How tax credits work 2011/12
What are tax credits?
Tax credits are payments from the government. If you're responsible for at least one child or young person, you may qualify for Child Tax Credit. If you work, but are on a low income, you may qualify for Working Tax Credit. You can often get both types of tax credits. They aren't taxable.
How tax credits work
This page is showing information about tax credit awards for 2012/13.
Initial and final award
The tax credit system has two stages: an initial award and a final award.
Your tax credit award for the 2012/13 tax year (6th April 2012 to 5th April 2013) is based on your circumstances during that year, i.e. whether you are single or in a couple, the number of children you have and if they are under one, your childcare costs, if anyone in your family is entitled to disability benefits and the number of hours you work a week.
Your initial tax credit award is based on your income in the last tax year 2011/12 (6th April 2011 to 5th April 2012).
Your final tax credit award will be calculated based on your 2012/13 income. From April 2012, the Budget announced an income disregard of £2,500 would be introduced for falls in income from one tax year to another. The £10,000 disregard for increases in income from one tax year to another remains in place. Therefore:For drops in income:
- if your 2012/13 income falls by more than £2,500, from your 2011/12 income, your final tax credit award will be calculated using your 2012/13 plus £2,500,
- if your 2012/13 income falls by less than £2,500, your final tax credit award will be calculated using your 2011/12 income.
credit award would be calculated based on an income of £7,500. For increases in income:
For example, if in 2011/12 your income was £10,000 and in 2012/13 your income was £25,000, the rise is £15,000, therefore your 2012/13 final tax credit award would be calculated based on an income of £15,000.
HM Revenue and Customs do this to provide extra support if your income falls but also to allow room for your income to rise before it affects your tax credits.
In effect the system sets and pays you a provisional amount of tax credit during the tax year; and then the amount they should have paid you and the amount you were actually paid are reconciled at the end of the tax year.
If your 2012/13 income is set to rise by more than £10,000 then you may have to make a repayment next tax year. However, it is your choice as to whether you report a change of circumstance now or whether you wait for an automatic adjustment to be made by HM Revenue and Customs.
Similarly, if your income is set to drop you can either tell the Revenue about this change now, in which case your award will be re-calculated using an estimate of your likely income this year, or wait until the end of year review.
More information is available on change of circumstances.
If you are already receiving tax credits please note that you may be subject to an adjustment from previous years. To find out more see tax credit overpayments.Source: www.entitledto.co.uk