Our website uses cookies to enhance the visitor experience (what's a cookieCookies are small text files that are stored on your computer when you visit a website. They are mainly used as a way of improving the website functionalities or to provide more advanced statistical data.). Are you happy for us to use cookies during your visits?
Please note: continuing without making a choice equates to giving us your consent, which you can withdraw at any time via our cookies policy page.

Tax Credit Changes Approved

Newsletter issue - October 2015.

The government has recently confirmed that the draft Tax Credits (Income Thresholds and Determination of Rates) (Amendment) Regulations 2015, which were laid before Parliament on 7 September 2015, are compatible with the European convention on human rights. Following a lengthy parliamentary debate, the draft regulations have been approved and are expected to apply from 6 April 2016. The implication of these regulations means that most tax credit claimants will have their working tax credit (WTC) and child tax credit (CTC) reduced from April 2016, but the impact of these changes may have passed many people by.

Following the announcement in the Summer 2015 Budget, there has been much debate over the draft regulations and their impact. In particular, there is concern about how the introduction of the national living wage will affect the proposals; whether there are likely to be any behavioural impacts brought about by the proposals; and the degree to which the proposals are likely to impact upon the successful transition of tax credits to universal credit.

Two changes - the increase in the taper rate from 41% to 48%, and reduction in the income threshold from £6,420 to £3,850, will affect many existing claimants and mean that they are likely to see a fall in the amount of tax credits received.

Currently, tax credits are reduced (tapered) by 41p for every £1 that income rises above the following thresholds:

  • For WTC only claims, the threshold for 2015-16 is £6,420
  • For CTC only claims, the threshold for 2015-16 is £16,105
  • For WTC and CTC claims, the threshold for 2015-16 is £6,420

Although not directly announced, these changes, combined with the freeze on some elements of tax credits, mean that the CTC-only threshold will also reduce as a consequence down to £12,125. Broadly, this means that people with incomes above the new thresholds will see their tax credits reduced lower down the income scale and at a much faster rate.

The Low Incomes Tax Reform Group (LITRG) has produced guidance and a useful table, which shows the maximum loss of tax credits, at various levels of income, from the changes set to take effect from April 2016. The table can be found here. http://www.litrg.org.uk/latest-news/news/150917-how-will-tax-credits-cuts-april-2016-affect-you

Newsletter SubscriptionPlease enter your details

Book a Free, No Obligation Consultation

Take advantage of a free consultation to see how you can benefit from using Stanhope accountancy and advisory and find out the best way to deal with your tax, accounting and how to minimise your tax liabilities. Book now >

Get a Fixed Quote

We believe you should always be in control of your finances. For this reason we can offer many of our services on a fixed fee basis on agreed services >

Profitability Strategies

We can help you develop strategies to help your business grow without increasing costs specialized tax incentives to produce multiple benefits and help you increase your profit >

Your Business

Expert tax planning advice any size business tailored to you >