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• The limit on how much you can earn is going down for some people
• Your tax credits will be assessed in a different way if your income goes down
• The amount of time you can backdate a claim is being reduced
• The additional tax credit for people over 50 is being abolished
Below you can find out more details about each of these and how it might affect you.
How much you can earn and still receive Tax Credits depends on your individual situation, such as whether you are claiming any help with childcare costs, whether you or your child have a disability, and how many children you have.
At the moment, if you are earning up to £41,300 you may be entitled to Child Tax Credit.
These limits will not apply to you if you are claiming help with childcare costs, if you or your child have a disability, or you have more than two children.
What happens next?
If you are likely to be affected by this change, the Tax Credit Office should have sent you a letter. It is important to check that they have all the correct up to date information, and let them know if anything is wrong or has changed.
Most of the people affected by this change will be entitled to a Tax Credit of about £10 per week at the moment.
Tax Credits are usually based on your income for the previous tax year (which runs from 6 April one year until 5 April the next year). At the moment you can ask the Tax Credit Office to base your Tax Credits on an estimate of your current year income if that would be better for you (because your income is lower than last year, and you would get more Tax Credits).
If your income if going down by £2500 or less compared to last year your Tax Credits will still be based on the previous year’s figure. They will not increase because your income has gone down, as they would have in the past. In the following tax year (from April 2013) your Tax Credits will be based on the lower income figure.
If your income is going down by more than £2500 compared to last year your Tax Credits will be amended. They will ignore the first £2,500 of the reduction, so effectively they will add £2,500 to the lower figure that you expect to earn this year.
What happens next: Mike’s example
Mike earned £17,000 last year (from April 2011 to April 2012) but his income has gone down, and this year he expects to earn £15,000 (from April 2012 to April 2013).
Mike asks the Tax Credit Office to base his Tax Credits on the income for the coming year (April 2012 – April 2013), as it is less and he would expect to get higher payments.
Because his income is going down by less than £2,500, the Tax Credit Office will continue to base his Tax Credits on last year’s income of £17,000.
What happens next: Katie’s example
Katie earned £13,000 in the last tax year (from April 2011 to April 2012) but her income has gone down, and this year she expects to earn £9,000 (from April 2012 to April 2013)
Katie asks the Tax Credit Office to base her Tax Credits on the income for the coming year (April 2012 – April 2013), as it is less and she would expect to get higher payments.
As her income has gone down by £4,000, which is more than £2,500, her Tax Credits will be amended.
Her Tax Credits will be based on an income of £11,500, as they will add £2,500 to this year’s lower income (£9,000 + £2,500 = £11,500).
At the moment if you have a change in circumstances which means you will be entitled to more Tax Credits, the Tax Credit Office will usually backdate the higher payment for the last three months. From April 6 they will only backdate an increased payment by one month, so it’s important to make sure you report any changes within a month so that you don’t lose out on any money.
What happens next?
If you make a new claim for Tax Credits, at the moment the Tax Credit Office will generally backdate this for the last 3 months. From April 6 a new claim can only be backdated by one month.
The ’50-plus element’ which is an additional amount of Working Tax Credit, will be abolished from 6 April.
If you are receiving it at the moment, your Tax Credits will reduce.
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