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Child Tax Credit (CTC) is a means-tested allowance paid by the Inland Revenue (IR) to parents of a child (or young person in certain circumstances) and to other people responsible for a child (or young person in certain circumstances). Most families receive some CTC, whether in or out of work. Your entitlement depends upon your income and circumstances. CTC is paid on top of Child Benefit.
You will qualify for CTC if:
- You are aged 16 or over.
You are responsible for at least one child who is under 16 (or under 19 and still in full time non-advanced education). For children who leave school at 16, CTC is paid until the beginning of September following their 16th birthday. You will also continue to qualify for a 16- or 17-year old for the first 20 weeks after they leave full-time education if they do not have a job or a training place and they have registered with the Careers Service or Connexions Service.
Your income is below the income threshold, or no more than a set amount above.
- You are not subject to immigration control (subject to certain exceptions).
You can be in work, either full or part-time, not in work, a higher education student or a student nurse (i.e. not eligible for IS or JSA) or on strike.
The key elements (at 2005/2006 rates) are:
A family element
Annually £545
Weekly £10.50
A baby element (up to 1st birthday)
Annually £545
Weekly £10.50
A child element for each child
Annually £1690
Weekly £32.41
A disabled child element for each child who gets any Disability Living Allowance (DLA) or is registered blind
Annually £2285
Weekly £43.82
A severely disabled child element for each child who gets higher rate care component of DLA
Annually £920
Weekly £17.64
Income is assessed by adding together gross earnings, pensions and taxable benefits such as Statutory Maternity Pay and Widowed Parent''s Allowance, income from capital if it is over £300 a year and the dependant''s grant if you are a student in higher education.
Other student grants, student loans and bursaries, Career Development Loans, Child Benefit and Child Maintenance and other maintenance are ignored as income, as are income from the Rent a Room Scheme, children''s income and any contributions you make to a pension scheme.
Maximum CTC is calculated by adding together all the elements you are entitled to. Actual CTC is calculated by comparing income from the previous tax year with the threshold figure of £5,220.00 (about £100.00 a week). If income was at or below the threshold, you will get maximum CTC; if it was above the threshold, maximum CTC is reduced by 37p for every £ of excess income. But if you are not eligible for Working Tax Credit (WTC), you do not get any reduction in CTC until your income is above £13,910 a year (about £267.00 a week) and you will continue to get the full family element unless your annual income was over £50,000.
CTC is paid directly into your bank account, either weekly or four-weekly in arrears, whichever you choose. Payment of CTC continues while a child is in hospital and for eight weeks after the death of a child.
WORKING TAX CREDIT
Working Tax Credit (WTC) is a means-tested allowance paid by the Inland Revenue to people working 16 hours a week or more who meet certain other conditions. Entitlement depends upon income and circumstances.
You may qualify if:
- You are responsible for one or more children under 16 (or under 19 if still in full time non-advanced education)
You work for at least 16 hours a week, either as an employee or self-employed
- You are not subject to immigration control (with certain exceptions).
As long as you were working for at least 16 hours, you count as still in work while on maternity leave and getting Statutory Maternity Pay (SMP) or Maternity Allowance (MA), or on sick leave and getting Statutory Sick Pay (SSP), short-term Incapacity Benefit (IB) or Income Support (IS) on the grounds of sickness.
Once you cease to have any qualifying child or young person, you may still qualify if you work for:
- at least 30 hours a week and are 25 or over, or
at least 16 hours if you have a disability which puts you at a disadvantage in getting a job, or
- at least 16 hours if you are aged 50 or over and have been receiving Income Support, Incapacity Benefit, Severe Disablement Allowance or Jobseeker''s Allowance for at least 26 weeks.
You may also qualify if you are pregnant with your first child, aged 25 or over and working for at least 30 hours a week.
Savings or capital do not themselves affect your entitlement, but taxable income from capital will be taken into account if it is over £300 in any one year. All income is assessed in the same way as for CTC.
The key components (at 2005/2006 rates) are:
A basic element
Annually £1,620
Weekly £31.08
A lone parent/couple element
Annually £1,595
Weekly £30.59
An element for working for 30 hours or more
Annually £660
Weekly £12.67
A disability element
Annually £2,165
Weekly £41.58
An severe disability element
Annually £920
Weekly£17.64
A 50-plus return to work element for 16-29 hours
Annually £1,110
Weekly £21.35
A 50-plus return to work element for 30+ hours
Annually £1,660
Weekly £31.85
A childcare element of 70% of eligible childcare costs up to a maximum cost of £175 for one child and £300 for two or more children (so the maximum childcare element is either £122.50 or £210). Eligible childcare includes registered childminders, nurseries, out-of-school clubs and playschemes; childcarers approved under the Childcare Approval Scheme; and home childcarers approved by Ofsted or by the National Care Standards Commission or Care Standards Inspectorate for Wales. You cannot claim for the cost of childcare provided in your own home by certain relatives of your child. You need to calculate or estimate your costs over the whole year to get an average figure on which Childcare Tax credit will be based.
Maximum WTC is calculated by adding together all the elements you are entitled to. Actual WTC is then calculated by comparing your annual income from the previous tax year with the threshold figure of £5,220.00 (about £100.00 a week). If income was at or below the threshold figure, you will get maximum WTC; if it was above the threshold, maximum WTC is reduced by 37p for every £1 of excess income.
Once the IR have made their assessment, payment of WTC will be made by your employer through the payroll, except the Childcare Tax Credit element, which will be paid direct into your bank account, either weekly or four-weekly in arrears, whichever you choose. If you are self-employed, both will be paid direct into your bank account.
CLAIMING TAX CREDITS
Claims for both WTC and CTC are made on form TC600. You can get a claim pack from a Jobcentre or Inland Revenue Enquiry Centre, or by phoning 0845 300 3900 (textphone 0845 300 3909) for England, Scotland and Wales, or 0845 603 2000 (textphone 0845 607 6078) for Northern Ireland. You can also claim on-line via the IR website,
www.inlandrevenue.gov.uk/taxcredits
where you can check your eligibility before making a claim. If you need help with applying on-line you can call 0845 300 3938.
Tax Credits are calculated on an annual April to April cycle and your award is initially based on your gross income for the previous tax year April 2004 - April 2005. But at the end of the year the IR will ask you how much income you received in April 2005 - April 2006 and your actual entitlement for April 2005 - April 2006 will be assessed on this income, unless it has increased by up to £2500. They may therefore find there has been an overpayment or underpayment of tax credits.
You can notify the IR at any time during April 2005 - April 2006 if you expect your income in April 2005 - April 2006 to be different to your income in April 2004 - April 2005 and they can reassess your entitlement before the end of the year. So, for example, if you have been on IS for the whole of 2004/5, you will initially be assessed as entitled to maximum tax credits if you claim during 2005/6, but you may be overpaid if your income in 2005/6 is higher than the threshold of £5220 (but they ignore the first £2500 increase) if you don’t notify the IR of a change in circumstances until the end of the year. Please see the next section for more information on notifying the IR of changes of circumstances.
CHANGES OF CIRCUMSTANCES
Changes that must be notified include:
- You stop being part of a couple
You become part of a couple
- Your childcare costs stop or go down by £10 a week or more for four weeks in a row. If in doubt, notify the IR to be on the safe side.
The IR can impose penalties of up to £300 for failing to notify them of any of the above changes within three months, and up to £3,000 for fraudulently or negligently making an incorrect statement. You may also have to pay back an overpayment, and you may have to pay interest if there is an overpayment due to your fraud or neglect.
Changes that can affect the amount of tax credits include:
- Changes in your working hours i.e. stopping or starting work, or reducing or increasing hours.
Changes in household composition (e.g. a child over 16 leaving school, or a new baby).
Childcare costs increase by at least £10 a week for at least four weeks in a row.
You or a family member becomes entitled to a disability element, or stops being entitled to it.
- Changes in income. Please see below.
There is no obligation to notify these changes until the year-end, but there may be an under- or over-payment of tax credits if you don''t.
If your income falls in the current year, the award is based on actual current year''s income. You can either ask the IR to reassess your tax credits straight away, or wait until the end of the year when the underpayment will be paid as a lump sum. If your income rises by up to £2,500 in the current year, there is no change to your tax credits entitlement which continues to be based on the previous year''s income.
If your income rises by more that £2,500 in the current year, your tax credits will be reduced (although the first £2,500 rise is ignored). You can either ask for the awards to be reassessed during the year or wait for the end of year reconciliation. If you wait this will result in an overpayment; the IR can either:
Recover it by adjusting your tax credits for the following year (see below for further details)
Demand repayment within 30 days or within 12 months by monthly instalments
Use their discretion not to recover the overpayment
The next section gives further details on the recovery of overpaid tax credits.
OVERPAYMENTS
The IR has a Code of Practice on when and how overpayments can be recovered. The leaflet called COP26, What happens if we have paid you too much tax credit? is available on the IR website or from Tax Enquiry offices, or from the IR Tax Credit Helpline.
If the IR believe you have been paid too much tax credits last year or you may be paid too much this year, your tax credits may be reduced. If you disagree with a decision that you have been paid too much tax credits, you can appeal against it, within 30 days of the decision. You can ask for an explanation of how the overpayment has occurred. You should ask for notice TC647. This will set out and explain your tax credit entitlement.
