP I've seen yet.  When you say net income, does UC calculate net income so that it deducts pension contributions from gross income before calculating TP? Ie, if my income was £1300pcm but I pay £100pcm into pension fund, it would use a figure of £1200 for income when calculating monthly income for that month? Or would it use £1300 for the purpose of calculating TP? I'm partly  asking because I was playing around with the entitled to calculator and from the figures I was getting, it looks like the income figure they use when calculating TP is income before pension is paid out, although when I look at the accompanying notes I understood that UC should take income  minus pension contributions before making any calculations? 

Yamor

the_pink_panther_2 said:

Yamor said:

Just to show you how the difference comes about:

You were getting £35/week on tax credits using a calculation based on about £2,194 net income a month.
The £35/week is about £152/month.

On UC, on that income you would expect to get the same - I.e., £152/month.

In reality, your income was £2,401, which is £207 higher than £2,194.

55% of £207 is about £114.

£152 - £114 = £38.

Thanks Yamor, this is the most useful post on TP I've seen yet.  When you say net income, does UC calculate net income so that it deducts pension contributions from gross income before calculating TP? Ie, if my income was £1300pcm but I pay £100pcm into pension fund, it would use a figure of £1200 for income when calculating monthly income for that month? Or would it use £1300 for the purpose of calculating TP? I'm partly  asking because I was playing around with the entitled to calculator and from the figures I was getting, it looks like the income figure they use when calculating TP is income before pension is paid out, although when I look at the accompanying notes I understood that UC should take income  minus pension contributions before making any calculations? 

They take the annual figure used by tax credits for the purposes of your tax credits award. This will generally be gross income less gross pension contributions.
They divide that figure by 12, and deduct notional amounts for tax and national insurance.

For someone with pension contributions that will usually mean that the deduction for national insurance is a slightly too low, as national insurance is in reality calculated based on income before pension deductions. As such the income figure used for TP will therefore often be slightly too high. But this works in your favour!

the_pink_panther_2

@Yamor thank you again.  That makes perfect sense.  

the_pink_panther_2

@Yamor for Tax credits, the contributions to personal pensions are scaled up by a factor of 1.25 I think so as to incorporate the government tax relief.  Do you know if this is the same for UC?  Ie, for TC £100 payment by me becomes a deduction to income of £125, but for UC, is the £100 payment by me kept as £100 deduction from income, or is it £125?  From your earlier comment I understand that both as £125 deduction if a private pension, but online it just says '100% of pension contributions are deducted', so I'm unsure. 

kaMelo

Tax credits was calculated on gross income which is why you grossed uo the amount you paid in the way you described.

UC however is calculated on net income so you only declare the amount of money you pay in.

Yamor

the_pink_panther_2 said:

@Yamor for Tax credits, the contributions to personal pensions are scaled up by a factor of 1.25 I think so as to incorporate the government tax relief.  Do you know if this is the same for UC?  Ie, for TC £100 payment by me becomes a deduction to income of £125, but for UC, is the £100 payment by me kept as £100 deduction from income, or is it £125?  From your earlier comment I understand that both as £125 deduction if a private pension, but online it just says '100% of pension contributions are deducted', so I'm unsure. 

No, only the £100 is deducted, as UC use net income.

In my earlier comment I was explaining that for the TP calculation they will take HMRC's income figure, which is after pension deductions at 125% of the net contribution. However, for the actual UC calculation only the net contribution is deducted from income.