Last year, planned cuts to tax credits were delayed after MPs voted to halt the reforms. For those relying on the benefit, it came as welcome news as it meant the thresholds for Working Tax Credits and Child Tax Credits would remain unchanged.
However, new rules could see hundreds of thousands of people potentially miss out on tax credits if their income changes throughout the year. If tax credits currently help to boost your income, we’ll take you through whether the changes are likely to mean that you could miss out on the benefit – or even have to repay some of what you’ve already received.
Although the Government had confirmed that they wouldn’t cut the thresholds for Working Tax Credits and Child Tax Credits, the new cut is a change to the ‘income rise disregard’. This is how much your income is allowed to rise in a year before your claim would be reassessed.
The current level of income rise disregard is £5,000 but it’s now been lowered to £2,500, with effect from April 2016. This means that if you earn more than £2,500 more than you expected to in a year, you could have to repay some or all of the tax credits you’ve already received. According to official figures, some 800,000 people a year will be affected by the tax credits income rise disregard.
Will you lose out?
If you’re currently in receipt of Working Tax Credits or Child Tax Credits, it might be a good idea to look at your finances now. The changes to income rise disregard will come into force in just a few weeks when the 2016/17 tax year starts (6 April) and if you earn more than £2,500 than you expected, you could miss out on tax credits. However, if your income doesn’t vary much and doesn’t go over this threshold, the amount of tax credits you receive won’t change.
It also might be worth taking a look at the other benefits you could receive if you’re in work. For example, if you have children you could receive Child Benefit – £20.70 for the eldest child and £13.70 for each additional child. You may also be eligible for Housing Benefit if you’re a renter and don’t have more than £16,000 in savings or capital. If you’re on a low income, you could also get help with your council tax through Council Tax Reduction.
Find out about some of the benefits you could receive if you work 16 hours or more with our blog.