Renewing Tax Credits
The renewals process
When you first claim tax credits, your claim is based on your circumstances for the year you claim and your income for the previous year. This is your initial award. Once the tax year ends, HMRC use the renewals process to finalise your claim for the year just ended (by asking for your actual income figures).
After giving your income for the year just ended to HMRC, it is also used, together with your latest set of personal circumstances, to set your new initial award for the new tax year.
This makes a three-year rolling programme of renewal.
- The initial claim for 2017/18 was based on circumstances current in 2017/18 and income for 2016/17.
- The renewal process carried out in Summer 2018 finalises the award for 2017/18 by comparing the actual income of 2017/18 with that for 2016/17 to fix the final entitlement for 2017/18, and uses the actual income figure for 2017/18 to set the initial award for 2018/19.
- The 2018/19 claim will then be finalised in the Summer of 2019.
| For your 2018/19 tax year claim | |
| If your income goes down by £2,500 or less when compared to your 2017/2018 income | Your claim will be based on your 2017/2018 income. |
| If your income goes down by more than £2,500 when compared to your 2017/2018 income | The income figure used will be the total of you 2018/2019 income plus £2,500. |
| If your income is higher than that for 2017/2018, but by no more than £2,500 | Your claim will be based on your 2017/2018 income. |
| If you income is higher than that for 2017/2018 by more than £2,500 | The income figure used will be the total of your 2018/2019 income minus £2,500. |
When your tax credit award is renewed after 6 April, the initial award for the following year is once again based on your previous year income.
The initial award for 2018/19 will initially be based on actual income for 2017/18 regardless of the income disregards. So an initial tax credit award is made in the year of payment, then revised after the end of the year to produce in many cases an underpayment or overpayment.
To understand more about how these income disregards work, see below section
The rolling programme will be repeated in the renewal process after the end of 2018/19 and the finally ascertained income figure for 2018/19 will be used as the figure on which to base initial awards for 2019/20, which, in turn, will then be finalised after the end of that 2019/20 tax year.
It should be noted that in 2006/2007 and earlier years, the disregard for increases in income was only £2,500. It increased to £25,000 from 6 April 2007. The disregard for rises in income decreased to £10,000 from 6 April 2011 and then to £5,000 from 6 April 2013 and back to £2,500 from 6 April 2016.
How do the disregards work?
When you first claim, you are asked for details of your household income for the previous tax year (in a joint claim, including that of your partner) and this is what your initial award is based on.
For example, if you claim on 6 July 2018 which is in the 2018-19 tax year, HMRC will ask for your income details from 2017-18.
Your claim will be based on your previous year income unless you tell HMRC during the tax year that you estimate your current year income will be different.
At the end of the tax year, HMRC ask you for details of the actual current year figures and they do a final comparison with your previous tax year income. This is how they work out exactly how much you are entitled to for the year and also whether you have been overpaid or underpaid.
How to renew
You can renew in four different ways:
- By going online through UK. You can use this service even if you have changes to report.
- Using the HMRC app (free to download from app store relevant to your device).
- By phoning the tax credits helpline on 0345 300 3900 (0345 300 3909 textphone). The line gets very busy in the run up to the deadline of 31 July so you should try and do this as early as possible. HMRC’s helpline opening times are shown on the GOV.UK website.
- By sending your form back in the post. It is advisable to keep a copy and send it recorded delivery or ask for a proof of postage.
If you make a mistake with your renewal, you can use the online system to enter the information again or phone the helpline as long as it is before 31 July.
The Government is gradually introducing universal credit, a new benefit which will eventually replace tax credits, and some other social security benefits. Universal credit is being introduced geographically and in areas where the full (digital) service is available, it may no longer be possible to make a new claim for tax credits. Existing tax credit claimants are expected to be moved across to universal credit between 2019 and 2022.
Disclaimer:- The information contained herein is given by way of general guidance only and no action should be taken solely on the basis of the information contained herein. The Avanti Group (UK) Ltd will be pleased to provide further guidance on the issues, and how they might affect you. No liability is accepted by the firm for any action taken without seeking appropriate professional advice