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Tax Credits - £25,000 increase in income.

Tax Credits - £25,000 increase in income.

I have a client who is intending to take an unpaid sabbatical off work for most of 2009/10 tax year. I am looking at the tax credit position for him.

- 2008/09 joint income is approx £30,000.

- 2009/10 joint income is expected to be £10,000. Because of number of children, this would give them a significant tax credits award.

- 2010/11 client intends to return to work, producing joint income back at £30,000.

Am I correct in my understand that the 2010/11 tax credits will be based upon the 2009/10 income and, as the increase in income for 2010/11 is less than £25,000, no clawback will take place ?

Is this too good to be true ?


John Hughes


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By Anonymous
18th Mar 2009 20:19

Tax Credits
Your understanding is correct. If joint income is reduced to £10,000 in 2009/10 (eg on redundancy), tax credits for 2011/2012 will also be based on this amount unless income increases to more than £35,000. Providing all changes are correctly notified on a timely basis, the higher payments made in 2011/12 will not be overpayments. So there is no 'clawback' (even by offset against future payments).

Buffer of £25k intended to protect those on very variable incomes from large overpayments. Overpayments in these situations mainly result from - overestimating the fall in income (is income £10k for the year, or will it be at a rate of £10k from August, but actually £16k for the year?) and - not telling TCO by March 2011 that income has increased. In that case, payments will continue at too high a level after April 2011 until the renewal date.

If client's partner works at least 16 hours a week, Working tax credit may also be due. Total WTC and CTC for a family with 3 children and income of £10k would be around £1000 per month - so an overpayment of £4000 could easily arise if renewal information for 2010/11 is not given until July 2011.

When client returns to work in 2010, WTC based on 30 hours per week may be due - but taking account only of income of £10,000.

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18th Mar 2009 17:34

Basically yes....
As far as I understand the (far from simple) legislation - if the increase in income is less than £25,000 they will not physically ask for the money to be repaid, but instead will off-set any "overpayment" against future awards.


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