Child finished college. Tax Credits auto stopped. Salary went up. Received overpayment notice.

HappyMidlifeMan

We've had stable incomes for the last few years, and received Tax Credits as normal.

Our child finished college and payments stopped automatically on 31/8/23.

Up until that point, our household income was similar to previous years.

After that, our income increased, and we've received the end of year TC notification saying because our income for the full year was higher, we shouldn't have received any TC and have to pay back everything we received before 31/8/23.

To be clear - when we received the Tax Credits, our income was low enough to legitimately receive them. Our income only increased after the Tax Credits stopped.

I'd imagine a lot of parents increase their work hours when they no longer need to do school runs, do they all have to pay back the Tax Credits received while their child was still in education?

Is there a way to stop the payments being considered 'overpayments'?

peteuk

Your TC is worked out on the years basis and then paid in 13 parts.  So at the start of the year, for 23-24 it would have been worked out on your lower wage and then split into 13 payments.

Because you've had a wage increase within the year it will recalculate the award and then work out any overpayment.  In theory if you are now not eligible for tax credits then the whole of your payments for 23-24 will be classed as an overpayment. 

What you need to check is that your wage increase has been applied only for the part of the year or was applied eg 

April 23 - Oct 23 Wage is £10,000 per annum your wage is  £5,000
Nov 23 - Mar 24 Wage is £20,000 per annum your wage is £10,000 
Total wage for Apr 23- Mar 24 - £15,000

(Please note I’ve just used these fiqures for ease of calculation) 

They will then take that total wage and work out your TC for the period 23-24.  Remember TC is always recalculated at the end of the tax year on your actual earnings.

HappyMidlifeMan

Thank you for the advice.

We had some income going into a private pension (bizarrely TC allows pension contributions to be deducted from income for TC purposes), so our income for the start of the year was lower.

Would contacting TC and letting them know the earnings and pension contributions up to August 31st solve the overpayments?

peteuk

HappyMidlifeMan said:

Thank you for the advice.

We had some income going into a private pension (bizarrely TC allows pension contributions to be deducted from income for TC purposes), so our income for the start of the year was lower.

Would contacting TC and letting them know the earnings and pension contributions up to August 31st solve the overpayments?

You can advise them of the pension contributions - but you need to look at the end of year income and probably advise them of the full pension contributions, 

HappyMidlifeMan

So if I'm understanding correctly:

April 2023 to August 2023 our income is low enough that we qualify for TC, and we receive them normally.

TC stops on 31st August 2023 as our child has finished college.

From September 2023 we start earning more, which means next year we've got to pay back the TC we received earlier.

I was assuming that they'd only be interested in our income during the period we were claiming TC, but if I'm understanding it correctly, then we need to pay back the TC we received during our low income months.

poppy12345

HappyMidlifeMan said:

So if I'm understanding correctly:

April 2023 to August 2023 our income is low enough that we qualify for TC, and we receive them normally.

TC stops on 31st August 2023 as our child has finished college.

From September 2023 we start earning more, which means next year we've got to pay back the TC we received earlier.

I was assuming that they'd only be interested in our income during the period we were claiming TC, but if I'm understanding it correctly, then we need to pay back the TC we received during our low income months.

No, that's not how Tax credits work. It's based on the previous years income unless there's a £2,500 difference.

sheramber

HappyMidlifeMan said:

So if I'm understanding correctly:

April 2023 to August 2023 our income is low enough that we qualify for TC, and we receive them normally.

TC stops on 31st August 2023 as our child has finished college.

From September 2023 we start earning more, which means next year we've got to pay back the TC we received earlier.

I was assuming that they'd only be interested in our income during the period we were claiming TC, but if I'm understanding it correctly, then we need to pay back the TC we received during our low income months.

TC always work on the annual income. The fact that your income was lower for the first few months is negated by the overall increase for the year.

The payments are always provisional until they are reviewed after the end of the year. 
It does mean that although you were eligible for part of the year , you are no longer eligible for these payments, 

That is how it has always been done. 

HappyMidlifeMan

sheramber said:

HappyMidlifeMan said:

So if I'm understanding correctly:

April 2023 to August 2023 our income is low enough that we qualify for TC, and we receive them normally.

TC stops on 31st August 2023 as our child has finished college.

From September 2023 we start earning more, which means next year we've got to pay back the TC we received earlier.

I was assuming that they'd only be interested in our income during the period we were claiming TC, but if I'm understanding it correctly, then we need to pay back the TC we received during our low income months.

TC always work on the annual income. The fact that your income was lower for the first few months is negated by the overall increase for the year.

The payments are always provisional until they are reviewed after the end of the year. 
It does mean that although you were eligible for part of the year , you are no longer eligible for these payments, 

That is how it has always been done. 

Ouch. Thanks for the information. We honestly thought that after our son finished college everything to do with TC would be ended and we could do more hours without it causing us problems later.

Yamor

Although if you had claimed UC before your income increased, even if you would have immediately closed the UC claim, then your tax credits would have been “in-year finalised”, and your income after the point your tax credits ended would not have been taken into account. Unfortunately, it is too late to do that now.

I know a number of claimants who made use of the above “trick”.