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| Introduction
to Tax Credits
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Working
Families’ Tax Credit; |
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Disabled
Person’s Tax Credit; |
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personal
allowances and premiums for children and young people on Income Support and
Income-based Jobseeker’s Allowance (JSA(IB)) including the disabled child
premium and the enhanced disability premium for a child; |
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the
family premium for Income Support and JSA(IB); |
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increases
for child dependants for people on Incapacity Benefit, Carer's Allowance
(CA), Severe Disablement Allowance (SDA), Retirement Pension and bereavement
benefits. |
From 5 April 2004,
new Income Support and JSA(IB) claims do not include personal allowances and
premiums for children. Her Majesty’s Revenue & Customs (HMRC) intends to
transfer all personal allowances and premiums for children included in claims
for Income Support and JSA(IB) to CTC at some point in the future.
Transitional rules
also allow claims which already included child dependant additions on 5 April
2003 to retain them. This transitional protection is lost if entitlement to the
addition ceases or stops due to exceeding the earnings limit and this occurs for
more than eight weeks.
Claims for tax
credits are decided by HMRC. A tax credit award usually starts on the date of
claim (the date it is received by HMRC) and runs to the end of the tax year. If
the date of claim is the beginning of the tax year, the award period is 365 days
(366 if a leap year). Otherwise the
award period is less than a year. However, HMRC can terminate an award
immediately if a person ceases to be entitled. In addition, changes in
circumstances mean that awards can be changed during the award period.
Claims for tax
credits can be automatically backdated for up to three months providing all the
conditions of entitlement are met throughout the backdated period.
WTC is a means-tested tax credit paid to certain groups of people who are on low income and in full time work. You do not have to have paid national insurance contributions to qualify for WTC. Entitlement to WTC is based on income and not capital, but actual income from capital counts as income.
A person and, where appropriate, her/his partner must be aged sixteen or over to make a claim. There is no upper age limit.
Families, couples without children and single people who are at a disadvantage of getting a job or are aged 25 or over can all claim. There is also an additional route to entitlement for people over 50 who satisfy specific rules.
A claim for tax credit must be made jointly by members of a couple ie married or civil partners or unmarried but living together as a couple. This includes same sex couples.
To claim WTC, a person must be aged sixteen or over and:
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s/he and or his/her partner must be in remunerative work of sixteen hours or more a week; and |
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have a child or qualifying young person whom s/he or partner is responsible for; or |
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have a disability which puts her/him at a disadvantage for getting a job; or |
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be entitled to the 50 plus element; or |
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in remunerative work of 30 hours a week or more and aged 25 or over; and |
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living
and/or working in the |
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not subject to immigration control. |
A person must be working the required number of hours or more per week and be expected to continue to do so for at least four weeks after claiming. A person can be employed or self-employed and can have more than one job. In calculating hours worked, any customary or paid holidays are ignored as well as meals and tea breaks unless these are paid breaks. Work carried out by prisoners is not qualifying remunerative work. However, a prisoner’s income from work will be included in any claim by her/his partner for tax credits.
The work must be paid or done in expectation of payment. Work done for a charitable or voluntary organisation or as a volunteer where payment is made for expenses is not considered to be remunerative work. The requirement to work the required number of hours is ongoing. A person should keep a careful record of hours worked. S/he is also required to notify HMRC of changes in her/his working hours.
A person on sick leave or ordinary maternity leave, paternity leave, adoption leave or sick leave from a job or self employment where s/he worked at least sixteen hours a week before going on leave will be considered to be in remunerative work. A person is also treated as being engaged in remunerative work during the first thirteen weeks of an additional maternity or adoption leave period provided s/he worked at least sixteen hours a week before the initial period of ordinary maternity or adoption leave began.
A person must also be working at the date of claim or have
an offer of work which is due to start within seven days of the claim.
Modified rules apply to term time and seasonal workers not working at the
date of claim.
A person will be entitled to the 50 plus element if s/he is aged at least 50 and starts remunerative work for at least sixteen hours a week and for at least six months prior to starting work (or for periods separated by no more than twelve weeks which add up to at least six months) was receiving any of the following benefits:
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Income Support; |
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Jobseeker’s Allowance (JSA); |
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Incapacity Benefit; |
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SDA; |
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both a state retirement pension and Pension Credit (PC); |
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a combination of any of the above benefits; |
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national insurance credits; |
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a training allowance paid under work based learning for adults or training for work schemes. |
As an alternative, a person’s partner could have been getting one of the above benefits and claiming for the person. A person who was in receipt of CA, Bereavement Allowance or Widowed Parent’s Allowance immediately before receiving one of the above benefits or national insurance credits can count time in receipt of any of these three benefits towards the six month period.
