Universal Tax Credits: Why the new tax system could cost you thousands

According to recent reports, the government will phase out the current Tax Credits system in favour of a new, single scheme called Universal Credits. On the surface, this may sound like a good way to cut confusion, but in reality it means that some 3.2 million families will be worse off as a result.

So, with experts warning everyone to act now if they think they may be entitled to Tax Credits, or risk being added to the statistics, what’s all the fuss about? Who does this affect and how by how much? Why is this something to be concerned about?

At Hylton-Potts, we’re well-known and respected for helping those who’ve been told they have been receiving overpayments, be it intentionally or unintentionally. With the news that such significant changes to the Tax Credit system will be rolled out over the next couple of years, we thought we’d make sure you knew the fact from fiction.

In today’s post, we’ll be discussing exactly what the changes are, how they will affect you (not to mention millions of other families across the UK) and what you can do about it.

What changes are being made and why is it important?

Last year, Chancellor George Osbourne was defeated in his efforts to drastically cut working tax credits. As of 11th April 2016 however, the population saw a different kind of loss, with the introduction of Universal tax credits to replace the recently overhauled six social security payments: income support, jobseeker’s allowance, employment and support allowance, housing benefit, child tax credit and working tax credit.

Why the sudden change? It was thought to simplify the overly-complex systems, but it has been reported that while 2.2 million households are expected to see significant gains, the Institute of Fiscal Studies has stated that a further 3.2 families will see a loss.

So, with these changes already in action, expected to roll out country-wide until 2018, you may be wondering why you should act now. Well, it’s important to understand that this new system has not taken hold everywhere, and if you check out your eligibility now and find out what tax credits you’re entitled to, you could qualify for a higher rate.

According to experts, the earlier you apply the better, and the beauty of this is that no one can lose out if you check now. There are two possible scenarios:

  1. You’re already claiming Tax Credits and the Universal Credit payment will be lower, in which case the transitional protection afforded to people until they change circumstances, dictates that you will still receive the higher Tax Credit amount once Universal Credit is introduced.
  2. You’re claiming Tax Credits and the Universal Credit calculation is actually higher than your current amount, so you’ll be able to claim straight away for the higher amount.

Either way, it’s a win-win situation. The only way you can lose out here is to not check your entitlement until it’s too late, and those changes can make a huge difference. For example, according to calculations by UNISON, a couple over the age of 25 with no children, earning the National Living Wage for 30 hours a week, would be £2,756 a year better off if they register for tax credits before they transfer onto Universal Credit. This is a huge figure, and life-altering for many households.

Thinking on a smaller scale, research by Entitledto, who provide the public with online benefits calculators, estimates that some people could be as much as £50 per week worse off under Universal Credit.

Am I eligible?

Tax credits are aimed at supporting either those with children, or those who are in work but with low incomes. When it comes to eligibility, this can be broken down into three main groups of people:

  • If you’re a parent(s) and your household income is up to £47,000 (or, if you pay for additional childcare, this figure can reach up to £73,000).
  • If you’re in a couple that both work, and have a household income that is under £18,000, even without children.
  • If you’re single, you don’t have any children, and are working with an income of less than £13,000.

If you think you fall into one of the above categories, then you could be able to claim for one or both of the tax credit systems available:

  1. Working tax credits: These are designed to give some much needed support to those in work on a lower pay rate, in order to prevent them from opting to not work entirely, and just claim benefits. The number of children you have affects eligibility though, so it’s worth checking thoroughly. If you don’t have children, the income threshold is under £18,000, but if you have one child then the threshold is under £41,700, and this can rise to £73,100 if you have four children.
  1. Child tax credits: For those who take care of children, you may be eligible for a separate child tax benefit. Your child must be under the age of 16, or up to 20 if they’re in full-time education or registered with the careers service. You don’t need to be in employment in order to be eligible, but your household income must be under £26,000 for one child, but this rises to £46,500 if you have four children.

What can I do?

The best thing to do, regardless of your circumstance, is to check your eligibility as soon as possible. Even if you’ve heard that this system won’t be rolled out around your area for some time, you’ll still have that regular pay coming into the household which you wouldn’t otherwise. So especially if this amount is higher, there really are no excuses why you shouldn’t look into your eligibility.

We hope you’ve found this post useful in determining exactly what you’re entitled to. Don’t forget though, if you find yourself at the other end of the spectrum and have been told you’ve been overpaid, we can help. Get in touch with us as soon as possible to find out where you stand and whether there’s anything you can do about it. You can call us on 020 7381 8111, or send us an email at [email protected].

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