Briefing for Schools. October Changes to the Tax Credit Threshold and Taper. Background

Transcription

1 Briefing for Schools October 2015 Changes to the Tax Credit Threshold and Taper Background In the July 2015 Budget the Chancellor announced two changes that will drastically cut the incomes of UNISON members that are entitled to Working Tax Credit and Child Tax Credit from next April. The two changes are: A reduction in the threshold from 6,420 to 3,850 the threshold is the point at which tax credits are reduced the current rate of reduction is 41 for every extra 100 increase in household income An increase in the taper from 41p in the to 48p in the. So the rate at which tax credits are reduced will be increased to 48 for every extra 100 increase in household income.

2 Working Tax Credt and Child Tax Credit April 2016 threshold Current threshold April 2016 taper 48 reduction for every extra Current taper 41 reduction for every extra 100 in earnings Current Tax Credit threshold and taper April 2016 Tax Credit threshold and taper 3,850 6,420 Household Income According to HMRC 3,277,300 in work households were in receipt of tax credits in April 2015 Of these, 2,718,900 were families with over 5 million children

3 As one Conservative MP (Guto Bebb, Times 10 August 2015) says the tax credit changes next April will be eye-wateringly painful. According to the Treasury Red Book these two changes alone will take 4,355m a year out of the pockets of those on low to middle incomes starting next April. UNISON published a report on the impact of the changes on people on the National Minimum Wage on 2 September The report was sent to MPs before they returned to Parliament on 7 September. The House of Commons Library published a briefing on 11 September On 15 September MPs debated the changes and they were approved by 325 votes to 290. Conservatives, UKIP and the Independent MP in Northern Ireland voted in favour. Labour, the Liberal Democrats, Green, The Scottish National Party, Social and Democratic Labour Party (SDLP), Plaid Cymru, Democratic Unionist Party, Ulster Unionist Party all voted against. But the changes do not come in until April 2016 so there is still time to get the government to change its mind. Look at the impact on people on the National Minimum Wage

4 Impact to 2020 of April 2016 Tax Credit changes 26, , Total loss during the Parliament 4,096 Household Income Single earner couple with two children working 35 hours a week on the National Minimum Wage 22, , , Scenario 1a, transfer from NMW to NLW in 2016 other 2015 Summer budget changes apply Scenario 1b, counterfactual, ignoring changes announced in the 2015 Summer Budget 2015 Source: House of Commons Library Briefing Paper CBP , , Without the changes would gain 4,848 during the Parliament

5 Many will find that their household income is cut by 1,000, 2,000 or even 3,000/year. Labour is totally opposed to these changes The increase in the national minimum wage is phased in over five years but the big tax credit cuts hit immediately next year. Over 3 million working families will lose over 1,000 /year on average and work incentives will be cut. That is the reason we voted against the budget. When the government bring forward the statutory instruments to implement these huge cuts to the incomes of working families we will vigorously and fiercely oppose them Opposition spokesperson Stephen Timms MP (Hansard, 20 July 2015) The changes will affect UNISON members in schools. The changes also have an impact on members a significant way up the pay scale.

6 This is taken from the Low Income Tax Reform Group website How will the tax credits cuts in April 2016 affect you? Most tax credit claimants will have their working tax credit (WTC) and child tax credit (CTC) reduced from April 2016 after the Government announced changes to the working tax credit threshold and taper rate in the Summer Budget. Unless you are a tax credits expert, these changes may have passed you by. LITRG have now produced a quick reference table to help claimants see their potential losses from April Our article published on 9 July explained the Summer Budget tax credit changes in detail. However, many existing claimants are still unaware that the changes to the WTC threshold, WTC taper rates and CTC threshold may have a significant impact on the amount they receive from April Tax credit calculations are complicated and they depend on a number of factors. We have produced a quick reference table that shows potential maximum losses from April 2016 at different levels of income. This table is a guide only and we advise anyone who may be affected and wishes to fully understand the impact of the changes on their own particular circumstances to contact HMRC or a local welfare rights organisation. Tax credits cannot be considered in isolation from other changes such as increases in the income tax personal allowance, the new living wage set to take effect in April 2016, possible changes to passported benefits such as free school meals and other means-tested benefits such as housing benefit. Some of these other changes may lessen the impact of the tax credit cuts, although, to date, it remains uncertain whether or how entitlement to the passported benefits themselves may be affected by the changes to the tax credits system. How to use this table The following table shows the maximum loss of tax credits, at various levels of income, from the changes set to take effect in April You should look at the column that fits your circumstances if you are entitled to WTC only then use the figures in column 1, if you are entitled to CTC only then use the figures in column 3. If you are entitled to both WTC and CTC, even if you do not receive any WTC because of your income level, then you should use column Find in the left hand column the level of your income (or joint income if you are claiming jointly with a partner). The income figure is the one used to calculate your tax credits award for 2015/16, and we have assumed your income for tax credit purposes will not change for 2016/ The table shows your maximum annual loss based on the level of income. If your annual award is more than that amount, it is likely to reduce by that amount. If it is less than that amount, it is likely to reduce to nil. See the examples below the table.

