Tax credits shock

[Squidpinky]

I am trying to work out whether I am being or have been thick or whether the system is so wrong?!

We have been on the old system of tax credits (paid weekly based on your annual income) for about 7 years now. Our income has hardly changed but this year it has.

My husband was made redundant shortly after lockdown and as the highest earner we took a massive cut. I then had to up my hours at my job to full time to become the main earner. My husband was out of work for a while then landed a job which is way more money than he was on before. Tidy I thought - we would no longer need tax credits as our annual income was above the threshold (both full time) Kids are both now at school so thought we would be better off.

I phoned the tax office to tell them about my husbands new job and our new annual income. I was told that we would probably owe the tax office thousands because of this as we had been paid up until now (April 2020 - October 2020 on our old income which was right up until my husband got this new job)

Firstly I am flabbergasted that we owe the tax office thousands when it was un unplanned changed - We didnt know back in April that my husband would lose his job, I would have to go full time and then he would get a better paid job. The tax credits that we were paid meant we could afford to live on our low income but now we dont need tax credits I can completely understand them stopping our payment but why an earth make us pay back April - October?!

I have worked out that if we have to pay them back a sum each month we wont have much left over at the end of the month and would actually have been better off with me being part time and my husband working on his old wage.

Am I missing something here? Am I really entitled to pay back April - October or if you write and explain the situation do they take a view on it? Anyone else experienced similar?

[timeforanewstart]

Happened to us a few yers back when husband was self employed and not much work
So he decided to go back to paye we informed them as soon as he got job offer but as done yearly income meant we were overpaid although at time of recieving we couldn't of ate without
Im still paying them back as i offered them £25 a month and said i couldn't afford more
One advantage of uc as I think if I am right this is done monthly so a situation like this wouldn't happen , although it has its over pitfulls

[timeforanewstart]

I also has a letter from a couple weeks back telling me we were entitled to nothing , which i know
I rang them uo and said why have i got this as we havent claimed for a few years , she said ok in order tp close it down we need you to give us last years earnings
I told her to do one as i wasn't claiming and haven't claimed for years and what we earnt now was none of there buisness and if they want yo keep sending me a letter then go ahead

[BooseysMom]

We've had no end of trouble with tax credits. We now pay back £30 a month for many years to cover an over payment. I had a letter about an over payment from 2018 the other day! I don't even claim it any more, more trouble than its worth. Just ask to pay the least amount each month.

That's what we did. We have been upfront the whole time and told them the day DH got a job ( the system doesn't let you tell them before you start a job). There is amazingly one good thing in that if you start a job part way through the year the system does calculate your earnings for you for the remainder of the tax year, not the whole year. The bad thing is it continues paying the same amount until the end of the year when it calculates the amount you end up owing. UC does sound better if it works in real time.

[Jimdandy]

What @Waveysnail said.

They base your entitlement on your entire year’s income from April to April, so despite legitimately claiming until now, if you go over the threshold for the entire year you are not entitled
To them and now must pay them back.

I know UC gets a lot of stock for various other reasons, but this is the one advantage of it, that it pays you in “real time” to avoid these situations.

I also hate the way the childcare is claimed
For tax credits. As I claim for term
Time only, I have to add all my 38 weeks total up and the divide it by 52, this is what they tell you to do, but then if they audit you at a particular time your average doesn’t work right with the receipts you have!! So frustrating!!

[NeverTwerkNaked]

It is an utterly grim and disgusting system that causes so much stress and confusion. I deal with complex tax matters for my job and there is so much more guidance and clarity for those than there is for tax credits.

However,I was able to repay a very small and affordable amount per month spread over many years. So have a think what is easily affordable for you and propose to them that you repay by that amount.

[JamminDoughnuts]

you just pay back a certain amount every month

[BlueistheNewme]

Please get on the phone again, and speak to someone else. One year I was told I owed £6k, I was distraught. It was wrong, I didn’t owe them anything.

Also, you can pay £5 a month as they are not allowed to put you into hardship. Even if it takes years and years, I know someone who had a huge overpayment and they see it as a tax free loan.

