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Newsletter - Spring 2012

Tax credits – will the changes affect you?

The impact of a number of changes to tax credit entitlement have already been felt during 2011/12 but with the new tax year on the horizon, this article covers further changes ahead which may be more significant.

A summary of the key changes are as follows:

the period for which a tax credit claim and certain changes of circumstances can be backdated will be reduced from three months to one month
a disregard of £2,500 will be introduced in the tax credits system for in-year falls in income
the separate threshold for tapering the family element will disappear altogether (see below)
there is to be an increase in the weekly working hours requirement for couples with children for Working Tax Credit (WTC) from 16 to 24, with one partner working at least 16 hours, and
the 50 plus element will be removed from WTC.

In addition most rates are frozen for 2012/13 with the exception of certain disability elements of WTC and the child element of Child Tax Credit.

The family element

One of the changes which will continue to have a widespread impact in 2012/13 concerns the change to the family element. Many families have received the benefit of this element in recent years, as it was only reduced if a separate threshold was breached. This threshold had been set at £50,000 up to 2010/11 and in fact the basic family element of £545 was receivable until income reached £58,175.

In 2011/12 this limit reduced to £40,000 meaning it is not now available where income exceeds £41,329. The removal altogether of this separate £40,000, threshold for 2012/13 is likely to mean that many more families will no longer qualify for this element.

Example

A family with a two partner household and two qualifying children where one partner only works and that is full time could be entitled to tax credits of say £9,770 plus the family element of £545 in 2011/12 before taking income into account. If they have joint household income for tax credit purposes of £39,000 in 2011/12, they would not receive any part of the £9,770 as the level of income reduces the actual award entitlement to nil.

However, as their income does not exceed £40,000 they will still be entitled to the family element of £545 providing a claim has been made. In 2012/13, assuming the same level of income, this family element will also not be available as there will be no separate calculation for this element.

Be prepared

It will be critical for claimants to be aware of the more significant of these changes to avoid loss of entitlement or be faced with demands for repayments which can be stressful. If you require more information about how these changes may affect you for the new tax year 2012/13 please do contact us for further assistance.

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