My client's IB ended at the beginning of March when she failed her PCA. She notified the TCO and her IB was removed from the assessment leaving only her partner's earnings as the taxable income on the claim.

Their 03-04 Tax Credit award was finalised on the basis that IB had ended when it did, and their new award for 04-05 was based only on her partner's earnings.

My client won her IB appeal this morning. IB will be re-instated retrospectively from the beginning of March, leading to an increase of over £2500 in their taxable income for the current year.

Does the £2500 disregard rule apply to increases in income above the amount originally used in the assessment (in this case partner's earnings only) or to actual 03-04 income ?

If the former applies my client will be better off in Tax Credit terms now than she would have been if she hadn't lost her IB in the first place and included it on her 04-05 renewal claim.

"My client's IB ended at the beginning of March when she failed her PCA. She notified the TCO and her IB was removed from the assessment leaving only her partner's earnings as the taxable income on the claim."

So she had 11 months worth of IB in receipt in tax year 03-04.

"Their 03-04 Tax Credit award was finalised on the basis that IB had
ended when it did, and their new award for 04-05 was based only on her partner's earnings."

Their initial award for 04-05 would have been based on the PY (03-04) income figure (as used to reconcile their 03-04 award), which will have included all but one month of IB income.

Did she subsequently request a re-assessment, on the grounds that CY
(i.e. 04-05) income would, lacking the IB, be less than PY? Or did the Revenue do this automatically?

"My client won her IB appeal this morning. IB will be re-instated
retrospectively from the beginning of March, leading to an increase of over £2500 in their taxable income for the current year."

So she will receive 13 months worth of IB income in this tax year.

Assuming no other changes, their CY income will exceed their PY income by the equivalent of two months of IB. This is less than £2500 so at the close of this tax year their entitlement will be reckoned on a PY income basis.

This is the same basis on which they would have been assessed if the IB award had never been put on hold. The only difference is that the PY income figure is less, by one month of IB, than it would otherwise have been.

Their initial award next tax year will be (again assuming no other
changes) a slight underpayment, because based on 04-05 income including an extra month of IB.