A person claiming is treated as having a disability which puts her/him at a disadvantage in getting a job if s/he is working at least sixteen hours per week, has one of the disabilities listed in the schedule to the regulations (see A7 Appendix 1: Tax Credits Schedule 1) and one of the following conditions applies:
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currently receives one of the following benefits:
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has been receiving one of the following benefits for at least one day in the 26 weeks before the date of claim:
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within eight weeks before the date of claim has undertaken training for work for at least one day (training scheme) and in the eight weeks prior to starting the scheme was receiving:
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has been incapable of work; and
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A child is a person who is under sixteen and s/he will continue to be treated as a child until 1 September following her/his sixteenth birthday.
A qualifying young person is:
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a person over sixteen and under nineteen and in full time non-advanced education or who is registered for work or training (for no longer than 20 weeks) with the Department for Employment and Learning; or |
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a person over nineteen but under 20 in full time non-advanced education or approved training. This training or education must have started before the person turned nineteen, or the person must have been accepted or enrolled on the course prior to reaching nineteen. |
A person will be deemed responsible for a child/qualifying young person where the child or young person normally lives with her/him. Where a child/qualifying young person normally lives with two or more persons in different households and two or more claims are made, only one person will be deemed as responsible. Where there is disagreement as to who is responsible, HMRC will make a determination.
A person claiming is required to notify HMRC when a child or young person is no longer included in a claim.
WTC
has eight elements.
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Element
of WTC |
Annual
rate |
Daily
rate |
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Adult element |
£1,800 |
£4.94 |
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Second adult element |
£1,770 |
£4.85 |
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Lone parent element |
£1,770 |
£4.85 |
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Disabled worker element |
£2,405 |
£6.59 |
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30 hour element |
£735 |
£2.02 |
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Severe disability element |
£1020 |
£2.80 |
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50 plus element 16 + hours 30 + hours |
£1,235 £1,840 |
£3.39 £5.05 |
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Child-care element |
Weekly
rate |
Daily
rate |
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80% of weekly charges up to maximum one child |
£175.00 |
£25.00 |
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max 2 children or more |
£300.00 |
£42.86 |
Note: The daily rate of the childcare element is calculated by dividing the weekly rate by 7 and rounding up to the nearest penny. The daily rate of all other elements is calculated by dividing the annual rate by 365 (366 for a leap year) and rounding up to the nearest penny.
The elements (other than the childcare element) are calculated on a pro rata basis ie by taking the annual rate for the relevant element, dividing it by the number of days in the tax year, rounding up to the nearest penny and multiplying it by the number of days in the relevant period. The relevant period is the number of days during the period of an award where:
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a person’s entitlement to the elements of tax credits (other than the childcare element) remains the same; |
and,
where the award includes WTC,
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childcare remains the same; and |
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her/his average weekly childcare charge does not change by £10 or more or reduce to nil. |
Therefore an award period can be made up of one or more relevant periods.
For example, a lone parent working 20 hours a week with one child aged fifteen claims on 31 December 2008 (ie 95 days before the end of the tax year). Her circumstances are unlikely to change. Her award period is made up of one relevant period of 95 days and she will be entitled to the following elements:
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WTC |
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Adult element |
£469.30 |
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(£1800 ÷ 365 = £4.94 X 95) |
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Lone parent element |
£460.75 |
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(£1770 ÷ 365 = £4.85 X 95) |
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CTC |
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Child element |
£543.40 |
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(£2085 ÷ 365 = £5.72 X 95) |
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Family element |
£142.50 |
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(£545 ÷ 365 = £1.50 X 95) |
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Amount paid
£1,800 (£4.94 per day)
There is one rate payable per claim.
Amount paid
£1,770 (£4.85 per day)
A second adult element is payable in joint claims. This will not be paid where:
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the 50 plus element is payable and neither member of the couple is working at least 30 hours (except where at least one of the couple is responsible for a child or young person or treated as having a disability which puts her/him at a disadvantage in getting a job); or |
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one member of a couple is serving a custodial sentence of more than twelve months and neither partner has responsibility for a child or young person. |
Amount paid £1,770 (£4.85 per day)
A lone parent element is payable where the person claiming is single and responsible for a child or qualifying young person.
Amount paid
£735 (£2.02 per day)
A 30 hour element is payable where:
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the person claiming is single and working at least 30 hours a week; or | ||||
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in a joint claim, one of the couple is working at least 30 hours a week; or | ||||
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in a joint claim, the partners are working a total of at least 30 hours between them, and:
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Amount paid
£2,405 (£6.59 per day)
A disabled worker element is payable where the person claiming, who is working at least sixteen hours per week, is treated as having a disability which puts her/him at a disadvantage in getting a job and the conditions outlined in 1.2.3 are satisfied.
Where both members of a couple each satisfy this condition, two elements will be paid.
Amount paid
£1,020 (£2.80 per day)
A severe disability element is payable if the person claiming or, in the case of a joint claim, one of the people claiming receives:
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DLA highest rate care component; or |
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Attendance Allowance high rate; or |
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would receive these benefits but for being in hospital. |
Where
both members of a joint claim couple each satisfy any of these conditions, two
awards are payable.
