Tax Credits are the main way in which the tax system provides support to people with children and
workers on low incomes. Tax Credits are paid to those who claim them, and are not an adjustment in
the tax computation.
Working Tax Credit (WTC) is paid to employed and self-employed people on low incomes. The
full entitlement is given for an income of only £6,420, and it is tapered away as a
couple's joint income increases above that.
There is an additional element which will cover 70% of qualifying childcare costs of up
to £300pw for two children, and a couple entitled to this can
enjoy substantial credit even on incomes over £25,000.
CTC is separate from and additional to Child Benefit, which is a flat rate payment in respect of each child. Child Benefit is not income related and is automatically paid (usually to the mother) after a single claim. From January 2013, Child Benefit will be clawed back where one of a couple earns over £50,000 a year; it will all be clawed back where one earns over £60,000.
Claims are made provisionally for the coming year based on a previous year's income (2011/12
for 2012/13 claims), and may be revised up or down at the end of the year if income has changed
significantly. However increases in income will be disregarded if they are up to £10,000.
Child Tax Credit (CTC) is paid to the main carer for children up to 16 years old, or up to 18 in full-time education. Entitlement is built up of elements for each child (£2,690), and for “the family” (£545). CTC is tapered away once the couple’s combined income exceeds £15,860. CTC of £5,925 (2 children plus family) will have tapered away completely when income has reached £30,320.
The Tax Credits system is very complicated, and this can only serve as a brief summary. The HMRC website (www.hmrc.gov.uk) has a ready-reckoner
facility which will estimate the amount of either tax credit due, and also has forms and details of how to apply.