Please read if you want tax credits explained!

[CarrieLouise25]

Hi everyone,

Firstly, I'm not an expert, but I am affected by these changes, and I've done a lot of research into the changes, and I'm hoping to help those who need help.

1. There was a very confusing income threshold reduction from £6420 to £3850.
2. There is also a higher rate per £1 reduction from 41p to 48p.
3. The Basic Family element will disappear.

This is how this works (only for Working Tax Credit). Imagine a 1 parent family with 2 children, working 30 hours a week. Earning £12,000 a year.

Total WTC Basic Element: £1960
Total WTC 30 hours element: £810
Total benefits she could receive = £2770

Now before, the threshold was £6420 and 41p in every £1 reduction over the threshold. So this would be:

£12,000 (wage) - £6420 (threshold) = £5580 x 41p = £2287.80

So total possible WTC = £2770 - £2287.90 = £482.20

So her total WTC = £482.20.

Under new rules, the new threshold is £3850. So the new calculation is:

£12,000 (wage) - £3850 (threshold) = £8150 x 48p = £3912

So under new rules, no working tax credit for this lady. Total loss £482.20

The family element is disappearing, so this is another £545 loss.

With Child Tax Credit, the elements are £2780 per child, so she should still get £5560 for her children.

Old rules:

Wage £12,000
WTC £482.20
CTC £6105

New rules:

Wage £12,000
WTC £0
CTC £5560

Worse off by £1027.20

Hope this is helpful. I'll post some more calculations soon if you like!

Hi HappyGoLuckyGirl.

Let's have a go:

WTC
Basic £1920
Single Parent £2010
30 hours £810
Total £4740

Old way: £13900 - £6420 = £7480 x 41p = £3066.80
So £4740 - £3066.80 = £1673.20

New way: £13900 - £3850 = £10,050 x 48p = £4824.00
So that means no WTC

Child Tax Credit
Basic £545
Child 1 £2780
Total = £3325
This would be ok

So the calculator will work out that you are worse off by £1673.20 ish.

But you are in receipt of £927 WTC not £1600. So I'm thinking it'll just go down by the £927. Either way it's not good, sorry

What about those on income support for example a lone parent with 2 children under 5. if she then gets pregnant again with no3 ( after 2017), does she really get no extra child tax credits - just the extra £15 a week child benefit?

Ah, missed off the 30 hour element. Thank you!

Okay so my income will go down by 1670 through complete loss of WTC. But I will gain an extra 400 (i think?) through the tax free threshold being raised to 11000, plus I will earn an additional 960 pound pa through the increase in minimum wage, subject to tax of course. So an increase of 1160? overall loss of 500 pound or so.

Is that about right or am I waffling nonsense?

Hi HappyGoLuckyGirl

I'll have a look at that tomorrow, as I'm a bit tired now, bed is calling!

You gain the tax you would have paid on the £400.

Don't know how the minimum wage will be implemented, but hope that it works for you and boosts it back up again to cope with the losses [happy]

Meant to say

Doh...

But the difference between the BBC calculator for my 15/16 (i.e. current year, not affected by this budget) Tax credits and my actual tax credits award this year is huge. The BBC calculator says £241 when on my claim and according to HMRC's calculator actually I am due more like £3450. Why is that??

I am hoping that for many people the BBC calculator is misleading and showing lower amounts than they are actually eligible for.

Unemployed friend with 3 children isn't a affected.

I work and I also have 3 children and I'm worse off by £2000 per year.

What's the point in working? I might as well quit my job. I'm not angry, I'm worried.

CarrieLouise - You need to be careful about giving out these calculations. There are lots of mistakes in your figures - you are just lucky that the examples you have chosen are matching the calculators.

When you do a calculation for someone entitled to WTC and CTC - you use the 6240 threshold (now 3850 from April 16) and you taper CTC as well, not just the WTC.

So in your first example of the single parent (which was wrong because you missed off the WTC lone parent element so she wouldn't actually lose her WTC at all) if your elements had been right then you would need to taper down CTC after WTC has been reduced with any excess.

Also, you keep quoting the CTC £16105 threshold - but that will reduce also. That isn't a set threshold, it comes about because of the WTC rates so will be reduced itself to 12,125 from April 2016.

The other thing is about passported benefits - there is a difference between someone being entitled to WTC and receiving it. If you lose WTC payments, that doesn't mean you qualify for free school meals - you are still entitled to WTC it is just that you don't receive any based on your income. You have to be a true CTC only case.

