Tax credits planning for changes

Tax Comments Off on Tax credits planning for changes

Significant changes will be made to both Working Tax Credit (WTC) and Child Tax Credit (CTC) from April 2011 through to April 2013. In April 2014 these benefits will be abolished and replaced by the new Universal benefit which will be introduced from late in 2013.

Reducing awards by reference to household income

Presently the family element of £545 is paid in full as long as income does not exceed £50,000. The £545 is gradually reduced or tapered to nil when your income reaches £58,175.

From April 2011 the family element will remain at £545, but will be payable in full at income up to £40,000, and will be tapered to nil at income of £43,892.

Income disregard to be reduced

As your tax credit claims are based initially on the income of the previous tax year, if your actual earnings increase significantly you may have to repay tax credits you have received.

At present as long as the increase in income is less than £25,000 it will be disregarded for tax credit purposes and no repayments will need to be made.

Unfortunately from April 2011 the income disregard of £25,000 is being reduced to £10,000. Claimants with increases in income in excess of £10,000 during the tax year 2011-12 should be aware that they will need to repay part of the credits received in that year if based on income of the previous tax year 2010-11.

Changes to gross awards from April 2011:

  • The baby rate of family element is abolished from April 2011. This amounts to £545 per annum.
  • The planned additional award for children under two years of age proposed by the last Government, but not yet implemented, has been abandoned.
  • WTC has been extended to certain individuals aged 60 or over. At present unless they have responsibility for a child, a claimant must be working for 30 hours a week. This working requirement will reduce to 16 hours a week from April 2011.

Should you have any queries regarding Tax Credits or require assistance in the completion of the necessary forms please do call.

Sue Stephens

Tax Manager