[user1471538283]

I had this years ago. I was paid the child tax and I spent it on child care. Two years later I was told I had to pay it all back. No one could explain to me how it was worked out. I appealed against it. However, I ended up with a repayment plan. If you don't receive them now you can dictate the terms you pay back even as low as £10 a month. So not let them bully you into paying back what you cannot afford but do sort it out because in the past they've sent bailiffs to people

[Youandmeareluckytobeus]

@Strawberryplum

I ignored my bill I had from the inland revenue I got about five years ago. I recently received a letter out the blue they were taking money out my wages every month. Quickly got on the phone and arranged a payment plan with them instead of taking from wages. Don’t ignore as they will catch up with you. Shower of bloody shits!!!
You ignored an HMRC bill yet they are a shower of shits for reclaiming the money you owed?
🤣🤣🤣

[Strawberryplum]

shits!!!
You ignored an HMRC bill yet they are a shower of shits for reclaiming the money you owed?

Yes they are a shower of shites. I was in dispute over the overpayment with the inland revenue. They told me over the phone I was entitled to this money for a year, then I received a letter saying I wasn’t. It’s still in dispute now. I’m in a minimum wage part time job. They should be going after the large companies that aren’t paying taxes.

[goodgirlinchachaheels]

Something similar happened to me with both tax credits and Housing benefit. I am still paying them back, just because of an unexpected bonus, they decided I owed them a five figure sum of money. I don't understand why. I have tried to contest that many times, but there is nothing I can do. They make me feel like a criminal.
The new UC system is working far much better for me.

[Smallsteps88]

@goodgirlinchachaheels

I had the same thing with housing benefit. They wrote to me saying I had received an overpayment from 3 years earlier and owed them £695. I replied asking for the dates and details of the overpayment. They responded saying I owed them £510. I responded asking if this was a second over payment or the same overpayment but a lower amount because an error had been made. Got no response. I phoned them, waiting for ages each time, eventually get through to someone who “put a note in my case”. I said this was no good, I needed to speak to someone who could explain it to me. All they could do was say someone would call me. So I waited. No call. I called again. Same process. A note on my case. I called every day for 2 weeks to no avail. So I stopped calling. 6 months later I got another letter saying I owed £635 (so a third amount!) and they were passing it to debt recovery. I called again. A note was placed on my case. I wrote asking for a breakdown of the overpayment with dates and amounts. No response. A year later I started on UC and now they’re taking £100 a month from my UC for an overpayment that no one has ever explained to me or even told me which was the right amount.

[goodgirlinchachaheels]

Smallsteps88 Maybe contact the Ombudsman, they have been very helpful in the past when HB tried to screw me over (About 3 or 4 times!)

[2pinkginsplease]

@timeforanewstart we are the same, we haven’t received any money for about 8 or 9 years and I still get the renewal letter and the award notice telling us you are due zero! Waste of time and paper.

I keep thinking they will get fed up! You don’t need to give them figures as they know them already! All very strange.

[BlindAssassin1]

The TC system is unnecessarily complex and stressful.

Due to CV, self-employment etc etc, we moved from TC to UC. TC wrote to us untypically promptly to say we owed them about £800, but they'd get hold of us later to arrange a finalised amount. The tone was very causal.

I phoned to query it, it's not like our income had gone up mid-Covid. Said basically they'd work it out later and take it off our UC payments. No one can tell me why its that amount (I thought maybe it would be one months payments if there was overlap between TC and UC payments; definitely not £800), the guy on the phone didn't really know. Neither can anyone say when this is going to happen - I'm guessing April?!!!

I was religious about informing about changes, in return they are utterly wishy washy, and I was given terrible advice about self-employment and TC from them.

So I'm waiting for that to get resolved as well getting my head round the minimum income floor BS that may or may not kick back in next month.

Shower of shite all round.

[NellWilsonsWhiteHair]

It’s an impossible system. People who understand it in theory but have no/only straightforward experiences of it in practice tend not to appreciate that. The fact that you generally have to update them by phone and they send contradictory overpayment letters which don’t actually outline what information they’ve used to calculate the overpayment means you can never prove that you did the right thing and never check whether they’ve calculated correctly (even though you’re apparently responsible for their errors). I have paid back huge TC and HB overpayments which I don’t believe were actually as much as I had to pay back, using (0%) credit cards, because I find private creditors much more reasonable, polite, transparent and trustworthy than the govt. That is definitely not the right way round!

I’m on UC now and whilst I recognise it’s a system with severe flaws, for me it’s so much easier. As others have said, it’s calibrated in real time, it’s clear how they’ve calculated it each month, and I have an easy record showing everything I’ve updated them on (eg my childcare costs which vary on a weekly basis).