7 Maximum loss (1) (2) (3) Income WTC only WTC/CTC CTC only 2, , ,000 1,032 1, ,000 1,344 1, ,000 1,484 1, ,000 1,624 1, ,000 1,764 1, ,000 1,904 1,904 1,860 18,000 2,044 2,044 2,044 20,000 2,184 2,184 2,184 22,000 2,324 2,324 2,324 24,000 2,464 2,464 2,464 26,000 2,604 2,604 2,604 28,000 2,744 2,744 2,744 30,000 2,884 2,884 2,884 32,000 3,024 3,024 3,024 34,000 3,164 3,164 3,164

8 Maximum loss Maximum loss (1) (1) Income WTC only Income WTC only 36,000 3,304 3,304 3,304 38,000 3,444 3,444 3,444 40,000 3,584 3,584 3,584 Example 1 Ben is married with one child. He works full-time, and he and his wife have a joint income of 20,000. They expect to have the same income and circumstances in 2016/17. Their tax credits award for 2015/16 is 2,537. As Ben and his wife are entitled to both WTC and CTC, they need to use column (2) in the table. At an income of 20,000 the maximum loss will be 2,184. As Ben currently receives more than this, he can deduct the potential loss from his current award and estimate that his 2016/17 tax credits will be 353. Example 2 Rachel is a single parent with one child. She works more than 30 hours a week and has an income of 28,000. She pays qualifying childcare costs of 100 a week for 48 weeks. Her tax credits award for 2015/16 is 2,617. As Rachel is entitled to both WTC and CTC, she needs to use column (2) in the table. At an income of 28,000 the maximum loss will be 2,744. As this is more than her existing tax credits award, it is likely that Rachel will receive no tax credits in 2016/17.

9 Example 3 Fiona is a single parent with one child, and she is in paid employment but does not work enough hours to qualify for working tax credit. Her income is 4,000. Her tax credits award for 2015/16 is 3,325. As Fiona is entitled to CTC only, she needs to use column (3). At an income of 4,000 Fiona s tax credits will not be affected by the changes announced. This is because her income is less than the CTC threshold in both 2015/16 and 2016/17. Example 4 Jonathan is a single parent with one child. He is not in paid employment but has a rental property which produces an income, for tax credits purposes, of 14,000 a year. His tax credits award for 2015/16 is 3,325. As Jonathan is entitled to CTC only, he needs to use column (3). At an income of 14,000 the maximum loss will be 900. This is less than his 2015/16 award, so his 2016/17 award will be 3,325 less 900 = 2,425. Important information about the table If you are using the table please bear in mind that: It is intended to be a helpful, rough guide indicating maximum possible losses all claimants should check their own position with HMRC or a welfare rights specialist. The table assumes no change in income for tax credit purposes or circumstances between the two tax years. Those claiming the disability elements (WTC or CTC) will see a small increase in their elements which should reduce the maximum loss slightly. All calculations are based on annual tax credits figures. The loss of tax credits should not be looked at alone. The impact of the tax credits changes illustrated here may be affected by increases in the income tax personal allowance, the new living wage set to take effect in April 2016, changes to passported benefits such as free school meals and other means-tested benefits such as housing benefit. Some of these changes to other entitlements may offset the loss of tax credits. For example, a reduction in WTC may mean an increase in housing benefit for some claimants. It is not known what changes, if any, will be made to passported benefits as a result of the changes to the tax credits system.

10 If you are paying back a tax credit overpayment from previous years, you may already be receiving less in tax credits than you are entitled to in order to pay the overpayment back. From April 2016, families with income of 20,000 or more may have their awards reduced by 50% (currently 25%) to repay previous overpayments. This is based on individual circumstances and cannot be shown in the table. ( ) Contact: Victoria Todd (please use form at or follow us on

11 What can you do? 1. UNISON has also produced a map showing the numbers of families and the number of children in those families that will be affected across the UK. By clicking on each constituency people can see whether their local MP voted for or against the cuts to tax credits. Check the map to see how your area is affected. 2. UNISON is urging people whose MP voted for the cuts to write to them explaining why the changes will be so damaging. 3. If your MP voted for the cuts write to the local paper either individually or as a group 4. Share this briefing with your school governors and your Headteacher and ask them to support the children that will be affected at your school, and the staff, by writing to the local MP or to the Department for Education expressing their concerns.