You might want to check it all out a bit further.

Cleo

As far as I am aware the 16105 threshold is the set first withdrawal threshold for those people who are only eligible for child tax credits I.e single parents that work less than 15 hours, people whose sole income is a taxable benefit such as carers allowance that counts towards tax credits.
No mention has been made of that threshold changing so its fair to assume it will remain the same.

However that would only be for people who don't qualify for working tax credits initially not those who only get child tax credit and dont receive working tax credits because their income is too high that they don't receive anything those peoples tax credits would currenty be calculated using the lower threshold that is going to reduce further

Kazz 77 - the CTC threshold will change. It is a threshold that is calculated in legislation using a formula based on the WTC threshold, taper rates and elements. That is why it wasn't announced separately as changing - it changes naturally.

The CTC threhold from April 15 will be 12,125.

Cleo

But even if it changes to 12,125 it means that the people who work under 15 hours or do a few hours whilst on carers allowance won't see a change in what they receive if (as very likely) they're still below that nor will the poster I saw somewhere (maybe another thread) where both received carers allowance as they'll still have the higher 12,125 threshold

Kazz - yes that is correct. But anyone working 15 hours and earning say £14000 would be affected, or if they have occupational pensions or rental income that would make them CTC only.

Cleo

Is it a given that they are linked? Just wondered as whilst the first threshold for removal for wtc has remained constant for several years the first threshold for child tax credits only has gone up and down (then back up again) over the same period. What would make that happen?

Kazz - It is a given in the legislation and how the CTC only threshold is calculated.

The WTC threshold has increased since 2003 from 5060 to 5220 to 6420, at the same time the taper has gone from 37, to 39 to 41 and the WTC basic and lone parent element has changed in rates.

If you look at the CTC taper threshold for each year since 2003 it matches. That is why if you look at 2011-12 for the first time ever we saw a fall in the CTC threshold. This is because the basic and second adult elements of WTC were frozen and the WTC taper rate increased from 39% to 41%.

As I said, the CTC threshold is just the point at which the two WTC elements are tapered to nil. Obviously, if you have more elements in your calculation, you will get CTC higher up the income scale so that is why the original example on this thread is wrong because you have to roll over any excess 'reduction from income' to take it off the CTC.

Cleo

Wonder if someone can help me! Am very worried. I am married and have 4 children. I earn 10.000 a year. My husband doesn't work. Will I be affected? Thanks

How many hours do you work babyalan13?

Cleo

I work 30 hours

It says on that budget calculator I'll be worse of by 1400!!

Yes I make it £1400 as well

Cleo

good info on this thread, thanks op

am still well confused though

its the drop in income disregard in CTC that confuses me, what does it actually mean?

Currently I don't work and my husband works full-time we have 3 children under 16 and 2 over but in full-time education, under the new tax credit system we will be £1566.20 worse off next year, which is £30.11 a week just about doable but if I got a full-time job earning £13,000 we would be £2348.20 worse off which is £45.15 a week.

What is the point of me getting a job? Housing Benefit would go down,council tax would go up,my 2 older children wouldn't be entitled to bursary for travel to school and college, prescriptions would need to be paid for I would need to pay £21 a week to get to work as I don't drive.

Even if I only had 2 children we would be £2604.20 which is £50.08 a week worse off if i was working but only £1694.20 which is £32.58 a week worse off if i didn't work,so what is the point of me killing myself working full-time???

I am disabled but not enough so say the DWP to claim DLA so in alot of pain if i work full-time.

ssd it means that before they reduce your tax credits, they allow you to earn a certain amount of money. It is currently £6420. They've reduced it to £3850. So regardless of how much you are entitled to in tax credits, you'll be £1233 worse off. Partly because of this and partly because they've increased the reduction rate to 48% from 41%

Carrie, your OP is a very interesting calculation of what someone might lose, but you haven't factored in what the same person will gain.

Your example of someone currently working 30 hours per week for £12000 gives an hourly rate of £7.69 which will rise to £9 by 2020, a gain of £2043 per year.

In addition, someone currently earning £12k pays £280 per year income tax, but GO says the income tax threshold will rise in line with the minimum wage, so this person would no longer pay income tax.

Therefore, my calculation is that someone currently earning £12k, working 30 hours per week and receiving the TC as quoted will be better off when the £2248 total wages gain is taken into account.

Or £2323 even