[umberellaonesie]

You need to make sure to give them the actual figure your hubby will earn from now till the end of the tax year.(October 2020-April 2021) So roughly half what his annual salary will be. Then they can calculate your award with exactly what you will both earn/earned from April 2020- April 2021.

[IfNotNow12]

The tax credits system works fine if you realise that it's worked out over a tax year so the claimant has to take responsibility for their own income. If you ever think you're being over paid or you have more than you thought, you probably are. Tax credits helped me for years as a self employed person with a very fluctuating income because I didn't have to worry if one month I earned 500 and the next 2k, because as long as my income stayed under a certain level.
UC would be a disaster in that situation, as many people are finding.
People don't like tax credits because it takes a bit of responsibility and autonomy but it's a much better system that gives you a lot of freedom actually.

[TulisaIsBrill]

Ok, if you can afford to, here's how you avoid this overpayment for this year legally and boost your pension.

Next year, you can go back to your full income.

Tell tax credits your estimated income is what it was prior to this change. You will continue to get tax credits as you were.

Then take your two incomes as normal - but put some money aside - you're going to need to put this in a pension!

In march, before the end of the tax year compare Work out your total gross income for the year. You obviously need to add on whatever you are both due for march.

Now Subtract the estimated income figure you gave tax credits. Divide this number by 1.25 and put that sum into one of your pensions as contribution.

Your gross income for tax credit reasons now matches the estimate for the year. There will be no overpayment and you'll basically have made a pension payment for very little overall loss.

Run the maths and you'll see what I mean.

[flumposie]

I was/ am entitled to tax credits. After a stressful time a few years ago I stopped claiming. Shower of shit. I'd rather do without than deal with them .

[Lalastepmum]

I have found the tax credit System is more of a buy now pay later system. I don’t know anyone who does not end up owing money.
Personally and professionally.

[TulisaIsBrill]

I'll run a quick example.

Let's say your income at the moment with your upped hours is 25k annually. This is what you had said to tax credits your estimated annual income was.

So from apr-sept you took a gross income of 12.5k, and you were receiving maybe 700p/m in tax credit (a guess). This is 6 months - 1/2 the year which makes the maths easy.

Now, your husband has got a 40k job. If you're remaining full time - I wouldn't do that - drop back down to part time now but let's assume you do.

Your total income is now 65k. So over the remaining 6 months, your gross incomes are going to add up to 32.5k.

This gives a total household income for this tax year of 32.5 + 12.5k = 45k.

So the difference is 20k.

If you do nothing, you'll probably need to pay back every penny of the tax credits. If instead, you bung 16k into a pension you'll get tax relief on that - it'll equal a 20k contrib, and You'll have no overpayment.

Ok, so that's going to require you save around 2.5k a month to one side for the rest of the year - but if you can afford to do that - and you might be able to with those two incomes plus tax credits - it'll be well worth it.

Even better would be if one or both of you have salary sacrifice pension schemes at work. You'll get the NI contribs back too and spread it over the remaining months of the year.

[TulisaIsBrill]

@Lalastepmum

I have found the tax credit System is more of a buy now pay later system. I don’t know anyone who does not end up owing money.
Personally and professionally.

That's because most people don't understand how the system works. Once you do, all you have to do is make sure your gross household income for that year matches the estimate you gave. You can use pensions and other salary sacrifices to mitigate the effects of your income changes mid way through the year.

[TulisaIsBrill]

@IfNotNow12

The tax credits system works fine if you realise that it's worked out over a tax year so the claimant has to take responsibility for their own income. If you ever think you're being over paid or you have more than you thought, you probably are. Tax credits helped me for years as a self employed person with a very fluctuating income because I didn't have to worry if one month I earned 500 and the next 2k, because as long as my income stayed under a certain level.
UC would be a disaster in that situation, as many people are finding.
People don't like tax credits because it takes a bit of responsibility and autonomy but it's a much better system that gives you a lot of freedom actually.

Couldn't agree more. Tax credits is much, much easier than UC in certain circumstances.

If you think of your income in annual terms, and you keep track of it to make sure you're not going over your estimate you can actually live with a great degree of flexibility.

[Smallsteps88]

It’s obviously too late now but I think that could have been explained better to people when they were applying for tax credits. It was never explained to me. As I say, too late now tax credits are being done away with.