Tax credit averaging rule

Milarky

Does anyone know what happens with working tax credit if there is a break in the year [i.e. you stopped working part way through]?

Obviously WTC stops for the weeks off work - no worky no payee. But I'm thinking averages here.

For instance, if you earn £150pw for 13 weeks [and the award is up and running at the start of the year] and you then stop for 26 weeks before taking up another job at £200 per week [for the remaining 13 weeks] then your average income for the year will be less than in either of the periods of the claim made during the year [because tax credits uses annual income]

So I suppose my question is: Do tax credits always use a 52 week 'annual' income figure or just an 'average' income - in respect of the number of weeks actually subject to any claim?

Thanks

CIS

Tax credits generally use the complete annual income, thats why people get caught with massive overpayments if their wage suddenly increases later in the tax yr, they've been paid tax credits based on a low earnings and then earnings suddenly increase.

However if you have entitlement to tax credits or certain elements for part of the yr, the income is pro rated, based on the number of days of entitlement.

In the example you show, the tax credits would use the complete annual income as it looks like you would be entitled to Tax credits from 6/4 to when your wage stops, tax credits then reassed from, change of income until you start work again, and then the tax credits woudl be reassessed again on your new earnings until the end of the yr.

During the yr the award would be calculated on expected income for the yr ie. current employment , then at then at the end of the year averaged out to take in to account change of circumstances

Taking a break like that is likely to lead to massive overpayments unless you use the system correctly to prevent it.

Please post again if you need more help