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The working tax credit, or WTC, is chiefly a payment to people on low incomes who fulfil certain age requirements and work more than a certain number of hours a week (see below). It is also intended to support the costs of childcare for working parents. Contents
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As for income, you are entitled to the full amounts shown above (i.e. maximum working tax credit) if your annual income for tax credits does not exceed £6,420 or if you are on income support, income-based (NB not contribution-based) jobseeker's allowance or pension credit. For every £ by which your income exceeds that amount, your WTC is withdrawn by 39p.
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Peter earns £10,000 a year working 35 hours a week while Sharon works 20 hours a week for £5,000 a year. They have no other income. They have one child, Jamie, for whom they pay £100 a week in childcare. Their WTC entitlement for 2009/10 is worked out as follows: Basic element - £1,890 Adding these elements together gives maximum WTC of £8,685 The next stage is to deduct the WTC threshold of £6,420 from total joint income (£10,000 + 5,000) £15,000. The difference is £8,580 To work out the actual WTC entitlement take 39% of this difference (39% x £8,580 = £3,346.20) from the maximum WTC entitlement (£8,685). So the net WTC entitlement is £5,338.80 |
The basic element - introduction
You are entitled to the basic element of WTC if you are engaged in qualifying remunerative work, and are not in one of the excluded groups listed below. This means that you must:
- be working at the date of claim, or have accepted an offer of work which you expect to start within seven days of claiming;
- fulfil certain age qualifications and be working for a minimum number of hours per week (see below);
- expect to continue working for at least four weeks after making your claim, or after the job starts;
- do the work 'for payment or in expectation of payment' and no social security benefit is in payment for the purpose of satisfying this condition (see below).
Even if you satisfy all those conditions, you still cannot be regarded as being in qualifying remunerative work if you are:
- a charity worker, and the only payment you receive is reimbursement of expenses;
- a respite carer using the Rent a Room scheme for income tax (see below for details);
- a trainee, engaged on a scheme for which a training allowance is being paid;
- participating in the Intensive Activity Period or Preparation for Employment (Northern Ireland) Programme under the relevant Jobseekers Allowance Regulations;
- in receipt of a sports award, and you are not receiving or expecting any other payment;
- taking part in an employment zone programme and receiving no payment apart from a discretionary payment from the employment zone contractor, or training premiums.
- serving a custodial sentence or remanded in custody awaiting trial, and you are engaged in work (whether inside or outside a prison) while you are serving the sentence or remanded in custody.
'Test-trading'
Participants in the DWP initiative New Deal self-employment route who are 'test-trading' are regarded as in remunerative work from the date they commence 'test-trading' or the date they start to undertake the required number of hours, if later.
Foster carers and adult placement carers
Foster carers and adult placement carers are considered to be in qualifying remunerative work and therefore entitled to WTC.
The Revenue instructions tell officers to accept the number of working hours declared on the claim form. This is despite the fact that arrangements applying to both sectors from 2003-04 onwards mean that the vast majority of carers are treated as having no profit and no loss for income tax purposes.
However, respite carers who care for a person who is not a member of their household, and whose payment from the local authority (or voluntary organisation or primary care trust) is exempt from income tax under the Rent a Room scheme, are not able to count their caring activities as qualifying remunerative work for WTC purposes. Similarly, foster carers and adult placement carers who opt for the Rent a Room scheme are not treated as being in qualifying remunerative work.
Requirements as to age and hours of work
To fulfil the requirements as to age and hours of work, you must work at least 16 hours a week if you are:
- a couple with children,
- a lone parent,
- a person 50 years and over returning to work after a period of unemployment, or
- a person with a disability which puts you at a disadvantage in getting a job,
and you are at least 16 years of age.
Otherwise you must work at least 30 hours a week, and be at least 25 years of age, to be entitled to WTC.
If you are a couple without children making a joint claim, only one of you need be aged at least 25 and working for at least 30 hours a week in order to qualify.
