Tax Credits - advice re earnings

Jonni2bad

I'm sure this info can be supplied by someone at the IR, but I'd prefer to be aware of the 'rules' before phoning.

My wife gave up work to look after our daughter last September. Her p/t earnings up to that point were approx £3600. Having informed IR about the changes our award was increased accordingly.

We very recently had our 2nd child and again informed them of the change, but when I checked on their web site, there was a considerable difference to the final value if the earnings for 2004/05 was £3600 or £0. (The awards being either £1716 or £2692)

So, do they assess your current claim based upon what was earned in the previous year (i.e. in our case do they 'think' my wife will again earn £3600) or will they base it upon the fact she no longer earns?

The web differences have confused me slightly. I presume they will award us a figure based on current circumstances i.e. £2692.... I should be receiving the details of the latest increase soon, so would just like clarification of what to expect.

I hope the above does not sound too complicated and many thanks in advance to anyone able to offer advice.

P.S. I am also aware of the 'premium' given in the first 12 months of a child's life in any claim, just in case anyone thought that was the problem

CIS

At the start of the year the award would have been calculated on your expected income for the current tax year with a disregard of up to £2500 if the tax years income is higher than the previous tax years.

It may be worth checking your details to avoid an ovepayment because when people have put in a change of income HMRC have based a new award on the new income figure being the complete years earnings and ignoring income already earned for the tax year.

You need to make sure the award is being based on what you have already earned in the tax year + what you expect to earn (ie. complete tax years income) rather than income expected based on current circumstances, otherwise you could end up with massive overpayments for no fault of your own.

irs101

CIS

I don't think there's much danger of overpayment here - more likely an underpayment.

Jonni2bad

HMRC use last years income figures to set up this years award. They make provisional payments based on this figure. If you do nothing, they will ask you for your actual income at the year end and then sort out what your actual award should have been. In your case they will have underpaid you because the provisional payments assumed that your wife was earning. You will get the difference as a lump sum. In the case the they overpay you, they will take a % off your future award until it is repaid.

However, as CIS says, you are allowed (and encouraged) to give HMRC a new estimate of your income for this year on which they will base your provisional payments. So you can tell them that your wife's income will be zero, and they will adjust your award. But similarly, follow CIS's advice and keep them up to date with income rises as well, otherwise you could be overpaid.

irs

Jonni2bad

Many thanks to both of you.....

The new award (viewable as pdf through their web site) DOES produce the figure based on the wife having zero earnings

And a very nice award it is too!!! Typically strange of them, though, in the payments summary -

The full amount for the period is £xxxx
Amount you owe us that will be collected from future years £0.19p
Less amount we have already paid you £xxx
Amount to be paid £xxxx

19p...??? I hope they don't try and take it back all in one go.
Why they don't subtract that from what they are now paying is beyond me.

Anyway, I seem to be sorted, so thanks for your replies. :beer: