- RESOURCES
- Important Tax Dates
- Tax Jobs
- Tax Books
- Tax Events
- Tax Software
- Tax Reviews
- Tax Glossary
- Newsletter
- ABOUT US
- About Us
- Advertisers
- PressRoom
- Contact Us
- RSS
OUR BOOK SELECTION
1 Minute Guide to ... Tax Credits
by Philip McNeill, TaxAid (September 2004)
Introduction
This article has been prepared by TaxAid as a general introduction to the subject. It is recommended that you take professional advice in your own specific circumstances.
TaxAid is a charity which offers free, confidential advice on tax to those on low income. For more information about TaxAid, please visit our website at www.taxaid.org.uk
10 Key Points
- What are Tax Credits?
Tax Credits are money that the Inland Revenue pays to people who have responsibility for children, or who are in low paid work. Tax Credits come in two varieties, Working Tax Credit (WTC) and Child Tax Credit (CTC). To receive Tax Credits you have to claim them. One claim covers both types of Tax Credit.
- Who can claim Tax Credits?
Working Tax Credit can be claimed by couples with children, lone parents and people with a disability who are over 16 and work for at least 16 hours per week. It can also be claimed by anyone over 25 who works at least 30 hours per week.If your family circumstances are complex, there is further guidance on the TaxAid website - Background information for claimants.
Child Tax Credit can be claimed by individuals or couples over 16 who are responsible for at least one child under 16, or for a young person aged 16 to 19 who is in full-time non-higher education.
Other points to remember are:
· If you are eligible to make a joint claim, you cannot make a single claim instead.
· Claimants need to have a right of residence in the UK
· Claims can only be back dated three months.Current claims need to be renewed by 30 September. For details about this please see Tax Credits - renewing your claims before 30 September.
- How do I claim?
You can claim by telephoning the Tax Credits helpline for a claim form:
In England, Wales and Scotland 0845 300 3900 (text phone 0845 300 3909)
In Northern Ireland and the European Economic Area 0845 603 2000 (text phone 0845 607 6078)
Lines are open from 8am to 8pm 7 days a week.You can apply on-line at Tax Credits Online
Claims are made for an income tax year i.e. from 6 April in one year to 5 April in the next. If you claim late, the award can only be back dated for three months.
- How much do I get?
The amount you get depends on your income, and household income is what counts for Tax Credit purposes. Awards are made up of a number of elements. Adding together the elements gives the maximum entitlement. This is then reduced if your income exceeds certain thresholds.The elements of Working Tax Credit for 2004/05 are the basic element (£1,570) with additional elements for disability (£2,100), severe disability (£890), second adult (£1,545), lone parent (£1,545), and for working 30 hours or more (£640). There are also elements for those over 50 returning to work after claiming benefits (50 plus elements, £1,075 and £1,610).
Child Tax Credit has a family element (£545) and an additional element for each child (£1,625). The family element is increased to £1,090 where there is a child under one year old. There are higher rates for disabled (£3,840) and severely disabled children (£4,730).
- Is there help with childcare costs?
Up to 70% of childcare costs can be met up to a maximum of £135 per week for one child and up to £200 per week for two or more children. A single parent will qualify if they work at least 16 hours per week and a couple if they both work for at least 16 hours per week. These rules are relaxed if either or both of the couple are disabled.Further information on childcare is available from the Inland Revenue website and from Childcare link (www.childcarelink.gov.uk or tel 0800 096 0296).
- What happens if my income exceeds the limits?
The maximum amount of entitlement as calculated at 4 above is reduced if your income exceeds the relevant thresholds.The income thresholds are £13,480 if only Child Tax Credit is claimed, and £5,060 if Working Tax Credit is claimed. Above this level, maximum entitlement is reduced by 37p for every pound of excess income.
For the family element of Child Tax Credit a different limit applies. This limit is usually £50,000, but can be higher where there are four or more children. The family element is reduced by 6.67p for every pound of income above this level.
Families with two children and childcare costs, can still receive significant amounts of Tax Credit when the household income is £35,000 or more.
