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So how are tax credits made up?

(21 Posts)
FedupofTurkey Sun 14-Apr-13 16:51:58

Are they by joint income or individual income, ie, is it better to have a household of 2 lower paid workers than a single parent on a higher wage (the same as the 2 lower wages)?

How much of childcare is paid - is it 75% of the cost?


CogitoErgoSometimes Sun 14-Apr-13 17:09:01

They are awarded based on household income. The main difference between a single and double adult household being that the required number of hours worked is higher when there are two people. There is a good benefit checker at that you can use to run some 'what if' scenarios. However, do be aware that from this autumn tax credits are gradually going to be replaced with the single payment Universal Credit

FedupofTurkey Sun 14-Apr-13 19:27:23

Thanks - was using the gov site. My partner has a good wage at the mo with full time kids and therefore pays childcare and hardly gets any tax credit. The likelihood is he will have to get a lower paid job next year and with both our wages together we will be on the same as he is now with the same childcare costs but will qualify for lots more! I work part time. I don't get it!

CogitoErgoSometimes Mon 15-Apr-13 07:00:46

There is a household income threshold which, if you go over it, means you get very little or nothing at all. If you are under it by just a thousand or two then the awards increase sharply. If you run a few different numbers through the benefits checker you can test that. Two people working also benefit from having 2 x the tax-free allowance... so you will keep more of your income in the first place.

swallowedAfly Mon 15-Apr-13 07:04:33

be careful with the benefits calculator sites. before i took this job i used one and it said i would be entitled to some housing benefit and council tax benefit - nothing like the full amount obviously but it would have made a big difference. when i actually applied i've been told i'm not entitled to any at all confused was a bit gutting as i'd factored it in.

good point about the tax allowances cogito - two incomes have far more tax free money than one.

swallowedAfly Mon 15-Apr-13 07:14:44

cogito i've just used that website you mentioned and it again says i'm entitled to £29pw housing benefit. i don't understand it.

CogitoErgoSometimes Mon 15-Apr-13 07:40:34

Housing benefit tends to be a locally determined thing. I thought the Turn2Us site gave an estimate but then points users towards their local housing authority for the actual award.

swallowedAfly Mon 15-Apr-13 07:54:04

it asks you to enter your local authority and works it out based on that apparently. having looked again though it has underestimated how much tax credit i get. hope to hell i haven't been overpaid tax credits, missed out on housing benefit because of it and will have to pay back the tax credits and nothing i can do about the lost HB. ok, head back in sand time me thinks.

lougle Mon 15-Apr-13 08:34:45

Ok. Tax Credits:

There is no 'benefit' from being in a lone parent household except that you only need to work 16 hours to qualify for the childcare element of tax credits, which may pay up to 70% of childcare costs.

People think it's a complicated benefit, with lots of variations, but it isn't really. It's just a case of maths. You have to add up all your 'elements', then work out how your income affects them.

Let's say you work 30 hours per week as a lone parent with 2 children, neither of whom are disabled.

There are 3 elements - Working Tax Credits, Child Tax Credits and Childcare element of Working Tax Credits.

Working Tax Credit
1.Basic element £1,920
2.Couple and lone parent element £1,970
3.30 hour element £790
4.Disabled worker element £2,855
5.Severe disability element £1,220

Add up any that apply, write the total down somewhere. You qualify for elements 1, 2 and 3. Total: £4680

Child Tax Credits
1.Child Tax Credit Family element £545
2.Child element £2,720
3.Disabled child element £3,015
4.Severely disabled child element £1,220

Each child can qualify for each of elements 2-4, there is only one family element. Disabled child = Gets DLA. Severely disabled child = Gets High Rate Care or is registered Blind.

Add up any of elements 2-4 that apply (one for each child) and add on 1. Write it down next to the amount above. You qualify for 1. and 2x 2. Total: £5985

Child Care Tax Credits
Maximum eligible cost for one child £175 per week
Maximum eligible cost for two or more children £300 per week
Percentage of eligible costs covered 70%

The care has to be registered providers, but there is no restriction on when the care takes place. So if you want to pay someone to have your child on your day off while you do housework, they will still pay it. To qualify for the Child Care element, you must be either:

Lone Parent - work 16 hours or more
Couple - work 24 hours or more total, with one working at least 16 hours per week.

Disabled people, couples where one person is in prison, hospital or otherwise incapacitated for work, or in receipt of carer's allowance are exempt from the 24 hour rule, and are only required to work 16 hours per week.

Maximum eligible cost for one child £175 per week
Maximum eligible cost for two or more children £300 per week
Percentage of eligible costs covered 70%

So, work out child care costs, then calculate 70% of them. Write that down.

Let's say you pay £200 per week for 2 children. £200 x 70% = £140 per week - £7280 per year.

Add up the 3 figures. The total figure is your 'potential tax credit award'. For 'you' that's: £4680 + £5985 + £7280 = £17945 per year.

Your total potential tax credit award is £17945 per year.

Next, you have to look at your income. Let's say it's £15000 per year.

