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Updated March10
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Tax Credit Briefing 3 Childcare costs
IntroductionChildcare costs are a major financial strain on many families. Working Tax Credit (WTC) offers help in certain circumstances to those who qualify for the basic element of WTC. Childcare costs cannot be claimed as part of Child Tax Credit or on their own. This briefing covers the law on the childcare element of WTC, including:
Throughout the document, the term claimant refers to an individual claimant if the application is made by a single person or lone parent or to both partners in a heterosexual or same sex couple as couples need to make joint claims for tax credits. 1. What is a childcare element?WTC is a means-tested benefit payable to working families depending on their financial circumstances. The childcare element is an amount which can be claimed as part of WTC. The maximum rate of the childcare element is 80 per cent of actual childcare costs of up to £175 per week for one child or £300 per week for two or more children. This means that the most a claimant can receive in childcare element is £140 per week if s/he has one child or £240 per week where s/he has two or more children. 2. Who can claim?In order to claim a childcare element of WTC, the claimant must be responsible for at least one child. The claimant need not be the child’s parent. Regulation 3 of the Child Tax Credit Regulation 2002 provides that a claimant shall be treated as responsible for a child or qualifying young person who is normally living with her/him. The regulation sets out who is treated as responsible where there are competing claims. Problems may arise where residency of a child is shared. In such cases, the child will be treated as the responsibility of the person who has main responsibility for her/him. If residency is equally shared, the law provides that only one claimant will be able to claim WTC for the child and relevant childcare costs. HMRC will, in the first instance, give the parties an opportunity to decide which one will be treated as mainly responsible for the child. If there is no agreement, the Board of HMRC will make the decision in light of all the evidence. The decision can be appealed. The Board of HMRC will often follow the Child Benefit decision on the matter but is not obliged to do so. A childcare element can be paid to certain people incurring charges for relevant childcare, namely:
A claimant is treated as incapacitated if s/he:
3. Qualifying age for a childThe child or children being claimed for must meet the qualifying age. For the childcare element that age is from birth up to the first Saturday in September following the child’s fifteenth birthday, or her/his sixteenth birthday if s/he is disabled. ‘Disabled child’ means a child:
4. Maternity leaveA person can claim the childcare element for a new baby as well as for any other children for whom s/he is responsible for while s/he is on Statutory Maternity or Adoption Leave (for first 39 weeks only), Paternity Leave (two weeks) or while being paid Maternity Allowance. 5. Relevant childcareRegulation 14 of The Working Tax Credit (Entitlement and Maximum Rate) Regulations 2002 defines ‘relevant childcare’ as childcare provided by the following:
The Approval of Home Child Care Providers Scheme came into operation in Northern Ireland on 6 April 2006 [under the Tax Credits (Approval of Home Child Care Providers) Scheme (Northern Ireland) 2006]. This scheme extends the scope of relevant childcare to childcare provided in a child’s own home by a person approved to care for children by a health and social care trust. The approval conditions are that a person:
The following childcare is excluded:
Under the scheme, a ‘relative’ is defined as a step-parent, grandparent, brother, sister, uncle or aunt. 6. How to calculate the childcare elementStep 1. Work out the number of days in the relevant periodThe relevant period is based around the tax year running from 6 April to 5 April. If a claim is made at the beginning of a new tax year, the relevant period will be one year. If the claim is made after the beginning of the tax year, the relevant period will be from the date the claim is made to the end of the tax year. If there is a change in circumstances during the relevant period, that relevant period will end and a new one will begin, taking account of the new circumstances. The new relevant period will again end at the end of the tax year. Relevant changes of circumstances are covered in paragraph 7 below. Step 2. Calculate relevant childcare chargeThis is an average weekly charge. The method of calculation depends on whether childcare is paid weekly, monthly or at some other interval and whether the amount varies.
