Tax credit cuts hit families hard

20 April 2011

Thousands of parents can expect to see their income's fall as the government's long-awaited tax credit changes come into effect. Letters have been sent out to families, informing them of the cuts.

One major change relates to the "income disregard", this relates to how much your income can change within one year before tax credits are affected.

In the 2010/2011 tax year your income could increase by up to £25,000 without having any impact on the tax credits you receive in that year. This year however, the limit will be cut to just £10,000. This means if your income goes up by more than £10,000 from the previous tax year, the amount of tax credits you receive for the current tax year will be reduced.

Other changes

The income limit for child tax credit is also going down. In the last tax year the income limit was £50,000, as of 6 April this has been reduced to £40,000. If you earn over this amount your basic child tax credit payment of £545 will also be reduced.

The amount of reduction families will see if their income increases over the £40,000 threshold has increased. Previously parents would lose 39p of their allowance for every £1 they earned over the threshold. This has now increased to 41p.

Families are being hit hard as the hangover from the recession continues and austerity measures kick in.

A study by Asda has revealed that in March 2011, family spending power fell by £10 a week. The average family had £172 per week to spend in March, 5.6% down from this time last year.



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