Seven day run-on after finishing work
Provided you have satisfied all the above conditions, you will be treated as continuing to satisfy them for seven days after finishing work. This is to allow for intervals of up to seven days between jobs to be ignored.
From 6th April 2007, if you have been working for not less than 16 or 30 hours a week, and you either drop your working hours to below 16 a week or stop working altogether, you will be treated as continuing to work for the four weeks immediately afterwards. Thus your WTC entitlement will continue during those four weeks after you have finished work, or reduced your hours.
Note that the 4 week run on does not apply to those who qualify for WTC because they work more than 30 hours a week and their working hours fall to below 30 but more than 16 hours a week.
The 2009 Budget announced that from July 2009, the 4 week run-on would be extended to include those whose hours fall below 30 but remain above 16. Under the former rules that group no longer qualify for Working Tax Credit, but do not qualify for the 4 week run-on.
It was also announced that amendments would be made to make it clear that childcare costs were to be included during the 4 week run-on.
How to determine number of hours worked
If you are an employee or an apprentice, you are usually treated as working the number of hours you normally perform under your contract of employment or apprenticeship. This may not necessarily be the same number of hours as originally set out in your contract.
If you are self-employed, you are treated as working for the number of hours you 'normally perform for payment or in expectation of payment'. This includes both work done and billed to the customer, and the time spent in 'activities necessary to the employment'.
These are some other points to bear in mind when determining how many hours are worked.
- Any period of customary or paid holiday is disregarded, so that entitlement to WTC is not interrupted.
Time allowed for meals and refreshments is treated as time spent working if you are or expect to be paid for that time.
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- 'Hospital or clinic visits for the purpose only of treating or monitoring [your] disability' are treated as time spent working if you are or expect to be paid for that time.
If you have a 'recognisable cycle of work' over a year which includes periods of vacation etc when you do not work, those periods are ignored and your WTC entitlement is not interrupted.
Your hours are averaged over the whole year to determine whether you usually work 16 hours or 30. This will apply to you if, for instance, if you are a term-time worker in a school or college.
Seasonal workers, and others who work over a recognisable cycle of less than a year, will have their weekly hours averaged out over the cycle, and will be able to claim WTC during the whole of the cycle but not for periods outside it (unless they then do other work).
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Leyla works 14 hours one week, 18 hours one week, in two-week cycles throughout the year. Her average hours of work are 16 hours a week, so she qualifies for WTC. Where a person's 'recognisable cycle of work' extends over a whole year, such as a term-time worker in a school or college, periods of school holidays or vacations during which they do not work are ignored in computing their working hours. |
If you are an agency worker, you normally work the number of hours in respect of which remuneration is normally paid to you by an employment agency with whom you have a contract of employment. If in fact your working hours fluctuate from week to week and you have no pattern by which you can determine any normal working routine, it may be difficult if not impossible to determine what are your normal working hours.
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Example Dawn is a full time university student. She has two children. During term time she works as a nurse for Agency 1. Her hours fluctuate depending on how many hours they have for her to work. She therefore works different hours week to week, some weeks she does not work, others she works 30 hours. During vacation time she works as a nurse for Agency 2 in a different geographical location. Again she has no guarantee of hours and takes work as the agency have it available. Some weeks she may not work, some weeks she may work 30 hours. |
We discuss the problems this causes in the section on Overpayments & Underpayments and explain the circumstances.
HMRC have recently issued new guidance for those who are told by their employers to work shorter hours or who are laid off temporarily.
Under this guidance, providing your hours are reduced or you are laid off for 4 weeks or less, there will be no interruption to your normal working hours for tax credits. However if you know from the start that your hours are likely to be reduced for more than 4 weeks or that you are laid off indefinitely or for more than 4 weeks, your change in hours will be effective when you are notified of this.
The full guidance can be found here.
