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Child Tax Credit and Working Tax Credit

Tax credits are payments from the Government. Although they are administered by HM Revenue & Customs (HMRC), these credits have nothing to do with the tax system and are not connected with how much tax you pay.

If you are responsible for at least one child or young person who normally lives with you, you may qualify for Child Tax Credit (CTC). You do not have to be working to claim CTC.

If you work, but are on a low income, you may qualify for Working Tax Credit (WTC). WTC is based on the hours you work and get paid for, or expect to be paid for. You can claim whether you are an employee or a self-employed person, but unpaid work does not count for WTC.

You can often get both types of tax credits. They are not taxable.

The general rule is that to qualify for tax credits you must be aged 16 or over and usually live in the United Kingdom. Couples must claim tax credits jointly, and entitlement will be based on the combined income of both partners.

Families with children are still able to claim Child Benefit, which is unaffected by, and continues to be paid separately from, the tax credits. From 7 January 2013, Child Benefit will be clawed back where at least one parent is earning more than £50,000.

What hours do you need to work?

If you are not responsible for children, you need to work the following hours to get WTC:

  • if you are aged 25 or over, you need to do paid work of at least 30 hours a week
  • if you have a disability and are 16 or over, you need to do paid work of at least 16 hours a week
  • if you are aged 60 or over, you need to do paid work of at least 16 hours a week

If you are responsible for children, you need to do paid work of at least 16 hours a week to get WTC. You also need to be aged 16 or over.

From 6 April 2012, the rules for couples with at least one child have changed. In most cases, to qualify for WTC your joint working hours will need to be at least 24 a week. This will mean:

  • if you both work, your joint weekly hours must be at least 24, with one of you working at least 16 hours a week
  • if only one of you works, that person must be working at least 24 hours a week

There are some exceptions to the new rules. If one of you is aged 60 or over, you will still qualify for WTC as long as the person who is 60 or over works at least 16 hours a week.

If one of you gets extra WTC because of a disability, you will still qualify for WTC if the disabled person works at least 16 hours a week and qualifies for the disability element of WTC.

When do children cease to be eligible?

You can usually claim CTC for children who live with you until 31 August after their 16th birthday. After this, you can still claim for them so long as they are under 20 and in full-time non-advanced education or approved training.

How much do you get?

The amount of tax credits you get depends on various factors, such as:

  • how many children you have living with you
  • if you live with someone as a couple
  • whether you work - and how many hours you work
  • if you pay for childcare
  • if you or any child living with you has a disability

Your payments also depend on your income. The lower your income, the more tax credit you can get.

These are general limits and do not necessarily apply to everyone. For example if you have a large family, pay a lot in childcare, or have a disability, the income limit could be considerably higher. You need to make a claim to get a definite answer to your entitlement.

Tax credit awards are based initially on income for the previous year. At the end of the tax year, when income for the year is known, the tax credits position is finalised. Any increase in income will be ignored to the extent of £5,000, but income changes above this limit will result in a reassessment.

During the year

  • if income rises significantly, you should tell HMRC so that the award can be adjusted. Otherwise, you may receive too much tax credit and have to pay it back when the award is finalised at the end of the year
  • if income falls, you can ask to have your tax credits paid on the basis of an estimate of your income for the year. But if you do that, you will have to tell HMRC straight away if you think your income will be higher than your estimate
  • Any relevant change in circumstances must be notified to HMRC within three months

Income for tax credit purposes

Income is broadly aligned with the claimant’s gross taxable income (ie before the deduction of income tax and National Insurance Contributions). Earnings will be taken from P60 certificates for employees and self assessment returns for self employed claimants. There are, however, exceptions to the alignment, including:

  • not all benefits in kind are included
  • the first £100 of statutory maternity pay (SMP), statutory paternity pay (SPP) and statutory adoption pay (SAP) does not count
  • apart from earnings and taxable social security benefits, most other annual income is taken into account only to the extent that it exceeds £300
  • contributions to approved pension schemes and payments under the Gift Aid scheme are deducted

It is vital to understand that tax credits cannot be backdated for more than one month. For more information about tax credits, use the Tax Credit Helpline 0345 300 3900, or visit the HMRC website (www.hmrc.gov.uk/taxcredits).

2014-15 Rates and thresholds

Working Tax Credit 1
Per year
Basic element
£1,940
Additional couple's and lone parent element
£1,990
30 hour element
£800
Disabled worker element
£2,935
Severe disability element
£1,255
Childcare element
Per week
- maximum eligible cost
£300
- maximum eligible cost for 1 child
£175
- percentage of eligible costs covered
70%

Notes

  1. Apart from those mentioned in the footnote below, the elements for which claimants are eligible can be added together to arrive at the maximum amount of tax credit available.  
Child Tax Credit
Per year
Family element 1
£545
Child element 2
£2,750
Disabled child additional element 2
£3,100
Severely disabled child additional element 2
£1,255

Notes

  1. Only one family element is available per family.  
  2. As well as one family element, a family will be entitled to a child element for each child for whom it has responsibility. For each child, the child elements which are appropriate may be added together to arrive at the maximum amount available for that child.

 

Common features
Per year
Income threshold
£6,420
Withdrawal rate
41%
First threshold for those entitled to Child Tax Credit only
£16,010
Income rise disregard
£5,000
Income fall disregard
£2,500

Those with income below the threshold will be paid the full amount of tax credits available for their circumstances. Those with income over the threshold will have their maximum tax credit award tapered away by 41p for every excess £1 of gross income. Claimants eligible for both WTC and CTC will have their maximum awards reduced in the order:

  • WTC apart from childcare;
  • The childcare element of WTC
  • CTC family element; and finally
  • CTC apart from the family element

Example

Couple with two children where both parents work at least 16 hours per week, paying £220 a week on childcare:

   
£
 
£
Working Tax Credit - Basic element
1,940
 
 
  - Second adult element
1,990
 
 
  - 30 hour element
800
 
 
  - Childcare element (220 x 70% x 52)
8,008
 
12,738
   
 
 
 
Child Tax Credit - Child element (2,720 x 2)
5,500
 
 
  - Family element
545
 
6,045
   
 
 
 
Maximum Award  
 
 
£18,783

The maximum award is payable until family income reaches £6,420 (threshold).

For income over this threshold, there is a taper of 41p for each additional £1 of income, so that, for example, the WTC basic element will be lost when income reaches £6,420 + (1,940 x 100/41) = £11,152

The following table shows the effect of these principles in setting income levels where the various elements are lost:

Element
Income band
Cumulative Income
Reduction
Net award
To income threshold
£6,420
£6,420
 -
£18,783
WTC Basic
£4,732
£11,152
£1,940
£16,843
WTC second adult
£4,854
£16,006
£1,990
£14,853
WTC 30 hour
£1,951
£17,957
£800
£14,053
WTC childcare
£19,532
£37,489
£8,008
£6,045
CTC child
£13,415
£50,904
£5,500
£545
CTC family
£1,329
£52,233
£545
-

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