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When a person receives a Winding up lump sum communation of

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When a person receives a Winding up lump sum communation of pension benefits giving up any right to a future income what effect if any would it have on their working tax credit claim
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.

Your working tax credit award is only an interim award and will be adjusted at the end of the year when your actual income for the year is known. The adjustment, if any, is then applied to next years interim award.

The commutation of a pension benefit is not always classed as part of your income. The regular weekly/monthly/annual payments are, of course, income. Lump sums of 5K or under are disregarded in the tax credit system, but this disregard level has gone up and down like the proverbial yo-yo over that past few years. 5K is the current rate, it was 25K until April 2011 when it dropped to 10K dropping again to 5K from April 2013, so you see the timing is critical. This lump sum might have a dramatic effect on your tax credit for next year when reported at the end of this.

Here is a summary from Revenue Benefits of how this fiendishly complicated benefit is operated:

'Introduction

The reason why over payments are endemic in the tax credits system is that it works on the basis of pay now, establish entitlement later. Unlike other welfare benefits, entitlement to tax credits is based on the tax year, 6 April to the following 5 April, and it is not until after the end of the tax year that entitlement for that year can be finally determined.

In summary, the claim ‘cycle’ works like this:

An initial award is made following receipt of the claim, based on the claimants’ current circumstances and income from the previous year.
As the year progresses claimants can notify changes of circumstances. Certain changes must be reported whilst it is desirable to report others. Income changes do not need to be reported, but claimants can keep HMRC updated as to their estimated earnings for the current year.

After the end of the year, HMRC send the claimant(s) renewal papers, the purpose of which is to determine actual entitlement for the year just ended and, if appropriate, to act as a claim for the year ahead. HMRC do this by asking the claimant to confirm their income and circumstances for the year just ended.'

If there is a substantial over issue of tax credits and the error is in the Tax Credit Office (TCO) and not yours you may, and I only say may, have a case for them to be written off. I do know of a situation where the TCO made the mistake and wrote off some BGP 2500 of over payments, but this was a rare occurrence.
Expert:  bigduckontax replied 2 years ago.
AMENDMENT

Last paragraph line 2 delete 'BGP' insert 'GBP!'
Expert:  Nicola-mod replied 2 years ago.
Hello,

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Thank you,
Nicola

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