Child Tax Credit and Working Tax Credit
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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
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
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
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
- 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.
About the Author
Jonathan Amponsah BSc FCCA is a UK Tax Expert and the founding partner of
A M P Associates –
A specialist firm of chartered certified accountants and tax advisers based in
London and Surrey. Jonathan advises on a wide range of business and tax issues
and he is recognized for his proactive and innovative approach to taxation.
Jonathan can be contacted on 0845 009 8845 or email:firstname.lastname@example.org
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Article Published/Sorted/Amended on Scopulus 2008-04-23 16:06:33 in Tax Articles