HMRC has discretion to use any method which it considers reasonable to decide the weekly childcare figure where in its opinion it has insufficient information from the claimant to establish the weekly charge. If the claimant has entered into an agreement for childcare which will start during the period of the award, the average weekly charge can be based on a written estimate of the future weekly charges provided by the claimant. When the average weekly childcare charge has been decided, round the figure up to the nearest whole pound. Step 3. Calculate actual childcare costs for the relevant periodTo do this, multiply the weekly charge by 52 to calculate the annual amount. Divide this figure by the number of days in the current tax year to find the daily rate. Then multiply this daily rate by the number of days in the particular claimant’s relevant period. This gives the childcare costs for the relevant period. Step 4. Calculate maximum eligible childcare costs for the relevant periodDivide the maximum eligible weekly childcare cost by seven to find the daily rate. Round this figure up to the nearest penny and then multiply this by the number of days in the relevant period. Step 5. Calculate the childcare element for the relevant periodTake the lower of the two figures found in steps 3 and 4 and calculate 80 per cent of that figure. Round that up to the nearest penny: this gives the childcare element for the relevant period. ExampleTracy paid a fixed amount of £140 every week in eligible childcare costs for her two children, during each of the four weeks before her application for tax credits was made. She makes an application for WTC in advance of the new tax year. She will continue to pay £140 per week for the same childcare throughout the tax year. Her childcare element for the whole of a tax year is found as follows. Step 1Tracy’s relevant period is one year (365 days). Step 2Her relevant childcare charge is £140. (This is her average weekly charge). Step 3£140 x 52 = £7,280 Step 4The maximum weekly eligible childcare cost for Tracy is £300, as she has two children. The daily rate is £300÷7=£42.86 (rounded up to the nearest penny). The annual rate is £42.86x365 (see above) =£15,643.90 Step 5The lower figure from steps 3 and 4 is £7,280. Childcare element is 80% of £7,280=£5,824. Tracy’s childcare element for the relevant period (in this case, one whole tax year) is £5,824. 7. Relevant changes of circumstancesA claimant will have a duty to notify HMRC of any relevant changes of circumstances during the period of the award. This is defined in regulation 16 of The Tax Credit (Entitlement and Maximum Rate) Regulations 2002 as including:
The change must be notified to HMRC within one month of the change in the childcare arrangements. If the childcare costs increase, HMRC can adjust an award to take the increase into consideration from the first day of the week from which the change occurred. However, if there has been a delay in notification, the increase can only be backdated up to a maximum of three months. Where the childcare costs have decreased or have become ineligible, the award will be adjusted from the first day of the week following the four consecutive weeks in which the change occurred [regulation 16(5)(b) Working Tax Credit (Entitlement and Maximum Rate) Regulations 2002]. The child care element is part of WTC, so any payments will stop if the claimant ceases to qualify for WTC. A claimant should inform HMRC straightaway if:
The government announced in the recent Budget report that it will amend the law to make it clear that from 31 July 2009 the current four week run-on of entitlement to WTC also includes the childcare element, including for couples where only one partner stops working. This will help people experiencing changes to their work situation by continuing to provide support for four weeks after people cease to qualify for WTC. 8. Useful addresses8.1 Her Majesty’s Revenue and CustomsPostal correspondenceTax Credit Office, Preston PR1 0SB Local enquiry centres0845 302 1481 Antrim 12-14 Castle Street, Antrim BT41 4JE Ballymena Kilpatrick House, 38-54 High Street, Ballymena BT43 6DR Banbridge Bridgewater House, 25 Castlewellan Rd, Banbridge T32 4AX Belfast Beaufort House, 31 Wellington Place, Belfast BT1 6BH Coleraine Fern House, 1A Adelaide Avenue, Coleraine BT52 1AJ Craigavon Marlborough House, Central Way, Craigavon BT64 1AH Enniskillen Abbey House, Head Street, Enniskillen BT74 7JL Lisburn Moira House, 121 Hillsborough Road, Lisburn BT28 1LA Derry Foyle House, Duncreggan Road, Londonderry BT48 0AA Newry Downshire House, 22 Merchants Quay, Newry BT35 6HS Telephone helpline0845 300 3900 0845 300 3909 (text phone) Welfare rights workers priority helpline0845 300 3946 Website8.2 AdjudicatorAdjudicator’s office8th Floor, Euston Tower, 286 Euston Road, London NW1 3US Telephone020 7930 2292 Website8.3 OmbudsmanOffice of the Parliamentary Commissioner for AdministrationMillbank Tower, Millbank, London SW1 4QP Telephone0845 015 4033 phso.enquiries@ombudsman.org.uk Website8.4 Law Centre (NI)Belfast office124 Donegall Street, Belfast BT1 2GY Advice line: 028 9024 4401; 9.30 am-1.00 pm (Monday to Friday) Textphone: 028 9023 9938 Western Area office9 Clarendon Street, Derry BT48 7EP Advice line: 028 7126 2433; 9.30 am-1.00 pm (Monday to Friday) Website
© Law Centre (NI) June 2009 All rights reserved. No part of this publication may be reproduced, stored on any retrieval system or transmitted in any form by any means, including photocopying and recording, without the prior written permission of Law Centre (NI). |
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