Tax credits - your questions answered
Contents of this page:
- What are tax credits?
- Working Families Tax Credit
- Disabled Person's Tax Credit
- Childcare Tax Credit
- New born children
- The Children's Tax Credit
- Your questions answered
- Where to go for more help
- Get a better deal - join a union
This page tells you about workers' rights to Working Families Tax Credit, Disabled Person's Tax Credit and the Children's Tax Credit. If you are
- disabled or
- have children
then you may qualify for a tax credit. Most of the people who qualify for tax credits will be low paid, but workers with large families may still qualify, even if they are quite well paid. Its worth checking to see if you qualify:
- Working Families Tax Credit can add more than £120 a week to the pay packet of families with two children,and
- Disabled Person's Tax Credit can be worth more than £70 a week to single disabled worker with no children.
- The Children's Tax Credit can reduce the amount of tax you pay by up to £10 a week.
What are tax credits?
Working Families' Tax Credit provides extra cash for low-paid workers with children, and Disabled Person's Tax Credit helps disabled workers in the same way, whether or not they have children. Most people who qualify for these tax credits will be paid via their employer, as an addition to their wages. WFTC and DPTC add extra money to low-paid workers' pay packets, the Children's Tax Credit, on the other hand, reduces families' income tax bills.
All the tax credits are due to be reformed in 2003. This page describes the tax credits as they are at present.
Working Families Tax Credit
To qualify for WFTC you must be a couple or lone parent who:
- Has responsibility for at least one child living with you.
- Works at least 16 hours a week.
- Normally lives, and is entitled to work in the UK.
- Has less than £8,000 in capital.
The maximum amount of W.F.T.C you can claim is worked out by adding together the individual credits you are entitled to:
- A basic credit for everyone who qualifies, worth £60.00 a week;
- An extra credit for severely disabled adults, worth £16.25;
- A credit for working more than 30 hours per week, worth another £11.65;
- A credit for each child under 16, worth £26.45;
- A credit for each child aged 16 to 18 and in full-time education, worth £27.20;
- An extra credit for each disabled child, worth £35.50, and £46.75 for children who are severely disabled; and
- There is a childcare tax credit, which can pay part of the childcare bill. This is looked at in more detail below.
Whether you get your maximum W.F.T.C depends on your family's net income.
Your family's income is more than just your pay. It includes income from capital or savings, bonuses, commissions, tips, profit related pay and holiday pay. It includes your partner's and children's incomes as well as your own.
Net income means after income tax, National Insurance Contributions and half of any contribution to a personal or occupational pension.
If your net income is more than £94.50 a week, then the amount of W.F.T.C you get is reduced by 55p for every £1 over the threshold.
Case Studies:
Val lives alone with her 13-year-old son, and her net income from 17.5 hours' work a week is £72. This is lower than the threshold, so Val receives her £86.45 maximum W.F.T.C.
Leo and Mary have three teenage children, and their maximum W.F.T.C is £151 a week.
Leo earns £175 a week net, and Mary £108.60.
Their joint net income of £283.60 is £189.10 above the £94.50 threshold, so their W.F.T.C is reduced by 55% of this - £104.00 - and they receive £47.
Disabled Person's Tax Credit
You qualify for D.P.T.C if you:
- Work at least 16 hours a week
- Live in the UK, and are entitled to work here
- Have capital of under £16,000 (twice the limit for W.F.T.C)
- Receive a qualifying benefit.
D.P.T.C credits
- A basic credit of £92.80 for couples/lone parents and £62.10 for single people;
- An extra credit for severely disabled adults, worth £16.25;
- A credit for working more than 30 hours per week, worth £11.65;
- A credit for each child under 16, worth £26.45;
- A credit for each child aged 16 to 18 and in full-time education, worth £27.20;
- An extra credit for each disabled child, worth £35.50, and £46.75 for children who are severely disabled; and
- A childcare tax credit, which can pay part of the childcare bill. This is looked at in more detail below.
Just as with W.F.T.C, your D.P.T.C will be reduced by 55p for every £1 in income above the threshold, but an important difference is that there are two thresholds:
- The threshold for couples and lone parents is £94.50,
- For single claimants it is £73.50.
You cannot get Disabled Person's Tax Credit and Working Families' Tax Credit at the same time. If you qualify for both you must choose one - D.P.T.C will nearly always be higher.
Childcare Tax Credit
The childcare tax credit is an extra credit in W.F.T.C and D.P.T.C. You qualify for the childcare tax credit if you:
- Qualify for W.F.T.C or D.P.T.C,
and
- Have a child under 15 (16 if disabled)
and are
- A lone parent, or
- A couple in which both partners work at least 16 hours a week, or
- A couple in which one partner works at least 16 hours a week and the other is a disabled person.
The childcare tax credit pays for:
- 70% of eligible childcare costs.
- Up to a maximum level of costs of £135 per week for one child, and £200 for two or more.
- A registered childminder, nursery or playscheme.
- Out of school clubs provided on school premises by a school or local authority.
- Approved Providers
- Nannies are not covered
- Grandparents are covered if they are registered by the local authority, and are paid to look after the children.
New born children
Families with a newly born child are entitled to an immediate re-assessment of their tax credit, instead of having to wait till the end of their claim period for the increase. To enable all families to benefit from this rule, women who were previously employed for at least 16 hours a week, and currently receive Statutory Maternity Pay or Maternity Allowance are treated as passing the tax credit work test.
The Children's Tax Credit
The Children's Tax Credit is a new income tax credit for people with children, introduced in 2001. The CTC can be claimed by couples and single parents who have one or more children under 16 living with them for all or part of a tax year. It doesn't matter how many children you have, there is only one credit for each family. For families entitled to the full CTC it is worth £520 a year, or £10 a week.