If the reason for the overpayment cannot be identified, the query should be referred to the Overpayments Dispute Team for an explanation. If you can’t appeal until you have received a detailed calculation, this would be an acceptable reason for appealing outside of the 30 days. The IR has a leaflet called WTC/AP, How to appeal against a tax credit decision or award which gives details on how to appeal. You can get this leaflet from the same places as COP26.
If you accept that their decision that you have been paid too much but you object to their decision about recovering the overpayment, there is no right of appeal, but you may have grounds to ask them to reconsider their decision to recover all or part of the overpayment, or to allow you more time to pay. The grounds are where the IR has made a mistake and it was reasonable for you to think your award was right, or if payment would cause you or your family hardship. See COP26 for further details.
If you wish to ask them to reconsider because they have made a mistake, there is form you can use called TC846, Request to reconsider recovery of tax credits, which you can get from the same places as the other forms. If you believe that recovery will cause you or your family hardship then you should provide information in writing to support your case. COP26 also gives details of when you can ask for additional payments when they have readjusted your award to prevent an overpayment this year, and details of the maximum amounts by which they should reduce your tax credits to collect an overpayment from last year.
If you are not satisfied with the outcome then you can use the IR complaints procedure to take it further. See leaflet COP1, Putting things right. How to Complain. You can get this leaflet from the same places as COP26.
LENGTH OF THE AWARDS
Tax credits awards coincide with the tax year, but may be for a period of less than this if, for example, you start work, or have a baby, or become a lone parent as the result of relationship breakdown or bereavement. The award is from the date of application to the end of the tax year, but the amount may be altered, or entitlement cease altogether, if there is a change of circumstances. Awards can be backdated for a period of entitlement of up to 3 months from the date of the claim. You do not have to give a reason for not claiming earlier.
OTHER BENEFITS
If you are on IS or income-based JSA now, and receive money for your child/ren in your claim, you will be automatically transferred onto CTC at some time after 6th April 2005 unless you have a break in your claim for IS or JSA before then, and later make a new claim for IS or JSA, in which case you will then need to claim CTC for your child/ren . CTC will replace the child personal allowance(s) and the family premium so IS and income-based JSA will consist of just the adult personal allowance, any premiums you get because, for example, you get a disability benefit or carer’s allowance, and any mortgage interest you are receiving. CTC has already replaced the child personal allowance and family premium for anyone who has claimed IS or JSA after 6th April 2004, and a separate claim must be made for CTC.
If you are still getting a child allowance in your IS/JSA claim, and are getting, or would only be entitled to, reduced IS or JSA because you have income from part-time earnings or child maintenance, you may be better off claiming CTC now. But don''t do this without getting advice first as coming off IS or JSA may reduce your Housing Benefit (HB) and Council Tax Benefit (CTB) and will prevent you from being able to apply for Social Fund Budgeting Loans and Community Care Grants. You will also lose:
- the Job Grant of £250 and 4 weeks HB or mortgage payments and CTB which you get if you have been on IS or JSA for 26 weeks and start work for 16 hours or more,
any Child Maintenance Bonus you have built up because child maintenance was being deducted from your IS, as you can only claim this if your move from IS or JSA into work of at least 16 hours a week, or because your earnings from work of less than 16 hours have increased to lift you off IS.
- any local concessions for things such as school uniforms or trips or adult education courses.
Free school meals, and free milk and vitamins for children under 5 will still be available if you are entitled to CTC, and are not working or work less than 16 hours a week, and have household income of less than £13,910 a year.
Free NHS prescriptions, free NHS dental treatment, free NHS sight tests, vouchers towards the costs of glasses or contact lenses, travel costs to hospital for NHS treatment, and reduced price dried baby milk for a child under 1 will still be available if you:
Receive WTC and CTC, or Receive WTC and Disability Element, or Receive CTC only:-
AND have household income
of less than £15,050 a year
The Sure Start Maternity Grant of £500 will be available if you qualify for CTC at a rate higher than the family element (i.e. higher than £10.50 a week or £21 if you have a baby under one), and/or any rate of WTC if it includes a disability element. The same rule applies to the funeral payment from the Social Fund.
Tax credits are treated as income for HB and CTB, and it is the amount that is actually paid that counts, even if you are being over- or under-paid. If you are paid a lump sum, because of an under-payment, this counts as capital so will not affect HB or CTB unless it takes your total capital over £3,000.
Because of the time that it takes most Local Authorities to recalculate your entitlement when there has been a change of circumstances, it is important to notify them every time there is a change to your Tax Credits award to reduce as far as possible the likelihood of rent or council tax arrears.
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