If there is any dispute about what was said, the Revenue should keep tape recordings of all calls to the helpline and can check if you tell them the date and approximate time of day when you called. However, we have had correspondence from the Data Protection Unit indicating that in the past not all calls to the helpline have been recorded. (See our earlier article on this.)
This also applies if you are in receipt of short-term incapacity benefit at the lower rate, income support on grounds of incapacity to work, national insurance credits on grounds of incapacity to work or limited capability for work, or employment and support allowance. Again this applies for a period of 28 weeks only.
You are entitled to the disability element of WTC if you or your partner:
- are aged at least 16;
- work for at least 16 hours a week; and
- have a 'physical or mental disability which puts [you] at a disadvantage in getting a job' (this is further explained below); and
- satisfy one of a number of conditions of social security benefits related to your disability (see below), or qualify under the so-called 'fast track' rules.
To satisfy the disability benefit condition you must:
- Receive (or have for at least one day in the 182 days preceding your claim received) higher rate short term or long term incapacity benefit, severe disablement allowance, or employment and support allowance where you have been entitled to ESA or statutory sick pay for a period of 28 weeks, which must comprise either one continuous period or two or more periods which are linked together; or
- Receive (or have for at least one day in the 182 days preceding your claim received) higher pensioner or disability premium in income support, income-based jobseeker's allowance, housing benefit or council tax benefit; or
- Be in receipt of disability living allowance, attendance allowance or mobility supplement (if your DLA, AA or mobility supplement stops your disability element will cease immediately);
- Have an invalid carriage or another vehicle provided under the Invalid Vehicle Scheme; or
- Have been entitled to the disability element of WTC itself at any time in the 56 days prior to your claim (except if you received the disability element by virtue of getting DLA or AA); or
- Have undertaken 'training for work' for at least one day in the preceding 56 days, and within 56 days before the first day of training for work you have received either:
- short-term incapacity benefit at the higher rate, or
- long-term incapacity benefit, or
- severe disablement allowance, or
- contributory employment and support allowance where you have been entitled to that allowance or to statutory sick pay for a period of 28 weeks comprising one continuous period or two or more periods which are linked together. If statutory sick pay was payable, the person must have satisfied the required contribution conditions.
'Training for work' means training under certain statutory arrangements on a course whose primary purpose is the teaching of occupational or vocational skills. The person must attend for at least 16 hours a week.
The disability element, and its predecessor the disabled person's tax credit, were intended to help people into work, and originally it was not possible to claim it if you became sick or disabled while in work. That is now possible, but the requirements are generally criticised as too stringent and bureaucratic. They are:
- you must have received statutory sick pay, occupational sick pay, short-term incapacity benefit at the lower rate or income support, employment and support allowance on account of having limited capability for work for 140 days (20 weeks), or been credited with Class 1 or 2 national insurance contributions for 20 weeks on account of incapacity for work or limited capability for work;
- your disability must be expected to last at least 6 months, or for the rest of your life if you are not expected to survive six months;
- your gross earnings have dropped by at least 20% following your disability, with a minimum reduction of £15 a week.
The 140 days or 20 weeks can be made up of any two periods during which you received benefits or were credited with contributions, provided there is no more than an eight-week gap between them.
Curiously named fast track when it is anything but that, the procedure does not help people who continue to work while sick or go back to work before the 140 days are up. Nor does it help people who develop a debilitating condition, such as deafness, over time while they are in work.
Normally, tax credits can only be backdated up to 90 days. However, in certain circumstances it may be possible to backdate more than 90 days. This longer backdating may be given if you are relying on receiving one of the disability benefits listed above in order to establish your claim to tax credits or where receipt of one of those benefits allows the disability element to be added to your current tax credits. However, for the longer backdating to apply, you have to meet certain requirements.
Since 6th April 2009, the rules have been simplified. Below we set out when longer backdating applies, both under the old rules and the new rules from 6th April 2009.
Former rules
The rules were very complex.
