Friday, 22 May 2015

CORONATION STREET AND ABOLISHING TAX CREDITS: HOW THE UNIVERSAL CREDIT COULD AFFECT YOU

Many will be blissfully unaware that a new Universal Credit was introduced by the government in 2012 as part of its welfare reforms. It replaces seven of the means tested benefits including child and working tax credits. It has already been introduced in different parts of the country and now the Tories have obtained a majority it is going to be phased out across to all parts of the country by 2017.

What does this mean for me?

It will mean that if you receive tax credits (or other means tested benefits) you will receive just the Universal Credit. Given that the government needs to find £12bn in welfare savings I very much suspect its introduction will mean, in one way or the other, some form of cut to the amount of financial help you receive.

Why is a family solicitor telling me this?

Good point. Well, there is more…

Presently any child or spousal maintenance payments from an ex-spouse are not taken into account when calculating tax credits. They are completely ignored. A claimant therefore receives his or her maximum entitlement in tax credits.

Whilst child maintenance will continue to be ignored, the calculation of the Universal Credit will take into account any spousal maintenance a claimant is receiving. It will deduct spousal maintenance in a pound for pound way from any Universal Credit calculation. So let’s say a claimant is receiving the Universal Credit of £900 p/m and spousal maintenance of £400 p/m. Under the ‘old’ rules they would receive £1,300 p/m. Under the new Universal Credit the spousal maintenance will be deducted and a claimant will receive just £900 (being £400p/m in maintenance and £500 for the Universal Credit (£900 - £400)).

This is a significant development. Tax credits are very often taken into account when looking at maintenance for an ex-spouse. Many hard working people rely heavily on tax credits as a way of financially supporting their family. This is even more relevant in single parent families after a separation.

What are the implications?