Tax Credit Change


The government recently made a significant U-turn on plans to change in-work tax credits but one of its plans, to reduce the ‘income rise disregard’, will still go ahead.

We outline the upcoming change to tax credits highlighting who will be affected and how you can access financial help and support if you are struggling on a low income.

Income Rise Disregard Reduction 

The government announced plans in the Summer Budget 2015 to reduce the ‘tax credit income rise disregard figure’. This is the amount that a person’s income can rise by within the current tax year before their Working Tax Credit and Child Tax Credit entitlement is subject to a reassessment based on having a higher income. From April 2016, the income rise disregard figure is reduced from £5,000 to £2,500. 

Who will be affected by the income rise disregard reduction?

Tax Credit awards are initially calculated based on your income in the previous tax year. Awards are then finalised at the end of the current tax year. 

If your working hours or salary increase, this could result in your annual income increasing by more than £2,500 in the current tax year (which from April 6 will be 2016-2017) compared to your income in the previous tax year (which from April 6 will be 2015 -2016).

This increase in salary will reduce the amount of Working Tax Credit  and Child Tax Credit you are entitled to. Therefore, when your tax credit entitlement is finalised at the end of the tax year based on your current income you could be informed that you have been overpaid tax credits 

Overpayments and underpayments of tax credits can be avoided if you request a reassessment of your tax credit entitlement based on your current income if you expect to have a significant change in your income.

The income rise change will result in many people receiving less tax credits than they previously would have and this will have a significant financial impact.

Why is the change being made to tax credits?

The government has made clear that it has a central objective to tackle the economic deficit and to rebalance the welfare state.

The government hopes to make significant savings as a result of the income rise disregard change to help it reach its goal of reducing welfare spending by £12 billion in 2019 -2020

What help is available if you are struggling on a low income?

If you are on a low-income and are struggling to meet housing costs, you can apply for  Housing Benefit (Mortgage Interest Support if you are a homeowner and are getting certain benefits) and Council Tax support.

If you are working and are on a low-income, you may also qualify for Working Tax Credits

If you are responsible for a dependent child or qualifying young person, you can apply for Child Benefit and Child Tax Credit.  

You can use our free Benefits Calculator to check your latest welfare benefits entitlements. Even if you have checked your entitlements before, it is always worth checking again, especially if there has been a change in your circumstances.

You can also check if you are eligible for a charitable grant or other support by using our Grants Search.

You can get  further details on all the upcoming benefit changes on the Turn2us Benefit Changes Timetable for 2016.

If you are worried about any of the benefit changes and would like further advice, you can use the Turn2us Find an Adviser tool to find an advisor local to you.