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Tax credits

One-off payments, such as bonuses, can affect how much you’re entitled to on tax credits

12 March 2024

0 min read

How tax credits can be affected

Tax credits are only re-worked for the current tax year if your total income before tax and National Insurance increases by more than £2,500 from the previous tax year.

You need to check how much income you received in the previous tax year (which should be shown on your tax credit assessment, or on your P60 or final payslip prior to the previous 5 April) and work out if your income for the current tax year (i.e. from the last 6 April to the next 5 April) will be more than £2,500 higher.

Even if your income does increase by more than £2,500, the first £2,500 increase will be ignored in re-calculating your tax credits, so your tax credit award for the current tax year will only fall by 41% of the excess of your increased income over £2,500.
 
For example, if your income has increased by a total of £3,000 compared to last year’s income, your tax credit award for 2024/25 will reduce by £3,000 - £2,500 = £500 x 41% = £205 less.
 
There is more detailed advice at: www.entitledto.co.uk/help/how-tax-credits-work  

If your income will increase by less than £2,500 you do not need to do anything.

Reporting one-off payments

If your income will increase by more than £2,500 from last year’s - or if you think it may - you need to tell the Tax Credit office within 30 days of receiving the increase – preferably immediately.
 
If you don’t report in time you may be fined up to £300.
 
To report your income increase, ring the helpline on 0345 300 3900 or report online at www.gov.uk/changes-affect-tax-credits 

Publications

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Worried about money? Know Your Rights (Leaflet 385)

16 April 2024

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