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!

The tax credit changes come into force next year, wages don't go up til 2020. What are people supposed to do for the four years when their wages don't go up yet tax credits go down. Plus inflation, cost of living etc likely to continue to rise.

Yup. I'm officially lost.

But the OP is wrong. She wrongly assumed that the wtc is dealt with separately from the CTC. It should read:

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 just Child Tax Credit, at £2780 per child, so maximum £5560 for her children.

After deduction from WTC, the excess remaining is £1042, which is deducted from the CTC

£5560 - £1042 = £4518

Old rules:

Wage £12,000
WTC £482.20
CTC £6105

New rules:

Wage £12,000
WTC £0 (£2770-3912= -1042)
CTC £4518

Worse off by £2069.20

Also, you're forgetting that the rise is a future rise in 5 years time, while the drop is a drop from April 2016.

Additionally, you're forgetting that the wage rise will also be subject to reduction in tax credits, deducting £1115.

So £8276.80 lost over the next four years for a rise of £1028 (net) in four years (from 2016) time.

So not at all better off.

Given my post above, which outlined the 97% rate of deduction (factoring in tax, NI, tax credits, housing benefit and council tax relief), to recover the £180 per month GO has slashed from our tax credits, DH would have to earn an extra £6000 per month! Except of course that we'd be ineligible for tax credits at all then.

I'm confused as the calculator doesn't factor in anything else.

So I get CA for my son who gets HRC DLA. Husband works 24 hours a week on the (current) minimum wage. So we get CTC (including severe disability premium) and WTC (including childcare) and the calculator is saying we'll be £30 a week worse off. Which I'm very much looking forward to!

I thought they were all about helping hard working families? Yes, we may not earn a gazillion pounds between us (and I will be going back to work after I've finished my course and am qualified, providing I can as my son's condition is unpredictable!) but we do work hard and we have a disabled child to take care of, too!

Hi Cleo29

I promise you I wasn't trying to be dangerous with calculations. I said I wasn't an expert, and all I'm doing is what everyone else is doing, researching and trying to work it out. I may get things wrong.

The point was, we are going to be worse off. There was so much confusion on the internet about what meant what, and I was trying to help people work out what they would lose (as we did in our house).

Whichever way you look at it, all working families on low incomes are worse off.

You have a better grasp on things, so if you could help people work out their calculations, then that would be great. I got the OP wrong, so I can't change that. But since then (with more practice!) I've got lots of people's calculations right (privately and on here), and I'm just trying to help, that's all.

There's still plenty of uncertainty out there, and yes wages won't go up until ages after the main drop kicks in 9 months time.

Also, I'm self employed, so I can't give myself a pay rise. So I'm screwed!

Hi lougle

I didn't know that the WTC excess was taken off the CTC. That's even worse

mjmooseface your DH's income will rise from £8112pa to £8989pa in October. So for this tax year his pay will be roughly £8548 (6 months of each rate).

Your carers allowance is £3229, giving total current income of £11341.

With the threshold of £6420 and taper of 41%, your current deductions from tax credits is (11341-6420)×0.41=2017

In April, your income will have been £11777.

Your total deductions from tax credits with a threshold of £3850 and taper of 48% is (11777-3850)×0.48=3804

So:
Gain £436 from wages
Loss £1787 from tax credits

Total loss £1351

I'm not criticising, CL25 it seems confusing because they have two threshold rates. But the CTC one is only for people not entitled to WTC (as in not in work that qualifies, not working but earning too much for WTC).

Hi lougle,

Absolutely, that makes perfect sense, I was getting confused. Do appreciate your knowledge, I was hoping this thread would pool knowledge and eventually we could help each other out.

I've now worked out mine, worse off by £1820 and no pay rise. And we thought this year was bad!

Thanks loungle!

