Tax credits briefing 4

Rates for 2008-2009

and sample calculations of entitlement

Introduction

This briefing sets out the Child Tax Credit (CTC) and Working Tax Credit (WTC) rates used to calculate entitlement for 2008/2009 and sample step by step calculations to assist advisers in assessing or checking entitlement.

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. Tax credit rates (2008/2009)

To work out daily rate: divide annual rate by number of days in current tax year and round up to the nearest penny.                                                             

2.  Calculating the elements

2.1  Relevant period

The elements (other than the childcare element) are calculated on a pro-rata basis by taking the daily rate 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:

·    a person’s entitlement to the elements of tax credits (other than the childcare element) remains the same; and

·    where the award includes WTC:

·    childcare remains the same; and

·    the average weekly childcare charge does not change by £10 or more or reduce to nil.

2.2 Child Tax Credit    

The qualifying conditions for elements of CTC are as follows.  

Family element

The family element is paid for a family whether a lone parent or two parent family.  Only one family element is available per family. Where the family includes a child under one year old then the baby element is payable.  The baby element does not increase if more than one child is under one year old. It is paid up until the youngest child’s first birthday.

The family element is paid to all families with tax year income of less than £50,000, The family element is reduced at the rate of £1 in every £15 in excess of £50.000 (at a rate of 6.67%).  

Child element

A child element is paid for each child or young person in the family.  This covers children aged up to sixteen and also children aged sixteen up to 1 September following their sixteenth birthday.  A young person is included in the child element between the age of sixteen (from 1 September after sixteenth birthday) and her/his twentieth birthday providing s/he is:

·    in full-time non advanced education or approved training (this does not include education or training being obtained as part of employment or any office held, or education or training started after s/he has turned nineteen); or

·    under eighteen and within the last 20 weeks has left full time education or approved training.  In this case Inland Revenue must be told within three months that the young person is registered for work or training.  This rule can apply again if a person goes back to study but leaves full time education once more.

A child element is not payable if the young person is receiving Income Support, Income-based Jobseeker’s Allowance or Incapacity Benefit.

Disability element

A disability element is paid for any child in the family who is getting Disability Living Allowance (DLA) or is registered blind or has been taken off the register in the last 28 weeks.  The element still applies where DLA has stopped because a child is a patient in long term care unless the family ceases to have main responsibility for the child.

Severe disability element

A severe disability element is paid for any child in the family who is getting the highest rate of care component of DLA.  It is paid in addition to the disability element.  The element still applies where DLA has stopped because a child is in long term care unless the family ceases to have main responsibility for the child.

Note: Her Majesty's Revenue and Customs (HMRC) uses the term family element to cover both rates at which the family element is paid and uses the term child element to cover the child element as well as any disability and severe disability element for the child.

2.3 Working Tax Credit

The qualifying conditions for elements of WTC are as follows.

·    People with children or a disability can qualify for WTC if they are working at least sixteen hours.

·    For couples, at least one partner must work at least sixteen hours per week.

·    People without children or a disability can qualify if they are over 25 and work at least 30 hours per week.

Basic element

A basic element is paid with each award of WTC.  To qualify, the claimant or partner must be in full time work (or deemed to be in full time work).  For details of how this is defined, check the Tax Credits section of the Law Centre’s Encyclopedia of Rights CD-Rom or the Child Poverty Action Group Welfare Benefits and Tax Credit Handbook 2008/2009.

Couple element

A couple element is paid to a couple making a joint claim.  This does not, however, apply if:

·    the claimant or partner is aged 50 or over and entitled to the 50 plus element; and

·   neither the claimant nor partner is working at least 30 hours per week.  However, if the claim includes a child or young person or a disability element, the claimant will not be prevented from receiving the couple element just because s/he does not work 30 hours per week.

Lone parent element

A lone parent element is paid to a lone parent.

30 hour element

A 30 hour element is paid where:

·     single claimant works at least 30 hours per week; or

·    a couple makes a joint claim and at least one person works 30 hours per week; or

·   a couple makes a joint claim and at least one person is responsible for a child or a qualifying young person and both partners are working and at least one partner works sixteen hours per week and the joint hours worked amount to at least 30 hours per week.

