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NEW
WORKING TAX &
CHILD TAX CREDIT
In April 2004 the
Government introduced two new tax credits, Child Tax Credit and
Working Tax Credit, which replaced the old Working Families Tax
Credit and Disabled Person's Tax Credit. This briefing for trade
unionists, specially written for the TUC by the Inland Revenue,
describes how the new tax credits can help pay workers’ childcare
costs.
This briefing
describes how the amount of help you are entitled to is calculated,
and covers changes the Government has introduced that will help
people who pay different amounts for childcare at different times -
this will be especially important during the Summer holidays.
If you have other
queries about the new tax credits, there is a very good Inland
Revenue website https://www.taxcredits.inlandrevenue.gov.uk/Home.aspx
with information about tax credits and a tax credit calculator - you
can even apply for tax credits online! If you advise union members
about tax credits, the Local Government Association has produced a
very useful briefing for advisors, at: this link
Working Tax Credit
and the childcare element
The Working Tax
Credit (WTC) has a childcare element which allows eligible parents
to claim help with the costs of childcare. The following pages
answer some questions frequently asked by parents.
Who can qualify for
the childcare element?
To qualify for the
childcare element of WTC parents must be 16 or over and either:
- Lone parents who
work 16 hours or more a week; or
- A couple where
both work 16 hours or more a week; or
- A couple where one
member of the couple works 16 hours or more a week and the other
is classed as incapacitated (receiving the incapacity/disability
benefits listed in the notes to the tax credit claim form) or is
in hospital or in prison.
Patents cannot claim
for the cost of childcare for a new baby or adopted child that they
have taken leave to look after until they go back to work, but they
can still claim the childcare element for the costs of childcare for
any other children in the family if they are still using childcare.
How much help can
parents get with childcare?
The childcare element
can provide help with up to 70 per cent of childcare costs, subject
to maximum limits on the weekly costs you can claim for.
- The maximum
childcare costs that can be claimed for one child is 70 per cent
of up £135 a week (£94.50)
- The maximum for
two or more children is 70 per cent of £200 a week (£140).
What childcare costs
qualify?
The childcare element
can only be claimed for the costs of registered or approved
childcare. This includes pre schools, nurseries, childminders,
approved before and after school clubs and childminders approved
under the Home childcarers scheme. In Scotland, childcare provided
at the child's home by childcare agencies, including sitter services
and nanny agencies, also qualifies because it must be registered.
What about
relatives?
Parents cannot claim
for the costs of childcare in the child’s own home if the
person approved to provide that childcare is a relative of the child
, even if that relative is registered as a childminder.
"Relative" for tax credits purposes means a parent,
step-parent, grandparent, aunt or uncle.
Working out average
weekly childcare costs
When first claimed,
the childcare element is based on the average weekly childcare costs
incurred. The way to work out the average weekly childcare costs
depends on the way childcare is paid for.
If childcare is paid
weekly but different amounts are paid at different times
Total the last 52
weeks (including the weeks where parents did not pay for childcare,
known as nil weeks) and divide by 52. If parents haven't been paying
childcare for a full year, then they should work out what they
expect to pay in the next 52 weeks and divide by 52.
If they pay the same
amount every week
Add the last four
weeks' payments together and divide by four
If childcare is paid
monthly but different amounts are paid at different times
Add the fees for the
last 12 months and divide by 52.
If the same amount
is paid every month
Multiply the amount
paid in the last month by 12 and then divide the total by 52.
If the childcare has
only just been agreed
Parents should get a
weekly estimate from the childcare provider.
Changes in
circumstances
The new tax credits
are much more responsive than before. Under the new system the award
can be amended as circumstances change. Parents must report certain
changes. Parents must tell the tax credit office or the helpline
within 3 months if:
- The average weekly
amount they pay for childcare is reduced by £10 a week or more
for four weeks in a row
- The average weekly
costs of childcare are reduced to zero for at least 4 weeks in a
row.
Parents must also
tell the Inland Revenue if their average weekly costs rise by £10
or more for at least 4 weeks in a row.
If the change reduces
the amount of tax credits parents are entitled to, the Inland
Revenue will only reduce the award after the first 4 weeks of the
change, so they should tell the Inland Revenue as soon as possible.
If parents don't tell
the Inland Revenue about a rise in costs they may not get as much
tax credits as they should. To get any increase in their tax credits
backdated to the week that their costs first increased, they must
tell us within three months of that first week.
How do parents work
out whether or not their average childcare costs have changed?
When working out
whether or not their average costs have changed parents should use
the same method that they used to work out they average weekly costs
in the first place.
If the average is
based on total costs for the year divided by 52
(i.e. childcare costs are paid weekly or monthly but in variable
amounts, for example, more is paid in the school holidays than in
term time) then parents should work out whether their average costs
have changed by looking at what they expect to pay over the next 52
weeks and divide that figure by 52.
If it is £10 or more
higher or lower than their current average, then they should tell
Inland Revenue. Because their weekly average is based on a whole
year's costs any change in the weekly average will be treated as
being in place for the required 4 consecutive weeks.
If the average is
based on their costs for the past four weeks or one month, then
parents should
work out whether their average weekly costs have changed by looking
at what they will pay in each of the next four weeks. If it is £10
or more higher or lower than their current average in each of the 4
weeks, then they should tell the Inland Revenue.
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