If you:
- were already receiving some tax credits when you applied for the disability benefit, and
- wanted to claim extra tax credits on account of your disability,
you had to notify HMRC both when you applied for the benefit and within three months after you received it. Only then could you backdate the award of extra tax credit to the time when you first applied for the disability benefit.
If however you did not notify HMRC on each occasion, but only on receiving the benefit, you could only backdate your extra tax credit by the standard period of three months from when you did notify them.
If you:
- were claiming tax credits for the first time, and
- you qualified because you had a disability
the procedure was similar. To get the full backdating, you had to notify HMRC (generally via a letter attached to your claim form) that you were awaiting a decision on your disability benefit. You then had to notify them again within three months after you received the decision on your disability benefit. If you did not notify them on each occasion, but only when you received the benefit, your backdating would be limited to three months.
Rule change
After representations from LITRG and other welfare rights bodies, the rules were simplified from 6 April 2009.
Now, if you are already receiving tax credits and are applying for extra tax credits on grounds of disability, you will receive maximum backdating of your extra tax credit so long as you notify HMRC within three months of being awarded a disability benefit. You no longer need to notify HMRC when you first apply for the benefit.
Similarly, if you are awaiting a decision on your disability benefit at the time of applying for tax credits then provided you notify HMRC within three months of being awarded the benefit, you will receive full backdating. This is providing that qualification for tax credits was dependent upon receiving the disability element.
For those people who meet the disability conditions when they apply for tax credits, if you have claimed tax credits within three months of the disability benefit decision, you will receive full backdating. Again this is providing that qualification for tax credits was dependent upon receiving the disability element.
Remember, if you notify more than three months after your have received your disability benefit decision, you will only ever be able to receive three months backdating.
To see an example of how the old and new rules apply, see Making a claim.
HMRC have produced a short leaflet setting out the requirements for the disability element which can be found here.
This is payable if either you or your partner are working for at least 30 hours a week. If you or your partner, or both of you, are responsible for a child or young person, you qualify for the 30 hour element if between you, you work for 30 hours or more, as long as at least one of you works for 16 hours or more a week.
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James and Amanda work 30 hours a week between them, but each works only 15 hours. They are not entitled to WTC at all because neither of them works 16 hours. Kerry and Paul work 30 hours between them; Kerry working 20 hours a week and Paul 10. They are entitled to WTC, and to the 30 hour element, because at least one of them works at least 16 hours and between them they work 30. |
If you are claiming jointly with your partner, you are usually entitled to the second adult element, unless:
- you are getting the 50 plus element because one of you is aged at least 50, and neither of you works 30 or more hours a week; or
- one of you is serving a custodial sentence of more than 12 months; or
- one claimant is subject to immigration control.
- You are entitled to the severe disability element if you or your partner are in receipt of the care component of disability living allowance (DLA) payable at the highest rate, or an attendance allowance (AA) payable at the higher rate. You are still entitled to the severe disability element even if your DLA or AA is abated or suspended while you or your partner are in hospital.
- In a joint claim where you both satisfy these conditions, you are both entitled to receive the severe disability element. Unlike the disability element, you do not have to be working to qualify for the severe disability element.
- If you are relying on receiving DLA or AA in order to establish your claim to the severe disability element, and there is a delay in settling your claim to the benefit, there are certain circumstances in which you can backdate your claim to the severe disability element to the date when your benefit entitlement starts to run, even if that is more than the three months normally allowed for backdating tax credit claims. But you need to follow the correct procedure. (See above under disability).
You might have to ask specifically for this as the Revenue's computer system does not automatically backdate a claim to any element of WTC.
You are entitled to the 50 plus element if you or your partner:
- are aged 50 or over;
- have started work;
- work for at least 16 hours a week, and
- have been out of work and receiving benefits for at least six months before starting work.
Where you claim jointly, and you both fulfil the above requirements, you are both entitled to receive the 50 plus element. As a couple you can claim the second adult element in addition, provided that either:
- at least one of you works 30 hours a week or more, or
- one or both of you are responsible for a child or young person, or
- one or both of you have a disability.
