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Child Tax Credit and Working Tax Credit

The Child Tax Credit and Working Tax Credit are a key part of the Government's welfare policy which mixes up the tax system with the social security benefits system. The Government is also keen to reward those who are in work with extra benefits. These tax credits have nothing to do with the tax system. They are not refunds or credits of tax, but are simply benefits administered by HMRC.

For what is a relatively simple idea, the whole calculation of Child Tax Credit and Working Tax Credit can be extremely complex.

Child Tax Credit (CTC)

The main points are...

• CTC is paid to families with children.
• It is paid irrespective of whether the parents work.
• It is paid directly to the carer.
• It is paid to couples with a combined income of up to £58,175, the amount payable decreasing as you get nearer to this figure. The figure is £66,350 if there is one child under one year old.
• For 2008/2009 it consists of a family element of £545 per year (double in the year of a child's birth) and a child element per child of £2,085 per year.
• All families with an income below £50,000 a year will get at least £545 a year from the family element.
• Families with an incomes of up to £15,575 a year should also qualify for the child element of £2,085 a year for each child but this then decreases as income rises.

These are the rates for 2008/09...

Child element: £2,085 a year
Family element: £1,090 including baby element; £545 if youngest child is aged 1year or more.

Working Tax Credit

The main points are...

• The Working Tax Credit is paid  to people who are in work but who have a  a low family income. It is not just for those with children, it can also be paid to non-parents on low incomes.
• The working tax credit also has a childcare element where a lone parent, or both partners in a couple, both work for at least 16 hours a week. This is an amount of up to 80% of eligible childcare costs of up to £300 a week for a family that pays for childcare for  two or more children, or £175 a week where there are childcare costs for only one child.

These are the rates for 2008/09

Basic element: £1,800 a year
Disability element: £2,405 a year
Lone parent/couple element: £1,770 a year
30-hour element: £735 a year
Severe disability element: £1,020 a year
50-plus element (£1,235 a year for 16-29 hours work; £1,840 a year for 30 or more hours work)
Childcare element: Up to £175 a week for one child, or £300 a week for two or more children

Other Key Points

1. The claim for the credits is initially based on income of the previous tax year but is then adjusted based on the income of the actual tax year. Therefore as you do not yet know your income for the present tax year it is important to make a protective claim in case your income turns out to be lower than you expected. If not, any future claim can only be backdated for three months and other past tax credits are lost. For the self-employed whose income levels can fluctuate considerably this is particularly important.
2. As the tax credit award  is initially  based on the income of the previous year and then adjusted based on the actual income which may be higher, many people have been  overpaid and find themselves  in debt to HMRC. To avoid such overpayments, up to £25,000 of increased income is disregarded when the total family income increases between tax years.
3. To finalise the tax credit claim for the previous year an annual declaration has to be completed. The renewal date for Tax Credits for 2008/09 is 31 July 2008. Estimated figures can be used if necessary with final figures provided by the following 31 January.
4. Child benefit is not lost, is continued to be paid regardless of income and is unaffected by tax credits.
5. Some other benefits may be affected as they can count as income for some means-tested benefits.
6. There are time limits in place for reporting changes in circumstances. You must notify HMRC within one month if you...
   • Were working 30 hours or more per week but are now doing less;
   • Were working between 16 and 30 hours per week but are now doing less;
   • Are no longer responsible for a child or the child no longer qualifies for support;
   • Where there is a change in the composition of the adult members of the household such as one person leaves or dies, or a single claimant starts living with someone else;
   • The claimant, or one member of a claimant couple, goes abroad for more than 8 or 12 weeks;
   • Childcare costs drop by £10 a week or more on average for four weeks in a row, or cease altogether.

How We Can Help You
We can assist you with making your claim for child tax credit and working tax credit, protective claims and checking any claims you are receiving.

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