Changes to Tax Credits from April 2012

posted by in Budgeting

Benefit changes

Benefit changes will affect the cash in your pocket

From Friday 6 April 2012 the Tax Credits system will change, for both new and existing claimants.

Why is this happening? The Government aims to save £18 billion per year on welfare expenditure by 2014/2015, and as some of these savings will be found via changes to the Tax Credits system, we thought we’d list how these may affect you, whether you’re a StepChange Debt Charity  client or not.

How will the changes to Tax Credits affect me?

The changes will affect the following groups of people:

  1. I receive the 50+ element in Working Tax Credit (WTC)
  2. We are a couple working less than 24 hours per week
  3. I/we are a working household with 1 child, annual income more than £26,000 per year
  4. I/we experience a drop in household income
  5. I/we need to make a new claim or declare a change in circumstances

If you think you might be affected scroll down to find more details on how it’ll change for you.

1. I receive the 50+ Element in Working Tax Credit (WTC)

Current situation: This will have already been communicated by HMRC in writing to existing claimants at the end of 2011 (if HMRC expect you to be affected)

The 50+ Element in Working Tax Credit will cease. This was an extra amount payable for 12 months to over 50s returning to work after 6+ months on benefits.

Its removal will either mean a decrease in Working Tax Credit for those affected or could push them out of the Tax Credits system altogether.

2. We are a couple working less than 24 hours per week

Current situation: This will have already been communicated by HMRC in writing to existing claimants at the end of 2011 (if HMRC expect you to be affected)

Couples must work a total of at least 24 hours a week (increased from 16 hours) to qualify for Working Tax Credit. Within the couple one partner must work at least 16 hours (this is a new requirement).

For single people with children there is no change to the current requirement of working at least 16 hours per week.

To note, if one partner works 16+ hours a week, and is aged over 60 or receives the Disability Element of WTC, the couple do not need to meet the 24 hour rule.

3. I/we are a working household with 1 child, annual income more than £26,000 a year

Current situation: HMRC are currently writing out to those affected by this significant change

The “second income threshold” for Child Tax Credits calculations was set at £40,000 per year before tax for the total household income. This will be removed.

Before the changes, households receiving up to £40,000 per year were guaranteed to receive at least the Family Element of Child Tax Credit (£545 per year or £10.48 per week). Lower income households received a higher amount, and those earning between £40,000 and £41,329 per year still received at least a minimal payment.

But from April 2012 for a working household with 1 child, the income cut-off is now estimated by HMRC at £26,000 per year. This income cut-off assumes that the household has no relevant childcare costs, no-one with disabilities, nor any additional children.

For these households, the income cut-off for tax credits eligibility will be higher. For example, the approximate income cut-off for 2 children will now be £32,200 per year before tax.

The letters currently being sent out from HMRC are advising claimants to call them to notify any drop in household income during the 2011/2012 tax year, otherwise their payments will stop automatically in April.

4. I/we experience a drop in household income

HMRC will start to ignore any drop in household income up to £2,500 per year.

Previously HMRC could adjust a tax credits claim following any decrease in income, or pay the lump sum owed at the end of the tax year.

From April they will ignore the first £2,500 drop in income and pay no additional tax credit either during, or at the end of the tax year

For larger income decreases the first £2,500 will be ignored. For example:

  • Original claim based on £17,000 per year income
  • Income drops during 2012/13 to £13,000 per year
  • Final award based on £15,500 per year

5. I/we need to make a new claim or declare a change in circumstances

HMRC are reducing the time for backdated payments from 3 months to 1 month.

Previously HMRC would backdate payment for new tax credit claims, or changes in circumstances for existing claimants, for up to 3 months.

However, from April they will only backdate for up to 1 month, so it’s important to notify HMRC quickly to make a new claim for tax credits, or if circumstances have changed for existing claimants (for example if you’ve split with your partner or have a new baby).

One final note…

Although many savings are planned, the following Tax Credits payments will increase from April 2012:

  • Within Child Tax Credit: the Child, Disabled Child & Severely Disabled Child Elements will increase
  • Within Working Tax Credit:  the Disabled & Severely Disabled Worker Elements will increase

Do you need more help?

If you’re a StepChange Debt Charity DMP client we recommend that if you still have questions that you call our Aftercare line. We will be emailing DMP clients with these details over the next week, however if you have any questions in the meantime, our contact numbers are available in the OnlineDMP section of the website.

Finally, we’ve also blogged about the implications of the Tax Credits changes – it’s well worth reading.

At StepChange Debt Charity we want you to be free of debt and save money.

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Tags Budgeting
  • sharon

    Yes, beware big changes. Experienced tax inspectors on the telephones now. Alot of pressure and quick questions; wanting dates, figures, times, ect. Felt intimidation and possible recorded for evidence. Nerve shattering.
    Also cross checking with council tax information.
    Luckerly i’v nothing to hide, BUT my weekly hours were interpreted as ‘not self employed’ but as a ‘landlord’? Of course i am disputing this as its a holiday cottage.. do’nt think they have finished with me yet. Thinking i may have to go it alone from now on. Goal post has moved again;like the banks changing the criteria. Its squeezing me dry.

  • Pingback: Would you credit it? Get the benefit! | CCCS | MoneyAware()

  • ken

    Together with state and private pensions
    we have a joint income of £1450. each month.
    We have some housing benefits and attendance allowance which are declared on our budget statement with you.
    Would we qualify for any tax credits ?

    • Hi Ken,

      We can’t give benefits advice via this blog, however give our Aftercare department a ring and they will pass you on to our Welfare Benefits team.

      They can look into your circumstances and do a full benefits check for you.

      Hope this helps!

  • Joanne

    I have a dispute in against Tax Credits who say I was overpaid by £5000 through their stupidity (they put that my household income had changed, rather than MY income like I told them). What are my chances of succeeding and how are they likely to look into this?

    • Hi Joanne,

      Thanks for your comment. It would be best to read up about overpayments. MoneySavingExpert has an excellent section on Tax Credits overpayments, and you can also ask Citizens Advice a question on their MSE forum.

      Good luck!

  • roderick Earle-Mitchell

    When I signed up the WTC I was told that i would qualify for the 50+ element ie. an extra amount for 12 months. I entered into this in good faith. Now half way through the 12 months they’ve withdrawn that amount. Surely they could at least finish the payments started. I will be taking this further.

  • Paul

    I am thinking of applying for a PPI claim but am wondering if this would affect my Working Tax Credit payments if I have to declare the total amount of a successful claim.

    • Hi Paul,

      There is no reason that PPI reclaiming should change your tax credits as you are applying for a refund on something you have paid for. We have a useful guide to PPI reclaiming on this blog.

  • Anon

    Does a child’s savings account affect a claim for Child Tax Credit?

    • moneyaware

      Hi there,

      Money saved in a child’s savings account will not affect your claim for child tax credit.

      Best regards

      Rachel