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Tax Credits Fact Sheet

Introduction

Many years ago, means-tested benefits – where you receive help from the state based on the level of your need – were highly unpopular. There was a social stigma attached to having someone go through your personal circumstances to determine whether you needed assistance or otherwise.

Today, they are widely accepted, if not always appreciated, as a means of targeting those most in need. They are also calibrated to ensure that people on the lowest incomes receive the most help.

Since April 2003, families with children and with combined incomes of up to £58,000 a year, have been able to claim a combination of tax credits aimed at topping up their earnings.

Essentially, a tax credit is money that you receive regularly. And it isn’t deducted from your tax bill either – in fact you can get it even if you don't pay tax.

Tax credits are paid into your bank, building society, Post Office or any National Savings account that accepts direct payments.

There are two main elements to tax credits:

• Child Tax Credit

• Working Tax Credit

To qualify you must be aged 16 or over and live in the UK. The two are payable separately and together.

Child Tax Credit

Child Tax Credit is for people who are responsible for at least one child or young person. It is paid direct to the person who is mainly responsible for caring for the child or children.

The amount of Child Tax credit is influenced by a variety of factors. But the key elements, which are added together, are:

Working Tax Credit

Working Tax Credit is for people who are employed or self-employed (either on their own or in a partnership), who:

• Are in paid work 16 hours or more a week and
• Responsible for at least one child

Working Tax Credit is paid to the person who is working 16 hours or more a week. It includes an element for childcare.

Working Tax Credit Table

There is also a childcare element of 80% of eligible childcare costs, up to a maximum costs of £175 a week for one child and £300 for two or more children (so the maximum childcare element is either £140 or £240), is payable.

How WTC is calculated

Add together all the elements of WTC you are entitled to give a “maximum” amount you might receive.

Comparing your annual income from the previous tax year with the threshold figure of £5,220 (£100.38 a week) to arrive at the actual amount you will receive.

If your income is 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.


More pages

Page 1: Introduction
Page 2: How WTC is calculated

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