This is why I'm confused. I thought the Tory ethos was work always pays, but we will be worse off, despite working! I guess it's because OH doesn't earn enough to pay tax. That must be why. Cut tax credits so we take on more and more work? lol Stop that merry go round and all that jazz!

So, to make this easier (ish)

Only entitled to CTC:

Add up all elements you could receive (basic, child, disabled child)
If wage is over £16105, the difference is now x .48
Take that away from your elements

Only entitled to WTC

Add up all elements you could receive (Basic, 30 hours etc)
If wage is over £3850, the difference is now x .48
Take that away from your elements

Entitled to both WTC and CTC

Add up all WTC and CTC Elements
If wage is over £3850, the difference is now x .48
Take that away from your elements

There's some examples on here for the older numbers, but the calculations are the same:
www.kidstart.co.uk/View/familybudgetguidetaxcredit.aspx

I don't think it has hit many people. Someone I know said 'the budget hasn't affected me.' I said 'do you get tax credits?' 'Yes'. 'Then the budget had affected you.'

I think you're right. It hasn't hit yet, and I really wanted to try and raise awareness somehow, as people will get a horrible shock come April

All the newspaper headlines seem to be dealing with the amazing pay rise!

I am really confused. Sorry if this has already been covered (I tried to read all the thread) but are the childcare costs element covered in the summer budget calculators? There isn't a box to input childcare costs. Thanks.

Can you help me, not posting on my own behalf, but on that of my lovely housekeeper. I pay her £104 per week (so 16X 6:50) she has 1 little girl and is single. Will she be worse off and if so how can I help her best ? We have the current arrangement at her request as it works out best for tax credits.But we have the capacity to be flexible.

Hi Stillwishihadabs

I think she will be worse off, but I'll work it out in a sec and post shortly...

Thank you. I feel for her she was abandoned shortly after getting pregnant and our current arrangement works so well.

I thought the family element of CTC was being protected for existing claims?

Single Mum of 1 working 16 hours a week, wage is £5408.

She would get both WTC and CTC

WTC Basic £1920
Single Mum £2010
Family Element £545
Child 1 £2780
Total possible = £7255

Old way £5408 is ok for the threshold of £6420, so her total benefits should be £7255 with no reduction. I've confirmed this on the HMRC calculator and this is correct.

New rules, £5408 wage - new threshold of £3850 = £1558 x .48 = £747.84

So, I think she'll be worse off by £747.84.

Hi HappyGoLuckyGirl

Yes, I discovered that half way through the posts I think, that family element should be ok for us currently receiving, but not for new claims April 17 onwards.

Carrie Louise

Your post summarising is still wrong. The CTC threshold will drop from 16105 to 12125 because it is calculated by reference to the wtc threshold.

Cleo

The only way to tackle the losses would be increase in hours and pay. If she did 20 hours (as an example) at £7.20:

Single Mum of 1 working 20 hours a week, wage is £7488

She would get both WTC and CTC

WTC Basic £1920
Single Mum £2010
Family Element £545
Child 1 £2780
Total possible = £7255

New rules, £7488 wage - new threshold of £3850 = £3638 x .48 = £1746.24

So although new credits will be less at £5508.76
New wage would be £7488

Total £12996.76 which would be similar to her old wage of £12663.

Could someone help me? It's going right over my head.

I work 32 hours a week at minimum wage. I claim working tax credits and child tax credits. Is this really going to affect me? Single parent with 1 DS who's 2.

Hi hope I can help you MrsRaegan

If you work 32 hours a week at £6.50 you get a wage of £10,816

Your elements should be:

Basic £1920
Single Parent £2010
30 hours £810
Basic £545
Child 1 £2780
Current maximum £8065

Old way £10816 - £6420 x .41 = £1802.36 reduction, so current TC's should be around £6262.64

New way £10816 - £3850 x .48 = £3343.68 reduction so new TC's should be £4721.32

Loss of £1541.32

But, you should get a rise of 70p, so I'll work that out in a sec...