Disability element

A disability element is paid where a claimant or partner works at least sixteen hours per week and has a disability which places her/him at a disadvantage in getting a job.  This requires the claimant or partner to satisfy a disability test.  The details of the test are contained in Schedule 1 and Regulation 9(1) of the Working Tax Credit (Entitlement and Maximum Rate) regulations 2002.

The test is set out in detail in Tax Credits section of the Law Centre’s Encyclopedia of Rights CD-Rom and in the Child Poverty Action Group, Welfare Benefits and Tax Credit Handbook 2008/2009.

In addition, the claimant or partner must also satisfy one of the following conditions:

·    have been receiving for at least one day in the 182 days preceding a claim for tax credits:

    o  the higher rate of short term Incapacity Benefit or long term Incapacity Benefit or Severe Disablement Allowance (SDA); or

    o  a higher pensioner premium or disability premium paid with Income Support, Income-based Jobseeker’s Allowance; or

    o  Housing Benefit or rate rebate which includes a Disability Premium or Higher Pensioner Premium; or

·    be currently receiving DLA, Attendance Allowance, a mobility supplement or  constant Attendance Allowance paid with a war pension or Industrial Injuries Disablement Benefit; or

·    have an invalid carriage or similar vehicle; or

·    have been engaged in training for work on one of the 56 days immediately preceding the date of claim; and,  for one or more of the 56 days immediately preceding the start of that period of training, have been in receipt of higher rate of short term Incapacity Benefit, long term Incapacity Benefit or SDA; or

·    have received for at least 140 days forming one period of incapacity for work (the last of which must have fallen within 56 days of the claim for tax credits) either Statutory Sick Pay,  occupational sick pay, short term Incapacity Benefit at the lower rate, Income Support because of incapacity or national insurance credits for a period of 20 weeks because of incapacity; and

    o  have a disability at the date of claim for tax credits which is likely to last six months (or the rest of lifetime if terminally ill); and

    o  have gross earnings which are less than they were before the disability began by at least the greater of 20 per cent or £15 a week or have undertaken training for work for at least one day in the 56 days immediately preceding the claim and was receiving long term Incapacity Benefit, SDA or higher rate short term Incapacity Benefit within the 56 days before the training started.

If the claimant and partner both meet any of the disability element conditions, then two disability elements can be paid.

Severe disability element

A severe disability element is paid where a claimant or partner receives the highest rate of care component of DLA or the higher rate of Attendance Allowance.  A severe disability element will still be paid if the benefits are suspended because a person is in hospital.  If a claimant and partner both meet the conditions then two severe disability elements can be included.

50 plus element

A 50 plus element is paid if the claimant or partner is aged 50 or over and:

·    is working at least sixteen hours per week; and

·    started work within the preceding three months; and

·    for a least six months before starting work, was in receipt of at least one of the following benefits:

    o  Income Support;

    o  Jobseeker’s Allowance;

    o  Incapacity Benefit;

    o  SDA;

    o  both a State Retirement Pension and Pension Credit; or

·    had a dependant’s increase for her/him included in another person’s claim for one of the above; or

·    was in receipt of national insurance credits; or

·    was in receipt of one or a combination of the above plus Carer’s Allowance, Bereavement Allowance or Widowed Parent’s Allowance.

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 paid where certain conditions are satisfied. These are detailed in Tax Credit Briefing No 3 Assistance with childcare costs.

3. Working out entitlement to tax credits 2008/2009

Case example 1

Jane is 29 and a lone parent with one child aged four.  She works 25 hours a week.  Her current year income is £7,800 which is the same as it was in 2007/2008.  She pays £135 per week to a registered childminder who looks after her child. There is no ill health in the family. Her circumstances are unlikely to change in the current year.  She is claiming at the start of the tax year.

Step 1

Work out the relevant period: Jane’s relevant period is 365 days.

Please note that rounding up the daily rate means that the maximum tax credits are slightly more than the annual rate.

Step 2: calculate maximum tax credits

Step 3: calculate the childcare element