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Tax Credit Briefing 3 Childcare costs
Introduction
Childcare
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 who can claim
the childcare element, the definition of eligible childcare costs, how to
calculate relevant childcare costs and what amounts to relevant changes of
circumstances. 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% 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 and, in default of this, 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 is receiving:
3.
Qualifying age for a child
The
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 their fifteenth birthday, or their sixteenth birthday if they are
disabled. ‘Disabled child’ means a child:
4.
Maternity leave
It is not possible to claim childcare costs for a new baby before returning to work. However, it is possible to claim childcare costs for other children during a period of maternity leave provided that the claimant was in qualifying remunerative work and was responsible for the other children immediately before the arrival of the new child and the commencement of the maternity leave. 5.
Relevant childcare
Regulation
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 amount of the childcare element
Step
1. Work out the number of days in the relevant period
The
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 charge
This
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. Where
childcare is paid on a weekly basis and the charge is a fixed weekly amount, add
together the charges in the most recent four weeks before the claim and divide
the total by four.
If
the claimant has entered into an agreement for childcare which will commence
during the period of the award, the average weekly charge for the childcare 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 the actual childcare costs for the relevant period
To
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 and 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 period
Divide
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 daily rate by
the number of days in the relevant period. Step
5. Calculate the childcare element for the relevant period
Take
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. Example
Tracy
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
1
Tracy’s
relevant period is one year (365 days). Step
2
Her
relevant childcare charge is £140. (This is her average weekly charge). Step
3
£140
x 52 = £7,280 Step
4
The
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
5
The
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 circumstances
A
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 immediately if the
claimant ceases to qualify for WTC. A claimant should inform HMRC
straightaway if:
8.
Useful addresses
Postal correspondence
Tax Credit Office Preston PR1 0SB
Local enquiry centres
0845 302 1481 Antrim 12-14 Castle Street Antrim BT41 4JE Ballymena Kilpatrick House, 38-54
High Street Ballymena BT43 6DR Banbridge Bridgwater 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 helpline
0845 300 3900 0845 300 3909 (text phone) Welfare rights workers priority helpline
0845 300 3946 Website
Adjudicator’s office
Haymarket House 28 Haymarket London SW1Y 4SP Telephone
020 7930 2292 Website
Office of the Parliamentary Commissioner
for Administration
Millbank Tower, Millbank London SW1 4QP Telephone
0845 015 4033 E-mail
opca-enqu@ombudsman.org.uk Website
Belfast office
Law Centre (NI) 124 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 office
Law Centre (NI) 9 Clarendon Street Derry BT48 7EP Advice line: 028 7126
2433; 9.30 am-1.00 pm (Monday to Friday) Website
©
Law Centre (NI) 2008 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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