Amount paid
16+ hours
£1,235 (£3.39 per day)
30+ hours
£1,840 (£5.05 per day)
A 50 plus element is payable for twelve months if the person claiming, or in the case of a joint claim, at least one person claiming:
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is aged at least 50; and | ||||||||||||||||||||
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starts working at least sixteen hours per week; and | ||||||||||||||||||||
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started work within the preceding three months but on or after 6 April 2003; and | ||||||||||||||||||||
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for at least six months before starting work:
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A person who was in receipt of CA, Bereavement Allowance or Widowed Parent’s Allowance immediately before receiving one of the above benefits or national insurance credits can count time in receipt of any of these three benefits towards the six month period.
Entitlement is limited to a continuous period of twelve months. However, two or more periods of entitlement separated by 26 weeks or less are linked together to form one period of entitlement.
Where both members of a joint claim couple each satisfy the required conditions, two awards will be paid.
A childcare element is payable at the rate of 80% of eligible childcare costs up to a maximum figure (see 3.3 for full details of how the childcare element is calculated).
Child Tax Credit (CTC) is a means-tested tax credit paid to people who have responsibility for a child or qualifying young person.
To claim CTC, the person or couple claiming must be:
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sixteen or over. If under sixteen, her/his parent (s) or an adult who is responsible for her/him may be able to claim CTC for her/him and the child. There is no upper age limit for claiming CTC; and |
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on an income sufficiently low; and |
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responsible for a child or young person; and |
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present,
and ordinarily resident and have a legal right to reside in the United
Kingdom. Workers living in the Republic of Ireland and working in Northern
Ireland will normally be treated as satisfying this test. Migrant workers
from the European Union should normally satisfy the test.
Those from the new accession states who joined the EU in May 2004 can
also claim providing they are registered under the Worker’s Registration
Scheme set up by the Home Office or have been registered and worked for an
uninterrupted period of twelve months while so registered. On 1 January
2007, Bulgaria and Romania joined the EU and nationals of these countries
can also claim providing they are subject to the worker authorisation scheme
and are treated as a worker under the legislation which governs this scheme
or fall within other specific groups such as self employed.
If in doubt as to a person’s residence status, contact Law Centre
(NI). The new rules do not apply
to migrant workers from |
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not subject to immigration control. |
A person will be entitled to CTC where s/he is responsible for a child or a qualifying young person whether working or not.
A child is a person under sixteen years of age. A person who has turned sixteen is treated as a child up until 1 September after her/his sixteenth birthday.
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a person aged between sixteen and nineteen who is in full time education (but not advanced education eg a degree) or who is registered for work or training (for no longer than 20 weeks) with the Department for Employment and Learning; or |
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a person over nineteen but under 20 in full time non-advanced education or approved training. This training must have started before the person turned nineteen, or the person must have been accepted or enrolled on the course prior to reaching nineteen; or |
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a person aged under eighteen who has ceased full time education or ‘approved training’ and it is not more that 20 weeks since s/he did so. |
To be in full time education, a young person must be studying more than twelve hours a week.
A person is not treated as responsible for a child or a qualifying young person who claims and is awarded Incapacity Benefit in her/his own right.
CTC has five elements:
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Elements of CTC |
Annual Rate |
Daily Rate |
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Family element |
£545 |
£1.50 |
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Family element baby addition |
£545 |
£1.50 |
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Child element (per child) |
£2,085 |
£5.72 |
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Disabled child addition |
£2,540 |
£6.96 |
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Severely disabled child addition |
£1,020 |
£2.80 |
The amounts above are per year and per day. The elements are calculated on a pro-rata basis by taking the annual rate for the relevant element, dividing it by the number of days in the tax year (366 in a leap year) and multiplying it by the number of days in the relevant period. The relevant period is worked out as outlined in 1.3.
Amount paid
£545 (£1.50 per day)
The family element is payable to all families who have responsibility for a child or young person and have an income of less than £50,000. Only one family element is payable and the amount is the same for a single or joint claim.
Amount paid
£545 (£1.50 per day)
The
family element baby addition is payable where there is a child under twelve
months in the family. Only one baby addition is payable per family, even where
there is more than one child under twelve months in the family.
Amount paid
£2,085 (£5.72 per day)
One child element is payable for each child or qualifying young person in the family.
Amount paid £2,540
(£6.96 per day)
A disabled child element is payable for each child in the family who:
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is in receipt of DLA; or |
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is registered blind; or |
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has been removed from the blind register in the last 28 weeks. |
This element still applies if DLA has stopped because the child is in hospital.
This is paid on top of the child element.
Amount paid £1,020 (£2.80 per day)
The
severely disabled child element will be paid where there is a child entitled to
DLA highest rate care component. It is paid on top of the child element and the
disabled child element.
Step
1: work out the relevant period;