- What counts as income for Tax Credits?
Income for Tax Credits is calculated in broadly the same way as it is for Income Tax purposes, but there are a number of differences. For example, the first £300 of savings and pension income is ignored.If you are self-employed and your business makes a loss, the loss is treated differently for Tax Credits than it is for Income Tax or Class 4 National Insurance. For joint Tax Credit claims the loss must be set off first of all against the other income of the claimant who makes the loss and then against the income of the other party (or parties) to the claim. Any remaining loss can be carried forward.
Detailed guidance on income for Tax Credits is available on the TaxAid website, Calculating your Income pages.
- What if my circumstances change?
There are some changes you have to tell the Revenue about or you face a possible fine. These are:
· A change in your status, such as a change in a relationship, which brings your current claim to Tax Credits to an end (for instance, a joint claim ends and new individual claims need to be made); and
· A reduction in child care charges of £10 a week or more for at least 4 weeks or a cessation of childcare charges
· You cease to be entitled to reside in the UK, or leave the UK for more than 8 weeks (12 weeks if as a result of illness or death of a relative, or your own illness)If your claim ends because of a change in a relationship, you can make a new claim if you still qualify for Tax Credits.
If your circumstances change in other ways during the year then it is sensible to tell the Inland Revenue at once. This will help ensure that you are paid the correct amount and don't lose any amounts you may be entitled to. Such changes would include changes in income or changes to the number of children you are responsible for.
If you are paid the wrong amount it will be adjusted at the year end. Increases in income of up to £2,500 are ignored.
- What happens if I am paid too much or too little?
If you have been paid too little Tax Credit, any amount due will be paid to you in a lump sum. If you have been overpaid, you will normally have to repay this, though there are special rules if you face hardship or the overpayment was the result of an Inland Revenue error.There is a special form (TC846) which you can use to ask the Revenue not to pursue collection of an overpayment where there has been an error by them.
The Inland Revenue policy on overpayments is set out in Code of Practice 26.
- Where can I find out more?
You can find out more from the Inland Revenue website. There is also a comprehensive guide to Tax Credits on the TaxAid website.TaxAid is also running a Tax Credit seminar in Birmingham on 1 October 2004, and free workshops for advice agencies in the West Midlands until January 2005. For details of these, please follow these links - October Tax Credits Conference and Tax Credit Workshops.
About TaxAid
Free tax advice for people in financial need
The majority of taxpayers who visit TaxationWeb have the financial means to pay for professional tax advice if they want or need it. However, others are not so fortunate.
This is where TaxAid can help.
TaxAid is a charity. In addition to offering free tax advice to those in financial need, TaxAid seeks to promote a better public understanding of the UK tax system. It also works very hard in pressing the Inland Revenue and the Government to simplify the tax system and make it fairer, particularly for those who cannot afford an accountant.
If you are a TAXPAYER:
IMPORTANT - Please note that the purpose of TaxAid is to help those who cannot afford to pay an accountant or tax adviser. As a guideline, those with incomes of under £15,000 per annum before tax for a single person is the cut off point beyond which TaxAid is unable to help.
If you need free, independent and confidential advice regarding a tax question or problem, and you cannot afford a professional tax adviser, contact TaxAid for advice or an appointment on 020 7803 4959 or visit the TaxAid website (see below)
If you are a TAX ADVISER:
Please support TaxAid by:
· volunteering to become an adviser for TaxAid;
· donations (e.g. through gift aid, payroll giving, donation of fees for articles or speeches, or donation or sponsorship as a firm or employer); or
· fundraising events
For further details on TaxAid, contact details and information on various tax issues, visit the TaxAid website: www.taxaid.org.uk
Disclaimer
The content of these guides is based on tax legislation in operation at the time of publication, which may subsequently have changed. Whilst every care has been taken in its production, no responsibility can be accepted for any action undertaken or refrained from as a consequence of this material. This information is for general guidance only. Specific professional advice should always be obtained based on personal circumstances. TaxationWeb Limited accepts no responsibility whatsoever for any action undertaken or refrained from as a result of the information contained herein.