Tax credit deadline: don't miss out on your entitlement
Have you renewed your tax credits claim yet? You could be landed with an unexpected bill if haven't by 31 July.
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If you claim child tax credits but you haven't renewed them yet, you need to get a move on as the deadline of 31 July is fast approaching. If you don't renew them, you won't receive them and you may have to repay money.
If your family income is relatively high, your tax credit award for 2011/12 may be cancelled automatically. This is because the income threshold for the family element of tax credits (£545 a year) has been reduced to £40,000 from £50,000, so you may no longer entitled to any tax credits.
If you are in this position you should receive a letter from the tax credit office that states your tax credit claim will cease unless you renew within 30 days of the date of the letter. If your income is likely to drop in 2011/12 or has already dropped below £40,000, you should renew your tax credit claim without delay.
But even if you are no longer entitled to tax credits for 2011/12, you should still fill out the forms for your tax credits claim for 2010/11 to ensure you haven't been overpaid.
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How child tax credits work
When you make a claim for tax credits the amount of money you get (known as your tax credits award) is initially based on your total income for the previous tax year. Let's say you first make a claim from 6 August 2010, your tax credits award will initially depend on how much you earned in the year to 6 April 2010. You can alter your tax credits award at any time by telling the tax credits office your income or other circumstances have changed.
At the end of the tax year you must confirm your total income for the tax year that has just finished. That will finalise your tax credits claim for the year, and start off your claim for the next tax year. This is called renewing your tax credits claim. You must provide the figures (estimates will do) by 31 July.
Here's an example
Say your tax credits award from 6 August 2010 to 5 April 2011 was £150 a month. When you finalise your claim for 2010/11 by reporting your actual income for that year, your award for 2010/11 is not changed, as the first £25,000 of any increase in your income is ignored for that year (this is known as income disregard and is falling to £10,000 from tax year 2011/12). However, your new claim for 2011/12 is set at £100 per month based on your actual income for 2010/11.
This revision is not made by the tax credit office until 6 August 2011. So you have been paid £150 a month for the four months from 6 April to 6 August, but you were only due £100 a month. That adds up to an overpayment of £200 (4 X £50).
That's manageable, if slightly irritating, because the tax credits office will reduce your current award for 2011/12 by the overpayment of £200.
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What happens if you miss the 31 July deadline?
If you forget about your tax credit renewal until September and your tax credits suddenly stop on, say, 5 September, this is because your tax credits award for 2011/12 has been cancelled completely as you didn't renew your claim.
But you would have been paid £150 a month from 6 April to 5 September, as you didn't tell the tax credits office about your change in circumstances. And, as you didn't renew either, you wouldn't be due any money after that period, because your tax credits award will have been cancelled. So you would then owe £750 (5 x £150) to the tax credits office.
What if you now renew your claim?
If you did wish to renew after that, you must then submit a fresh tax credits claim for 2011/12. If you act really quickly and submit a tax credits claim on 6 September that claim can be back dated by three months to 6 June. So you would now due to be paid £100 a month from 6 June to 5 April, equalling £1,000 for the year.
As explained above, though, you will have already been overpaid £750 for 2011/12, which will be deducted from your 2011/12 award, thus leaving you with only £250 (£1,000-£750) for the year.
So you can see why it really is important to renew your tax credits claim for 2011/12 by 31 July.
What if I'm self-employed?
If you are self-employed and your accounts for 2010/11 are not finished by 31 July 2011, you can submit an estimated profits figure. However, if do that you must provide your final profits figure by 31 January 2012, which is also the online filing deadline for your 2010/11 self-assessment income tax return.
Please note that articles on MSN Money do not constitute regulated financial advice, which recommends a course of action based upon the specifics of your personal circumstances. The articles are intended to provide general personal financial information. We urge you to consult an Independent Financial Adviser (IFA) before making any important decisions about your finances. You can search for an IFA in your local area. Any statement regarding financial services products and tax liability is based on legislation and tax practices as at 6 April 2011, which is, of course, subject to change. The value of any tax benefits or reliefs depends upon the individual circumstances of the investor. When investment performance is mentioned you should remember that past performance is no guarantee of future performance. Where products have an underlying investment content, in many cases the value of the investment can fall as well as rise. For with-profit based investments, there is no guarantee as to the level of bonuses that will be declared, if any. Where mortgages or secured loans are explained do remember that your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it. All mortgages are subject to underwriting, status and are not available to people under the age of 18.
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