School's Out: Framework for the Development of Out-of-School Care

SCHOOL'S OUT: Framework for the Development of Out-of-School Care

Appendix 4
Tax credits

Working parents who receive Working Families' Tax Credit (WFTC) or Disabled Person's Tax Credit (DPTC) can claim support with the cost of childcare through the Childcare Tax Credit.

The 2002 budget announced changes to tax credits from April 2003. From April 2003, the Working Tax Credit and Child Tax Credit will combine and improve existing child and in-work support. The new tax credits aim to:

support families;
tackle poverty; and
make work pay.

The Working Tax Credit is designed to help tackle poor work incentives and persistent poverty among working people. It will combine the adult elements of the WFTC and DPTC and extend in-work support to workers without children or disabilities. It will also replace the New Deal 50+ Employment Credit by including a return-to-work element for people aged 50 or over who have been receiving certain out-of-work benefits for at least six months.

This is a tax credit for people who are in paid work. You may be eligible if you are:

a single person;
a married couple living together;
a man and woman living together as if you are married; and
in paid work (including working as a self-employed person) for the required number of hours (16 hours a week).

The amount you receive will depend on your yearly income, and you must be 16 years of age or over to be able to apply for the tax credits.

The Working Tax Credit is made up of:

a basic adult element which is paid to you if you meet the conditions above;
an extra element which is paid to lone parents and couples;
an extra element which is paid if you and your partner, if you have one, work a total of 30 hours or more a week;
an extra element which is paid if you (or your partner) are working and have a disability;
an extra element which is paid if you (or your partner) are working and have a severe disability; and
a childcare element which is paid to help households who are working and have to spend money on childcare.

As part of Working Tax Credit you may qualify for extra help towards the costs of childcare. If you do qualify, the total amount of help you receive will always be paid direct to the person who is mainly responsible for caring for the child or children, alongside payments of Child Tax Credit.

The amount of Childcare Tax Credit will depend on income. It can be up to a maximum of 70p for every 1 you pay out in childcare costs. There is a limit of 135 a week for one child and 200 for two or more. This means the most you can get in your childcare element is 94.50 (135 at 70p in the 1) if you have one child, or 140 (200 at 70p in the 1) if you have two or more children.

To apply for the childcare element, lone parents must work 16 hours or more. Couples can apply if:

both work 16 hours or more; or
one of you works 16 hours or more a week and the other receives a disability benefit or has an invalid carriage because he or she has a disability.

Qualifying age for a child

The child or children you are claiming for must be under the qualifying age. For the childcare element, that age is from birth up to the first September following the child's 15th birthday if:

the child is registered blind;
the child has been taken off the blind register within the last 28 weeks;
you receive Disability Living Allowance on behalf of that child; or
the qualifying age is from birth up to the first September that follows the child's 16th birthday.

As at May 2002, 32 million of Childcare Tax Credit has been paid out in Scotland.

The Child Tax Credit will provide a single system of income-related support for families with children, bringing together the help for children currently provided through the child elements of the WFTC, the DPTC, and Income Support or Jobseeker's Allowance, as well as that provided by the current Children's Tax Credit. Building on the foundation of universal Child Benefit, the Child Tax Credit will deliver the following:

a secure income for families with children that does not depend on the employment status of the parents, creating a stable income when families move into work;
a system in which all support for children is paid direct to the main carer in the family - usually the mother - in line with Child Benefit;
a common framework for assessment, so that all families are part of the same system and poorer families do not feel any stigma associated with current forms of support;
a less intrusive system, under which families whose circumstances remain the same will only need to contact the Inland Revenue once a year about tax credits;
a modern income test that does not penalise saving and instead takes account of the income from capital rather than the capital itself; and
a more responsive system in which a family's tax credit award can be adjusted to reflect changes in their income and circumstances. The new tax credits only respond to rises in income in the current year of more than 2,500 so that people will not see their tax credits reduced as soon as their income rises.

Paid on top of Child Benefit, the Child Tax Credit will provide the following:

a family element of 545 a year, or 1,090 for families with one or more children under the age of one, for all families with incomes of less than 50,000, gradually withdrawn for those with incomes above this amount; and
a child element of 1,445 a year for each child or young person in families with incomes of up to around 13,000 a year, gradually withdrawn for families with higher incomes. Families caring for disabled or severely disabled children will receive increased child elements to reflect their greater needs. From April 2004, the child element will be increased at least in line with earnings rather than prices for the rest of the UK Parliament.

Link to Inland Revenue tax credits website
https://www.taxcredits.inlandrevenue.gov.uk/Home.aspx

Link to Inland Revenue website
http://www.inlandrevenue.gov.uk

Link to statistics on take up of tax credits
http://www.inlandrevenue.gov.uk/stats/wftc/wfdptc-geog.htm

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