Tax credit changes are set to come into force next April and if you currently rely on this money from the Government, you might need to rethink your budgeting. There will be new cuts to tax credits and it’s expected that families could lose out on an average of £1,000 a year.
The changes to tax credits will affect an estimated three million families and if you’re one of them, it’s likely that you’ll be concerned about how the changes will affect you. We’ll keep you up to date with how the cuts are going to work, who will be affected, and we’ll give you some tips about how you could cope once they’ve been introduced.
Changes to be made
Currently, the amount you can earn before tax credits start to reduce is £6,420 a year. After this limit, tax credits payments decrease the more you earn. From April 2016, the threshold is due to drop to £3,850 so for many people, it will mean less tax credits. Some working age benefits are also due to be frozen until 2020. This includes some tax credits and Local Housing Allowance but not maternity or disability benefits. While this isn’t a cut in terms of how much you’ll be given, it means that the benefits won’t increase with inflation so your payments won’t be worth as much.
While three million families are set to miss out on around £1,000 a year in tax credits, it’s also estimated that some could lose out by as much as £2,000 a year. These families are likely to be in work, have two or more children and could also be struggling with council tax bills and rent.
How to cope
If you rely on tax credits to help pay your bills at the moment, you’ll probably have to make some changes before next April. Take a look at your current household budget – if you don’t have one, it might be a good time to make one. See if there are any areas where you could cut back in what you’re spending.
It might also be worth seeing if you can increase how much you’re earning, like taking on an extra shift at work. If you can afford it, start putting aside a bit of money each month from now until April, so that when the tax credits cuts are implemented, you’ll have some extra cash to help you deal with the fall in benefits.
You could also consider the thinkmoney Personal Account if you’re looking for help with your budgeting. It’s a clever alternative account that makes it easier to budget for all of your regular bills. When your wages or benefits are paid into the account, the money needed for the bills you’ve told us about is kept separately in your Salaries account, so you won’t be able to accidentally spend it. The remaining money is put into your Card account, where you’ll be able to spend it, safe in the knowledge that the important bills are already covered.
The thinkmoney Personal Account has a monthly management fee of £17.50, or £24.50 if you’re looking for a joint account. The account protects you from going overdrawn so you’ll never get overdraft charges or penalties from returned or bounced payments. To find out more about the account, click here.