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HMRC internal manual

Tax Credits Manual

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HM Revenue & Customs
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Miscellaneous (A to B): Award calculation stage 3b - Income periods (Info)

The income period taken into account for award calculations is based on the income received for a full tax year. The particular tax year for an initial award calculation is fixed but can change in response to a change of circumstances during the award period.

Initial awards made for all or part of the first tax year (06/04/2003 to 05/04/2004) will be assessed on a previous year (PY) basis. The year that will be used is the tax year 06/04/2001 to 05/04/2002.

The total family income for that year is the figure that will be used in the calculation. However, where the claim has been made by a couple who were not together in the 2001-2002 tax year, the family income will still be the sum of the income of each adult in that tax year.

Initial awards made for all or part of a later year will also be assessed on a PY basis, but using the family income for the current year minus one (CY-1).

Where the claim has been made by a couple who were not together in the relevant year, the family income will still be based on the sum of the income of each adult in the appropriate year.

For example: an initial award for the tax year 2005-2006 will be based on income for the 2004-2005 tax year (CY-1).

Note: For further details on the income amount needed for tax credit purposes, follow the guidance in TCM0116000.

For the majority of customers, the income of one full tax year will be only slightly different to that in the next. Using the previous year income first will enable an applicant to use PAYE and other tax forms and records to supply an income amount that will be a close approximation of the income for the tax year of the award - the current year (CY).

When the award is finalised after the end of the CY, the income to be used in the final calculation will be as follows

  • where the CY income is less than the PY income, the CY income is to be used
  • where the CY income is more than the PY income but exceeds it by no more than the Income Increase Allowance (IIA) for the year, the PY income is to be used. For the current IIA, follow the guidance in TCM0132420 
  • where the CY income is more than the PY income and exceeds it by more than the IIA for the year, the CY income minus the IIA is to be used. For the current IIA, follow the guidance in TCM0132420.

Customers whose circumstances change and who realise that their income for the CY will either be less than that for the previous year or will exceed it by more than the IIA, will have the opportunity to submit their best calculation of their CY income at any time during the award period.

Where the customer notifies you of the CY income figures, the revised award calculation will determine the income to be used.