Friday 21 September 2012

Tax credits


For people who are struggling to make ends meet on low incomes, the government can provide tax credits to supplement your income.

These tax credits come in two types. These are Child tax credits and Working tax credits.

Child tax credits.

As the name suggests these credits are available to families and parents, the purpose of these tax credits is to help with the expenses of raising a family.

To be eligible for child tax credits you must be responsible for at least one child.

Child tax credits are made up of the following:

The Child Tax Credit elements
What it means                                
Current maximum yearly amount
Family element - the basic element
It's the basic payment if you are responsible for one or more children.
£545
Child element 
This is paid for each of your children. It is paid on top of the basic family element.
£2,690
Disabled child element
This is an extra payment for each disabled child you have.
£2,950
Severely disabled child element
This is an extra payment for each severely disabled child you have. 
It is paid on top of any disability element.
£1,190

As you can see, you get a basic amount, followed by a payment per child and then an additional amount if your children are disabled.

However if your earnings exceed £15,860 your tax credits will be reduced at a rate of 41% of the amount you are earning above £15,860, for example if you earn £16,860 you will lose £410 of your tax credits being 41% of the £1,000 above the threshold.

Working tax credits

These tax credits are available to those on low income, but are also working.

To be eligible for working tax credits, you must be working 30 or more hours per week if you’re at least 25 or more than 16 hours per week if you’re at least 16 and have a child or are disabled. However, for a couple with children, you must total 24 hours a week between you, with one of you working at least 16 hours per week.

They are made up of the following:

The elements
Who it applies to                                          
Current maximum yearly amount               
Basic element
The basic amount if you qualify for Working Tax Credit.
£1,920
Couples
Paid if you make a joint claim and is on top of the basic element.
£1,950
Lone parent element 
Paid if you're a single parent bringing up children on your own.
It is paid on top of the basic element.
£1,950
30 hour element 
An extra payment if you work at least 30 hours a week. 
It also applies if you're in a couple, with at least one child, and you work at least 30 hours a week between you. But one of you needs to work at least 16 hours or more a week.
£790
Disability element
An extra payment if you work and have a disability.
£2,790
Severe disability element
An extra payment if you work and have a severe disability.
If you're in a couple, the person with the severe disability doesn't have to be working - as long as one of you is.
£1,190
Childcare element

An extra payment if you pay registered or approved childcare.
Up to 70% of your costs, subject to a maximum limit as follows:
·                     £175 per week if you're paying for one child
·                     £300 per week if you're paying for two or more children

As you can see you have a basic amount that depends on whether or not you are single or have children, followed by an extra amount if you work more than 30 hours per week then disability and help paying for childcare while you are out working.

The limit before you start losing working tax credits is less generous than for child tax credits, with you only having to earn over £6,420 before you start losing tax credits.

If you are in receipt of both working and child tax credits you would use the lower limit of £6,420 before you start losing tax credits.

For example if you were a single parent with 1 child working 16 hours per week at the minimum wage of £6.08 per hour, you would be entitled to the £545 family allowance, £2,690 for having a child, £1,920 for the basic working tax credit and a lone parent allowance of £1,950. This adds up to a total of £7,105 tax credits per year, and your employment would be earning £5,059 per annum, which is low enough to retain all of your tax credits.

To claim tax credits you will need to fill in a claim form that can be received by calling the tax credits helpline on 0345 300 3900 but the form must be complete and sent back between the 5th April and 31st July to be eligible.

If you require any assistance with the above, or need some more information, be sure to call me on 01761 436436.

Mark.