TCTM07042 - Calculation of awards: Step 3 - Determining whether income needs to be taken into account and applying income tapers
Income periods
Section 7(3), (5) and (7) Tax Credits Act 2002
The income period taken into account for awards calculations are
based on the income received for a full tax year.
Awards made for all or part a year will be
assessed initially on a previous year income (PY) basis. Awards
will be re-assessed where the current year income (CY) is different
to the PY income.
- If the current year income (CY) is less than the previous year
income (PY) the current year income will be used.(CY)
- If the current year income (CY) is more than £25,000
higher than the previous year income (PY) the income used will be
the current year income (CY) minus £25,000.
- If the current year income (CY) is less than £25,000
higher than the previous year income (PY) the income used will be
the previous year income (PY).
Again where the claim has been made by a couple who were not
together in either or both of the relevant tax years, the household
income will be the sum of the income of each adult in the
appropriate tax year.
Examples: There are currently only three examples
of which income period to use, these are:
Example 1: Tax Credit Act section 7(3)(e)
An initial award for the tax year 2008/09 (CY) will be based
on the income of the household in the PY (2007/08 tax year or
CY-1). If the household income in the CY (2008/09) is the same or
less than the PY income the CY income will be used.
CY income = £10,000
PY income = £20,000
Income used = CY income = £10,000
CY income is less than PY income therefore CY income is
used.
Example 2: Tax Credit Act section 7(3)(b)
An initial award for the tax year 2008/09 (CY) will be based
on the income of the household in the PY (2007/08tax year). If the
household income in the CY (2008/09) is more than £25,000
higher than the income in the PY, the award for the 2008/09 tax
year will be reassessed on the income of the CY less £25,000.
CY income = £50,000
PY income = £20,000
Income used = CY income minus £25,000 = £50,000 -
£25,000 = £25,000
CY income is more than £25,000 higher than PY income
therefore the CY income minus £25,000 is used.
Example 3: Tax Credit Act section 7(3)(a)
An initial award for the tax year 2008/09 (CY) will be based
on the income of the household in the PY (2007/08 tax year or
CY-1). If the household income in the CY (2008/09) is more than PY
income by not more than £25,000, the award for the 2008/09 tax
year will be based on the PY income .
CY income = £40,000
PY income = £20,000
Income used = PY income = £20,000
CY income is higher than PY income but not more than
£25,000 higher than PY income, therefore PY income is used.
Note:-
Prior to April 2006 the income disregard was £2,500.
After that date the income disregard has increased to
£25,000.
