Tax Credit calculations

[Dibbothe3rd]

Does anyone know the correct method that "the not so useful" people use when they process the tax credit claim form information, ie your income details.

 

 

My understanding is as follows and will give examples of how I think it works and how I think it is flawed so the calculations are never correct and we never get the correct amount owed to us. this is purely hypothetical and does not take into account income thresholds of the limited of tax credits payable and is purely based on my own situation and all numbers are not real.

 

 

How I think it works :

They take the total earnings per year and average it out over 12 months regardless of changes to circumstances. ie, I'm employed (12 month salary £20000) for the first 6 months, say I earn £10000 but then I go self employed for the last 6 months and notify them accordingly and only earn £5000.

 

Total earnings for year is £15000, but for the the first 6 months I'm only getting tax credits based total annual income of £20000. Therefore based on earnings for the year (£15000) I should get x amount of Tax Credits. So they deduct what has already been paid for the employed 6 months from the total yearly amount and pay the remaining for the self employed 6 months.

 

This seems flawed to me because even though my annual income for the year is £15000 they average the tax credit payment based on this £15000 over 12 months, when in actual real life, this doesn't happen.

 

Why doesnt it? well I shall explain......

 

For the 1st 6 months I get tax credits based on £20000 a year, All is well because im getting 6 months of tax credits at the correct rate based on my annual salary of £20000. but then I get 6 months based on £15000 per annum averaged over 12 months.

 

The problem is, is that my actual income per year has halved from £20000 a year, down to £10000 (£5000/6 months x 12 months). You would expect my Tax credits to double (for arguments sake) but it wont because they only see that my income for the year is £15000 and therefore has only come down £5000 and not £10000. So they only pay Tax Credits on the £5000 drop in income instead of the £10000 drop in income. So im basically losing out on Tax Credits on another £5000 income drop.

 

I hope you understand all that

 

I may misunderstand how they calculate it, and what I have written above may require someone with a head for figures, but it just does not seem fair how they do it.

 

Please add your comments and thoughts.

 

Thanks.

[Dibbothe3rd]

interesting phone call with the tax credit people today, apparently if you make a 1st claim part way through the year, they take your whole years income into account and apply it to a daily rate, which in my case is totally wrong As my income for the month of April 09 has nothing to do with our claim as we were not living together at the time.

 

I changed from employed to self employed 6 months into the tax year, but me and the wife moved in together in may 09 and made our first claim together as of then. Ok I know its only a month worth on income for me, but it works out that they have overstated my income by £900 for the period of our claim due to the way they calc it and apply it over the course of the year and not based on actual income at the time.

 

That overstatement could be worth about £200 to us which would help loads.

 

It wrong and unfair, views?

[morteee]

am glad you actually managed to get through! I have been trying to renew my claim for 3 weeks and have made 30+ attempts at all times of the day and still get told by their bloomin automated service (after all the options) they have no operators available!

[pompeyfaith]

am glad you actually managed to get through! I have been trying to renew my claim for 3 weeks and have made 30+ attempts at all times of the day and still get told by their bloomin automated service (after all the options) they have no operators available!

 

I returned the forms via post and had the renewal sorted in 2 weeks I never use the phone as they have got it all wrong on past experiences.

 

At least via post they have the figures there in black and white.

[Dibbothe3rd]

The annual figures are correct as per P60 and my Accounts so im happy with them, but my beef is that they apportion on a daily basis. So in my case our 1st claim was from 3 may 2009. That makes our claim period for 338 days out of 365. they then take the whole tax year income and apportion the income. for example earning £2000 a month for 6 months from 6th april to 30 september = £12000 and then say £5000 from self employment from 1st October to 5 April 2010. Total earning £17000.

 

Now they take the £17000 / 365 x 338 = 15742. Thats the figure they use to work out the claim for our 338 day claim period.

 

but this is incorrect as pay is last day of each month, so I earnt say £2000 on the last day of april, may, june, july, august & Sept. So from 3rd may to 30th Sept I actually earnt in our claim period £2000 x 5 = £10000.

 

now add the £10000 to my self employed earnings of £5000 = total earnings for the claim period of £15000. NOT the £15742 that they have calculated.

 

Hence they have overstated my income for the claim period by £742.

 

Ok its not a great deal, but because of this, we should have been entitled to probably £100 (estimate) more in tax credits.

 

I dont agree that they should take into account the April 09 earnings of £2000 as it has nothing to do with the claim.

[James 01]

You may not agree with it but income to be used is defined in the legislation and regulations. Where income is received in a tax year for any person in a claim but outside a claim period in the same tax year it is still to be used in the calculation. It would not matter how many claims periods there are who was or was not in a joint claim what is required is to declare the full annual income for each person in the claim regardless when the income was received. Therefore the fact the claim started in May 2009 would not come into it as the income to be used is the total from 6 April 2009 to 5 April 2010 for each of you.

[Dibbothe3rd]

thats all very well and that was explained to me by them and I accept that. but it still does not make it right the way they apportion it on a daily basis and as a result we and no doubt millions of others have been deprived of tax credits due to how they calculate it. It works for employed people with the same income each month, but for those who change circumstance it does not.

 

Im not disputing the tax credits we have gotten as the annual figures are all correct etc...

 

its difficult to work out and explain and you certainly have to have a grasp of figures to understand what I have put in my previous post. I certainly dont expect many people to see within the figures what I see.