Income disregards for tax credits

From 6 April 2016, the threshold for income disregards for tax credits has been reduced from £5,000 to £2,500. This means that if your income increases within the tax year, the amount ignored when calculating tax credit entitlement is now lower—making it more likely that overpayments will occur.

Previously, an income increase of up to £5,000 would not affect tax credits for that year. With the reduction to £2,500, more households could face repayments if their income rises unexpectedly.

Why These Changes Matter

The reduction in income disregards for tax credits aligns the threshold for income increases and decreases. However, it also means that:

  • More people may be overpaid tax credits, leading to unexpected repayments.
  • Fluctuations in income will have a greater impact on tax credit entitlements.
  • Careful tax planning is now even more important to avoid financial surprises.

For those who rely on tax credits, understanding these changes is essential to managing finances effectively.

How Tax Planning Can Help

With careful planning, you can reduce the impact of these changes by:

  1. Managing income fluctuations – Spreading income over multiple tax years where possible.
  2. Reviewing tax-efficient strategies – Using allowances and deductions to minimise taxable income.
  3. Seeking professional advice – Ensuring you understand how changes in income affect your tax credit entitlement.

How We Can Help

At Lewis Brownlee, we provide expert advice on income disregards for tax credits and tax planning strategies to help you manage your financial position effectively. Our team can assist with:

  • Minimising tax credit overpayments through strategic planning.
  • Helping businesses and individuals optimise tax efficiency.
  • Advising on income management to reduce financial uncertainty.

If you’re concerned about how these changes affect you, contact us today via our contact page for expert guidance.

By planning ahead, you can avoid unexpected tax credit repayments and ensure your finances remain stable.