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. Child Benefit will be clawed back where at least one parent is earning more than £50,000.
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 £2,500, 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).
2016-17 Rates and thresholds
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Notes
- 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.
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Notes
- Only one family element is available per family.
- 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.
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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 | 1,960 | | |
| - Second adult element | 2,010 | | | |
| - 30 hour element | 810 | | | |
| - Childcare element (220 x 70% x 52) | 8,008 | | 12,788 | |
| | | | ||
| Child Tax Credit | - Child element (2,780 x 2) | 5,560 | | |
| - Family element | 545 | | 6,105 | |
| | | | ||
| Maximum Award | | | £18,893 |
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 + (1,960 x 100/41) = £11,200
The following table shows the effect of these principles in setting income levels where the various elements are lost:
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