OMG...Tax credits gone down WHY?

[bjf1]

Received a letter this morning. Tax credits going down from £6,000 per year to £311.00?
How do they work that out?
Income same so am confused.

What does the income disregard mean?

And thanks for the links - I have followed them all. One eventually doesn't work as it's been moved, but MN's own one seems to suggest I will be 1k down.

but the income disregard as it was was stupid! It was such a high level.

But I understand why they did it.

When TC's were brought in the first income disregard was about £2k and got them into a bit of trouble because basically the system was rubbish and they messed up a lot of awards, so to stop them getting it wrong and people ending up having to pay money back they put the income disregard up to £25k which is so high it's funny. IMO this was always inevitably going to go back down once they (HMRC) sorted themselves out.

A bit like it was obvious when the VAT rate fell to 15% they were going to whack it back up to an even higher level. They think we're stupid!!

But then again i'm not HMRC's biggest fan

Nesh, the income disregard is basically the amount they will allow your income to rise by during the year without affecting your award.

so if you tell them you will get £20k and then get £28k at the moment your award wouldn't be adjusted because £10k is disregarded. But come April your award would be adjusted.

It is extremely confusing, especially for the self employed IMO.

Eddas, so if I tell them my estimated income will be £15,000, but it actually turns out to be £25,000, does that mean they just disregard it, ie, not take it back off you?
I really am confused now!

No. Your award is usually based on your previous year's income. If it goes up compared with the previous year they will ignore the first 25K of it. Then from the following April they will take the full amount into account.

For example

08-09 Income is 10,000 Your 09-10 award if based on an income of 10,000. If your income goes up to between 10K and 35K they will ignore the first 25K of this and your award for 09-10 will be based on an income of 10,000 still.
In 10-11 they will then base your award on the new income.

If your income in 10-11 was less than 09-10 they will base it on this lower amount.

From April though they will only ignore the first 10K of any rise in income. They will ignore the fisr 2.5K of any decrease in income. So say in 11-12 you earner 20K but in 12-13 your income goes down to 15K they will base your award on an income of 17.5K even though you earned less than this.

Does that make sense?

Er, sort of.

bjf1. This is exactly what we have done and apparently unless you take a dividend out of the company you have not earned it. I'm not sure about the first 5k not counting though. Just for the record are you also a director or company secretary, I ask as our accountant has just advised me to be one. Dh only takes min wage out of business and she told me to do the same. Now we are both technically working and as such are both entitled to WTC/FTC so this will help enormously. Obviously if you have additional income it may not be beneficial to you, but thought it worth mentioning. Dh was a sole trader until few years ago and I was sahm for 20 years, until this week. Company director overnight, lol, can't be bad.

bjf1. I had several years of having to pay back over payments because of slight discrepencies. It was only working as a Ltd and claiming a wage that stopped this. It is so hard to estimate s/e earnings. They can take up to 40% back out of your award each month, so obviously if you have a large overpayment it could take years to pay back and your payments seriously reduced. So glad it is easier now. If I can help any time pm me, but I am not an accountant nor an authority.