Tax Credits - help!!!

[Littlebamboo]

Hi all,

I am totally confused with how Tax credits are calculated.
a friend has had a change in financial circumstances between 2011-2012 and 2012-2013 tax years. By my understanding their estimated joint income in 2012-2013 is over £25k but in 2011-2012 it was just over £16k. So from the quick tax credit table on HMRC it says that they are entitled to no more than £265 based on the £25k but the letter they have recieved seem to have based the tax credit for 2012-2013 on the £16k, which was their joint income for 2011-2012. Is it me or are they actually suppose to recieve tax credit based on the current tax year or do they base it on the previous year's earnings?

i hope that actually make sense but I'm baffled.

Any light that can be shed on this of us would be fab!

Thanks in advance!!!

[Sarnie]

Its based on previous years earnings.

[New POD]

My wife phoned in a flap earlier, cause we've been randomly selected to provide supporting evidence, for last year, specifically asking about my oldest lad, who is NOW at University. I'm sure, but can't find the evidence as I'm 100 miles from home, that I will have told them, we now only have one child at school, because the amount we got went down. But I don't understand why she's flapping and stressed. If you don't tell lies, you don't have to remember what you told them, you just tell them again, with proof this time.

[Sir Bagalot]

It's not based on previous tax year earnings, although they will take it into account. You've had a change in circumstances, call HMRC and discuss with them, they are actually very helpful. They will run through a series of financial questions with you and then give you an approximate figure and send out the necessary forms for you to complete.

[oldcynic]

Tax credits are based on a combination of current circumstances, last years earnings, political leanings, and a random number generator.

Our tax credits account is approx £10K overdrawn but they keep paying us money so as not to cause hardship and I have no idea how they calculate what they pay us - I report what's happening and they put money in the bank. If we ever stop qualifying for tax credits the whole overpayment (generated by their randomiser) will become due immediately. There's a little part of me that fears too big a payrise.

[Eric Mc]

It is a messy and complicated system. The imporatnt thing is to keep them informed and, most importantly, keep a record of what and wwhen you told them.

They are notoriously inefficient and will hammer you for a backlog of overpayments and if you haven't kept a record of when you notified them of changes they will walk all over you.

Keep a record of EVERYTHING.

[New POD]

New POD said:

My wife phoned in a flap earlier, cause we've been randomly selected to provide supporting evidence, for last year, specifically asking about my oldest lad, who is NOW at University. I'm sure, but can't find the evidence as I'm 100 miles from home, that I will have told them, we now only have one child at school, because the amount we got went down. But I don't understand why she's flapping and stressed. If you don't tell lies, you don't have to remember what you told them, you just tell them again, with proof this time.

So I phoned them, and apparently in September I should have realised that (despite no longer getting Child Benefit, and filling in Various Student Loan Applications, and dealing with the stress of first born leaving home (How difficult is it to arrange a party ?)) I should have contacted them to tell them he was no longer a full time secondary student, but now a full time higher education student.

So they will have overpaid, which will be taken from the next award over the coming year.

Only Now I've got a letter, asking why if I've declared myself as Employed and working more than 37 hours a week, am I only earning £4 an hour. And will I provide my P60, and Pay slips and proof of hours worked.

Buggeration I've failed to tell them I'm now a director, and working 60 plus hours a week, and taking only a small income whilst building up my business.

This one won't have a direct impact on the award, but I guess it'll lead to more enquires from other parts of HMRC about my VAT and Corporation Tax and the like. I don't mind the hassle, except that it freaks out the wife.

[eps]

The current financial years payments are based on your previous years earnings. The thinking behind this is that a) you don't know what you're going to earn in this current financial year and b) that your earnings won't fluctuate too much from the previous year.

You also need to separate out the two component parts of Tax Credits. Child Tax Credits (due when you have a number of children and your earnings are below the threshold) and Working Tax Credits (due when you earn below the threshold and work a certain number of hours). The two are paid together but are paid in respect of two different points of view.

These two links should help.

http://www.hmrc.gov.uk/taxcredits/start/who-qualif...

http://www.hmrc.gov.uk/taxcredits/start/who-qualif...

http://taxcredits.hmrc.gov.uk/Qualify/DIQHousehold...

I think there is or used to be an income change amount threshold, which if crossed you should automatically tell them about the change in your situation. Either way, if your situation changes, for whatever reason, you should inform them as soon as possible. As has been mentioned, you should keep a note of this, just in case.