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Forum Home  →  Discussion  →  Income support, JSA and tax credits  →  Thread

Tax Credit and increased income

vickyn
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Caseworker, Gwynedd Citizens Advice

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Joined: 9 November 2017

Client receives CTC and WTC.  Her income increased slightly during the year, she contacted Tax Credit and informed them of the change.  The change did not increase her annual income by more than £2500.  No other change in circumstances.
Client was told that, as she had informed them of the change mid year, her Tax Credit award would be adjusted immediately.  If she had waited until the annual review, there would have been no change to the award for this current year.

The client is knowledgeable about the benefits and queried this several times, (webchat and phone) but got the same answer. 

Is this right?

Any thoughts or regs would be appreciated

Thanks

Charles
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Accountant, Haffner Hoff Ltd, Manchester

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The fact they are recalculating does not mean the annual rate of her award will change, although her weekly (or 4-weekly) payments will almost certainly change. The same thing would happen if she was, for example, to make a change to the bank account in which she receives the tax credits.

Basically, the tax credit computer system is set to recalculate how the payments are split up whenever any sort of change is made (even changes which do not affect the award at all).

Very often, and particularly for those who receive their tax credits 4-weekly, this leads to a one-off payment being made outside the regular payment cycle, and then lower payments for the rest of the tax year.

vickyn
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Caseworker, Gwynedd Citizens Advice

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Thanks Charles, but I’m afraid I still don’t understand.  Why would it need recalculating if the annual award doesn’t change (or if the bank details change)
Client was paid weekly and has been told there is an overpayment,  tax credit payments have been reduced until it’s cleared.

Charles
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Accountant, Haffner Hoff Ltd, Manchester

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I would advise getting a copy of the latest award notice and seeing what it actually says. Perhaps compare it to the previous award notice, if available.

There is no such thing as having an ‘overpayment’ from an in-year adjustment. All it could be is that they have received too large a proportion already and therefore HMRC may have reduced their payments in order that an overpayment should not arise.

The recalculation I’m talking about is what HMRC like to refer to as the ‘payment profile’ or ‘payment schedule’. It’s simply how the award is divided up and paid over the year.
At the start of the tax year, HMRC will have divided up the award according to the amount of payment days in the year (52 or 53 in your case). When they recalculate, they check to see if the payments made to date are lower than the amount due up until the date of the recalculation (calculated using a ‘daily rate’), and if yes, they will issue the difference as a one-off payment and divide up the remainder over the remaining payment dates left in the year.
If the recalculation is made a day or two prior to a regular payment day, it will very often mean a one-off payment is made, and the remaining payments in the year are reduced accordingly.

LITRG
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Head of Low Incomes Tax Reform Group

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vickyn - 07 October 2021 04:38 PM

Client receives CTC and WTC.  Her income increased slightly during the year, she contacted Tax Credit and informed them of the change.  The change did not increase her annual income by more than £2500.  No other change in circumstances.
Client was told that, as she had informed them of the change mid year, her Tax Credit award would be adjusted immediately.  If she had waited until the annual review, there would have been no change to the award for this current year.

The client is knowledgeable about the benefits and queried this several times, (webchat and phone) but got the same answer. 

Is this right?

Any thoughts or regs would be appreciated

Thanks

The £2500 disregard only applies when comparing current year income to previous year income. Is it possible she had already provided an estimated current year income that had used up her disregard?

If it isn’t that, then the only thing you can do is compare the new award to the previous one to see what the difference is between the two. You say there is an overpayment - that isn’t possible if any income change between this year and last year is within the disregard so there must be something else happening. Comparing the two notices is the best way to get to the bottom of it.