Please could somebody confirm the following or otherwise. The previous tax year income is taken as an estimate of the current year income. When the current year award is finalised the first £25000 of any increase from last year to this is ignored. However, if the claimant contacts the TCO to revise their current year income upwards or downwards, I am told that the £25000 disregard no longer applies. My client was on maternity pay much of last year so her earnings were relatively low. She has been back at work since the start of this tax year but expected her earnings this year to be no more than £25000 above last year's. She is now working 3 months notice but even if she earns nothing for the remainder of the year her total income this tax year will still be more than last year. If she revises her estimated income for this year, will they finalise this year's award on this year's income or last year's?

She shouldn't need to give any figure for this year as her actual income will not be more than £25,000 higher than the actual income last year. If she did give a higher "estimate" for this year than last year's income figure, this won't affect the tax credits as they will continue to be calculated on last year's figure, until the annual declaration and final award (at which point the increase in actual income of less than £25K will be ignored).

Where problems arise with estimates, as far as I can see, is where the current year income is estimated to be lower than the previous year, leading to a re-assessment upwards in the rate of tax credit, but the actual income turns out to be higher than the estimate.

My understanding is this, as an example -

Previous year income - £15,000
Estimate of this year's income £10,000
Actual income this year - £20,000

When the final award decision is made, the provisional awards will have been based on the £10K estimate. The TCO will disregard the difference between the the last year's actual income and this year's actual income (£5,000), as the actual increase is less than £25,000. However, there will be an overpayment of tax credits for the amount paid because of the £5,000 reduction in income provided by the estimate compared to the current year actual figure. So, instead of being overpaid because your actual income ids £10,000 higher than the estimate, you are overpaid on the basis that it was £5,000 more

"So, instead of being overpaid because your actual income ids £10,000 higher than the estimate, you are overpaid on the basis that it was £5,000 more"

Which is correct:

Previous income £15,000
New Income £20,000

£5,000 increase disregarded so TC based on £15,000.
Estimated Income £10,000

TC overpayment based on £5,000 under estimate