The Children's Tax Credit is different from the Working Families Tax Credit and Disabled Person's Tax Credit. For those tax credits, if you don't pay any income tax, or pay more than your W.F.T.C/D.P.T.C entitlement, you receive money from the Inland Revenue. The CTC, on the other hand, is only used to reduce your tax bill - if you pay less than £520 a year in tax, it will reduce your tax bill to nothing, but you won't actually be paid any money.
Couples can choose which partner claims their CTC credit, or share it equally, unless one or both pays income tax at the higher rate (40%). On current tax bands, you are not liable to pay higher rate tax unless your income is above £34,515.
If either of you is liable to pay higher rate tax, the partner with the higher income must claim the CTC, and the amount you are entitled to will be reduced. There is a 'taper' for this reduction: your Children's Tax Credit goes down by £1 for every £15 of income liable to higher rate income tax.
Your questions answered
I get maintenance for my children - will this affect my W.F.T.C?
Maintenance is not counted as income when Working Families' Tax Credit and Disabled Person's Tax Credit are being calculated, and claimants are not under an obligation to co-operate with the Child Support Agency.
These rules are very important for lone parents, who will now be able to keep any maintenance they apply for in addition to their W.F.T.C or D.P.T.C. It will also mean that the maintenance paid by absent parents will, in these cases, be spent entirely on the children and custodial parents.
What happens if my earnings change?
Tax credit assessments are for 6 months at a time: once you have made a claim, your W.F.T.C or D.P.T.C will stay the same for the next 6 months, regardless of whether your net income goes up or down.
Shortly before your award comes to an end you should be reminded about making a renewal claim. If you claim in a period from 28 days before the end of your award period to 14 days after, your renewal claim will follow straight on from your last award.
How do I claim tax credits?
You can get an application pack from the helplines (see the section below on 'Advice') and from Inland Revenue Enquiry Centres, Jobcentres and Benefits Agency offices. Send your completed form directly to the Tax Credit Office, not to your employer, union, Jobcentre, the Benefits Agency or local council.
Who will pay me my tax credits?
Most workers will be paid their tax credits as an extra amount in their wage packets, in whatever way and at whatever intervals these are paid. But it is the Tax Credit Office that decides whether you qualify for tax credits and how much you will get, not your employer.
Some people will not be paid their tax credits by their employers, and will be paid directly by the Inland Revenue:
- People whose employers do not operate Pay As You Earn for income tax - usually very small employers.
- People whose employers do not expect to make at least three consecutive payments following the date on which they become responsible for tax credit payment.
- People who get £4.05 per week or less, whose award will be paid to them direct.
- Self-employed people.
I look after the children, so the W.F.T.C should be paid to me, not through my partner's pay packet - what should I do?
When a couple fill in a W.F.T.C form, one is the 'applicant' and the other is the 'partner'. You both have to complete parts of the form, and both have to sign it. The tax credit will be paid to the 'applicant'.
- If both partners have paid jobs of 16 hours or more a week, their W.F.T.C will be paid through the pay packet of the partner who is the applicant.
- If only one has a paid job of 16 hours or more a week, and the couple agree that that is who their W.F.T.C should be paid to, then it will be paid through her/his pay packet.
- If the W.F.T.C should be paid to the partner who doesn't have a full-time paid job, then s/he should complete the form as the applicant. The Inland Revenue will pay the tax credit direct to that partner, either directly into a bank account, or through an order book to cash at the Post Office.
The TUC believes that, as W.F.T.C is paid to support children, it is usually best for the partner who normally looks after the children to be the applicant. Indeed, where a couple cannot agree, this is the person to whom it will be paid by the Tax Credit Office.
It is particularly important to remember that only the parent receiving the W.F.T.C can receive the childcare tax credit. If you and your partner have to make a decision about who should apply, it would be sensible to take into account the question of who pays the childcare costs.
Will my Housing Benefit be affected if I get a tax credit?
Yes. Your W.F.T.C or D.P.T.C will be counted as income when the local authority works out how much Housing Benefit or Council Tax Benefit you are entitled to. If you already receive either of these benefits the amount you get will be cut - but not by as much as you gain in tax credit. You're still better off claiming W.F.T.C/D.P.T.C!
Where to go for more help
The Government has set up advice lines to provide more information about tax credits. People who think they may qualify for tax credit support can call the following helplines:
- Working Families' Tax Credit 0845 609 5000
Text telephones 0845 606 6668
- Disabled Person's Tax Credit 0845 605 5858
Text telephones 0845 608 8844
The disabled people's Benefit Enquiry Line 0800 88 22 00
All calls to these lines are charged at local rates, and they are open from 7.30 a.m. to 6.30 p.m., Monday to Friday.
There is a useful series of Inland Revenue leaflets, available at Tax Offices, Inland Revenue Enquiry Centres, Benefits Agency offices and through the Internet at http://www.inlandrevenue.gov.uk. They are also available in Braille, audiotape and large print and a number of languages.
Your union or your local TUC Unemployed Workers' Centre may be able to offer advice, as may a local Citizens' Advice Bureau or welfare rights office. Look in the telephone directory for the address and phone number.
Get a better deal at work - join a union
At times we all need advice or support in connection with employment. If you're in a part-time job you may be uncertain where to turn. It is at times like this when being a member of a union can really help.
Everyone has the right to join a union - it costs less than you think, and your employer doesn't need to know you are thinking of joining up. The average cost of being in a union is only 92p a week for part-timers, and £1.99 for those working full-time.
To find out more about how to join a union and which union is the right one for you visit the workSMART unionfinder
This page http://www.tuc.org.uk/tuc/rights_taxcredits.cfm
printed 24 May 2012 at 03:20 hrs by 38.107.179.234