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The new tax credit cut you need to know about

In autumn 2015 planned changes to tax credits didn’t go ahead, but a new rule change means there’s still a chance people could get a reduced amount – and have to pay back some of the money they’ve been paid.

It all comes down to whether you earn more than you expected in a financial year after you’ve been assessed for tax credits. Earn more than a certain level of additional income and it could change the amount of tax credit you’re entitled to.

In April 2016 this “income disregard” fell from £5,000 to £2,500, with government figures revealing potentially 800,000 people could be affected. 

What is the income disregard rule?

The income disregard is essentially the amount of unexpected income you get that HMRC will ignore before you need to be reassessed. If you’re getting tax credits, your income can currently change by up to £5,000 before it affects the amount you get.

However, changes due to come in from 6 April will affect you if your income goes up or down by more than £2,500.

Usually, the amount of money you get in tax credits is based on your earnings from the previous tax year, which runs from April to April.  If your income goes up or down by more than the income disregard , the Tax Credit Office will reassess your claim based on your current earnings, less the disregard.

This could mean you have to pay back some or all of your credits, or have future payments reduced.

Keeping HMRC informed of any changes

If you don’t tell the HMRC when you earn more than the income disregard when it happens and wait until the next time your claim is due to be re-assessed, you may find that you have been overpaid tax credits. You will be asked to pay any of this extra money back.

With the new rule, it’s even more important than before to tell HMRC of extra income you receive. If you do this when you get the extra money, it’ll be easier for the tax credits to be adjusted, and decrease the chance you’ll be chased for overpayments at a later date.

It also works the other way, as if you earn less than you thought you would, you might be entitled to further tax credits.

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  • Dagnw / 6 April 2016

    Excellent! V informative.

  • leroy / 16 March 2016

    How long till I recive working tax credits I sent off form just over two weeks ago