Tax Credits - Anyone work there or can advise?

[namechangemoneyquestion]

Hello, I'd appreciate some advice, have name changed as rather people who know me don't know about our money / issues etc.

I am a SAHM my partner works full time very long hours. We previously got some Tax Credits but having done this years renewal we have now been told we are over the income threshold.

My DP is considering (carefully) reducing his hours at work and we are wondering how Tax Credits would help us out with his newly reduced income. I know that sounds very "grabby" but there are reasons why reducing his working hours would help us so much. His youngest child is having some medical and emotional issues and it seems he will be coming to live with us 80/90% of the time very shortly and he needs at least one of his parents emotional support as he is having some problems. Plus we have other children (his, mine and a joint one!) - this reduction in his full time hours would only (hopefully) be for a year or two.

Anyway...

He currently earns around £40k, this is our total household income. We have 4 children, 2 primary aged, 1 pre-schooler and 1 baby.

If he reduces his hours he can chose to reduce them by half, so will be working 20 hrs a week and earning 20k per year or reduce them by 1/4 and work 30hrs a week and earn 30k per year.

The other decision is when to do this. We are worried (with what limited knowledge we have of tax credits) that Tax Credits base calculations on what he earnt last financial year as well as what he will earn this year and so we won't be entitled to anything as he earnt over the threshold last tax year even if he will earn much under their threshold this year and next year. Does anyone know if he is better doing this right now or waiting for the end of the financial year or a bit further into it.

Any advice would be fab! Please don't judge us, we aren't trying to live for free on handouts, we have both pretty much always worked, we just feel if Tax Credits could help us for a while he could make such a huge difference to his youngest son by being here for him more.

Thanks!

Cant help you much but I do know you have to work at least 24 hours a week to get tax credits so 20 hours wouldn't work for you. If I was you I would use the calculator on the tax credit page to work what is best for you. I know someone who has just had their hours cut and so far they have waited 8 weeks without tax credits while it is sorted out, so as long as you can manage without them for a few months.

I'd point you towards the benefits calculator at www.turn2us.org.uk as a good way to work out various 'what ifs'.

" Tax Credits base calculations on what he earnt last financial year"

This does not apply if your circumstances change significantly. If your household income goes up or down by more than a few hundred, it's best to advise HMRC immediately and they will review the award based on current rather than past income.

Tax credits are reduced by 41p for every £1 earned so financially you would be better off him continuing to work full time. If he reduces his hours, make sure you are doing it purely for the benefit to your family as you will be worse off by cutting his hours.

If you decide the benefit to your family is more important than the financial aspects, he needs to be working over 24 hours (or for you to return to work so that you joint hours worked are over 24).

Thanks everyone.

Right, so he would need to ensure his hours do not drop below 24hrs per week, that's great to know.

Teenage - Yes, we anticipated there may be a delay of weeks/months whilst it's all sorted so would have to cut back for a while or borrow some money to tide us over, that can be arranged whilst Tax Credits are being processed.

Cognito - I will have a look at that website later today, thanks for the link! It's good to know they will "update" if your circumstances vary massively year to year. I just remember years and years ago a friend having an issue where she worked full time then went to very part time and her tax credits for the rest of the financial year were very low as based on the previous year. However, I'm sure that's changed now.

Rockchick - Yeah, we know we won't be better off financially, but I guess we have to make sacrifices and I think it really needs to be done to help his son who is having a pretty difficult time of it, poor monkey. Shouldn't be for too long, hopefully I will go back to work in the near future soon once the baby is a little older.

Thanks all for your help

" However, I'm sure that's changed now."

Nothing's changed AFAIK. HMRC can be very helpful provided you give them the right information in a timely manner and you keep records and documents up to date in case you have to query something. Also helps to be persistent and follow up rather than sitting back waiting for news. If they don't get new information (like your friend, I suspect) then they assume nothing's changed.

Also they disregard the first 2.5k if your income drops. If you earnt 20k last year and 17.5k this year, then your tax credits don't change.

If your income dropped from 20k to 15.k then they would disregard the first 2.5k and your new tax credit award would be based on 17.5k.

I don't work for Tax credits though and I don't know if this disregard is just for the first year your income drops. But something to look into when you are doing your calculations.

"If your income dropped from 20k to 15.k then they would disregard the first 2.5k and your new tax credit award would be based on 17.5k. "

That part's not right. If it had dropped that much, they'd reassess based on £15k.

Just to give you a rough idea my dh earns 21k ( total household income) we have four children and don't get any working tax credits but we get £210 a week child tax credits.
You do have to work at least 24 hours. As long as you circumstances change significantly they will go of this years income however bare in mind when UC comes in you will have to age nmw x 55 hours between you to qualify for financial help.

work not age!

Crap I didn't mean work either I meant earn! Basically you will have to earn the equivalent of nmw x 55 hours between you.

With UC looming ahead, I'd only cut by a quarter and keep it at 30 hours a week. That means you wouldn't end up below the minimum amount of money for UC so you won't have the stress of trying to follow the new guidelines that comes with that until your youngest is secondary school age.

Cogito you are wrong. A drop in income ignores the first 2.5K as pingulino says.

You also need to bear in mind that although your wages will drop immediately (obviously) your tax credits will be based on your income for the whole year which will include the higher wages he received from April through to whenever he drops his hours. So the best time to do it is at the beginning of the next financial year.