- income support;
- jobseeker's allowance;
- incapacity benefit;
- severe disablement allowance;
- both a state retirement pension and the state pension credit;
- national insurance credits.
- Carers allowance,
- bereavement allowance, or
- widowed parent's allowance.
You are entitled to receive the childcare element if you:
- are a lone parent engaged in qualifying remunerative work;
- are part of a couple; one or both of you is responsible for a child or young person; and you are both engaged in qualifying remunerative work;
- are part of a couple in which one of you is engaged in qualifying remunerative work, and the other is either incapacitated, a hospital in-patient, or in prison;
and you are incurring relevant childcare charges for a child of a prescribed description for whom either or both of you is responsible.
The words in italics and the other terms are explained below:
Incapacitated
This means that the non-working member of the couple must be receiving one of the following:
- housing benefit or council tax benefit with a disability premium, or a higher pensioner premium;
- disability living allowance (DLA);
- attendance allowance (AA);
- an equivalent of DLA/AA which is paid as a pension increase under a war pension scheme or under an industrial injuries scheme which is analogous to an allowance or increase of disablement pension;
- severe disablement allowance;
- increase of disablement pension;
- incapacity benefit at the short-term higher rate or the long-term rate;
- contributory employment and support allowance where entitlement to that allowance or statutory sick pay has existed for a period of 28 weeks comprising one continuous period or two linked periods (this is providing if the person received statutory sick pay they also met the relevant contribution conditions);
- industrial injuries benefit with constant attendance allowance;
- war disablement pension with constant attendance allowance or mobility supplement;
- a vehicle under the Invalid Vehicle Scheme.
You will still qualify if you would be getting DLA or AA but are not because you are in hospital.
Relevant childcare charges
This means childcare charges paid by one or both of you for a child for whom one or both of you is responsible. The child care provider must be registered or approved, the meaning of which is described in the Revenue's useful leaflet on childcare WTC5.
This excludes most informal childcare. Specifically excluded is childcare provided wholly or mainly in the child's home by a relative of the child; but a relative such as a grandparent can provide care in their home provided they are a registered childminder, If an approved provider, they must also care for at least one non-family member.
Relative
In this context, this means a parent, grandparent, aunt, uncle, brother or sister whether by blood, half-blood, marriage or affinity.
You can claim the childcare element of WTC from the date of birth of your child, as long as you usually worked at least 16 hours per week before your maternity, adoption or paternity leave (ordinary and first 13 weeks additional) began. Note: During the 2003/04 tax year the childcare element was not available for new children during periods of maternity, adoption or paternity leave.
Child of a prescribed description
You are eligible for childcare support only until the 1 September following your child's
- 15th birthday, or
- 16th birthday if your child is on the blind register or came off it in the 28 weeks before you claimed, or you receive disability living allowance for the child (or would receive it but for the child being a patient in hospital).
Responsible for a child
For the meaning of this, see the commentary on Child tax credits
Amount of childcare support.
The childcare element provides support of 80% of eligible childcare costs. Eligible childcare costs are the amount you spend on approved childcare, up to a maximum of £175 a week for one child, and £300 for two or more children. Therefore, the maximum support you can receive where you have one child in childcare is £175 x 80% = £140 a week, and £300 x 80% = £240 a week for two or more children.
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Fred and Angela have three children in childcare while both work. They pay £90 a week for child 1, £100 a week for child 2, and £120 a week for child 3. Their weekly charges for the 3 children are £90 + £100 + £120 = £310. Because they pay £310 a week and the maximum they can get credit for is £300 for 2 or more children, their childcare element is restricted to: £300 x 80% = £240 a week. |
- Those are the figures for the tax year 2008/09 & 2009/10.
- This means that support for childcare through tax credits is available to parents on quite high incomes, even those on incomes of £70,000 or £80,000 if they are eligible to claim maximum childcare.