Income Thresholds
Income threshold £6,420
Withdrawal rate (per cent) 41%
Threshold for those entitled to Child Tax Credit only £15,910
Income rise disregard £5,000
Income fall disregard £2,500

So, they are telling us that the first £6420 of your income is ignored.

Take that away from your £10000 = £3580

Then, after you've taken that away, they will deduct £0.41 for every £1 you earn.

So, £3580 x 0.41 = £1467.80

They will take away £1467.80 from your tax credit award, so your total will be:

£17945-£1467.80 = £16477.20.

They always take away from working tax credits first, so your break down would be:

Working Tax Credits: £3212.20 (£61.77 per week)
Childcare Tax Credits:£7280 (£140 per week)
Child Tax Credits: £5985 (£115.10 per week)

So, your total Tax Credit income would be £316.87 per week.

lougle Mon 15-Apr-13 08:35:34

Oops - I said your income was £15k then used £10k in the calculation. Read it as 'let's say your income is £10000' and it will all make sense.

FedupofTurkey Mon 15-Apr-13 20:26:12

Thanks iogle - very thorough!

Do you also know if a person would still get tax credits in this scenario. Sells their house, moves in with family whilst looking for another house, but has equity money in bank ready for deposit on new property. I presume tax credits will say they don't qualify?

lougle Mon 15-Apr-13 21:02:26

Tax credits doesn't take capital into account at all.

The new Universal Credit will, though.

wannabedomesticgoddess Mon 15-Apr-13 21:21:33

So does that mean if you earn £15910 or less you still get the full Child Tax credit amount?

FedupofTurkey Mon 15-Apr-13 21:35:52

Iogle - even if that capital is in the bank waiting to be invested in a new property, its not classed as savings?

lougle Mon 15-Apr-13 21:49:02

Savings are disregarded for tax credits. Income from them (ie. interest) are not, but given the poor rate of savings these days, it's unlikely to affect anything.

wannabe what it means is that if you do not qualify for Working Tax Credit, but are earning (so, for example, a lone parent who works 15 hours per week instead of the 'golden' 16 hours, or a couple who work 23 hours between them, not 24, or even a couple who work 30 hours between them, but each work 15 hours so neither of them make the magic '16 hours'.), then you will get a 0 WTC award, a 0 Childcare Tax Credits award, but you can earn up to £15910 before they'll take any of the Child Tax Credits away.

ssd Mon 15-Apr-13 21:59:33

lougle, can you explain this further or post any links with info

"Tax credits doesn't take capital into account at all.

The new Universal Credit will, though."

what do you class as capital? is it savings/ISA's/premium bonds etc, also what is the limit you can have before the UC's will be affected?

lougle Mon 15-Apr-13 22:17:24

Sure, ssd.

Firstly, Tax Credits treatment of capital (page 22:

"What about capital?
We will not normally take capital (that is, deposits in current and savings accounts at banks and building societies, most lump sum payments and the value of property, shares and other investments) into account when we work out your entitlement to tax credits."

Secondly, Universal Credit Treatment of Capital:

"4.a)We will set a capital cut-off in Universal Credit at £16,000 (both for single claimants and couples making a joint claim). Capital in excess of £6,000 will be treated as yielding an income (known as “tariff income”) of £1 per week for each complete £250 over this £6,000 floor. Capital under £6,000 will be disregarded. These rules will apply to all elements of Universal Credit.
b)For the purpose of this rule, “capital” will include savings, stocks and shares, property and trusts. It will not include: the property occupied by the claimant as his or her main home; personal injury payments placed in trust funds; certain other compensation payments; personal pension schemes and retirement annuity contracts; or business assets. We will also disregard 50% of pension contribution in assessing net earnings.
c)The powers in the Bill permit us to make regulations to treat unearned income in the same way as earnings. These powers may be used, for example, in the case of Statutory Sick Pay.
d)The rules exempt the proceeds of a sale of a former home and some other assets clearly identified and earmarked for the purchase of (or repairs to) a home, but usually for a maximum of 26 weeks.
e)People with capital of £16,000 or more who are entitled to Tax Credits before migrating to Universal Credit will receive transitional protection to protect their cash income. Capital limits are not changing for claimants of out of work benefits or Housing Benefit. "

ssd Mon 15-Apr-13 22:32:50

thanks lougle

ssd Mon 15-Apr-13 22:43:52

lougle, do you know if childrens savings count towards capital...or premium bonds?

lougle Mon 15-Apr-13 23:13:00

I've looked at the The Universal Credit Regulations 2013 and it doesn't mention children's savings or premium bonds.

I would think that they are not taken into account. However, whether they would deem you to be depriving yourself of capital if you suddenly invested a significant amount of money into your children's savings/premium bonds in their name, and that investment/purchase then brought you within the limits of capital for UC.....I'm not sure. They may decide that you have deliberately deprived yourself of capital, and treat you as if you still had that money. But that's only my worry, I can't link to something definitive.

ssd Mon 15-Apr-13 23:14:33

ok, thanks for that

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