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Example Ben and Anna have four children, one of whom is disabled, for whom they pay maximum childcare charges. Their joint income is£68,000 for tax credits purposes in 2009/10, and they both work full time. Their tax credit entitlement in 2009/10 is as follows: To work out the maximum tax credits add together the various elements: WTC basic - £1,890 The next stage is to work out the
Fast taper credits To do this take off the first income threshold (have a look at Doing the sums) of £6,420 from total joint income of £68,000 - the difference is £61,580 Then to work out the actual tax credits entitlement take 39% of £61,580 (£24,016) from the maximum entitlement (£28,615). This comes to £4,599. Then add on the family element of £545 So the net tax credits entitlement is £5,144 |
You cannot claim childcare element if your childcare costs are already being paid from another source: for example, if your employer is supplying childcare vouchers at no cost to you.
Where your employer offers you a choice between taking childcare vouchers and extra cash on top of your wages or salary, it is almost always better to take the extra cash if you are also receiving more than the family element of child tax credit.
You also need to be cautious if offered tax-free childcare vouchers in exchange for a salary sacrifice, because it can affect your entitlement to contributory benefits such as the state retirement pension, and your entitlement to statutory payments such as maternity and sick pay will be calculated on the basis of your lower salary.
For more information see our original articles on this by clicking on the link here and an update of the article can be found here.
Calculating and claiming childcare element
The childcare costs for which you can claim support are your average weekly childcare costs.
The basic calculation involves adding together what you pay each week for childcare over a period and dividing by the number of weeks in that period. Results in pence are rounded up to the nearest whole pound.
Helpful numerical examples are given in the Revenue's booklet on childcare credit WTC5 and these cover a number of different situations.
In summary:
- If you pay a fixed weekly amount, add up what you have paid for the last 4 weeks for each child and divide the result by 4.
- If you pay a variable weekly amount (for example, more in the school holidays than in term time), add up the total you have paid in the last 52 weeks and divide the result by 52.
- If you pay your childcare charges monthly, multiply the monthly amount by 12 and divide by 52 to get to the average weekly figure. Where the monthly amount is variable, add up the bill for the past 12 months and divide by 52.
- If the information is not available to complete the above calculations - for example if you have only just started claiming for childcare - the Revenue will accept an estimate of the weekly average based on how much you expect to pay over the next 12 months.
- If you have made arrangements with a childcare provider but have not yet started to pay them, check with them what they will charge and estimate what you will pay each week using that information.
What to tell the Revenue
You need to tell the Revenue if your average weekly childcare costs fall by more than £10 a week for four consecutive weeks, or if you cease paying for childcare, as your tax credit award will need to be adjusted downwards to reflect the change.
It is advisable to regularly check that your childcare continues to be registered or approved. If your childcare ceases to be so then you will no longer be entitled to claim childcare costs.
You must tell the Revenue of any such change within one month of it occurring, otherwise you may incur a penalty of up to £300.
You should also tell the Revenue if your average weekly childcare costs rise, as this will cause your tax credit entitlement to increase. You should inform the Revenue within three months of the change, as it is not possible to backdate an increase in credit by more than that.
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Example Maryam pays £90 a week for childcare for her son during the school holidays, 12 weeks of the year. For the rest of the year she pays nothing. When she accepts promotion at work she finds she has to use childcare during term time as well. During term time therefore she pays £40 a week, and increases the amount of childcare she pays for in the holidays by £20 a week. Maryam's average weekly childcare costs before the change are: 12 x £50/52= £21 (rounded up) Her average weekly childcare costs after the change are: (12 x £110) + (40 x £40)/52 = £57 Maryam should tell the Revenue within three months of the change in order not to miss out on any increase in her tax credit entitlement. |
Finally, the Revenue are permitted to check information you give them with your childcare provider, so it is important to let them know if you change your provider or if your provider is no longer registered or approved.