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.
'Elements' of WTC
The basic element - introduction
'Qualifying remunerative work'
The disability element
The 30 hour element
The second adult element
The lone parent element
The severe disability element
The 50 plus element
The childcare element
The amount of WTC you are entitled to as a claimant depends upon your income and your circumstances - whether you are in a relationship or single, or a lone parent, or disabled, and so forth.
The credit is made up of building blocks, called elements, each of which reflects the particular circumstances of you the claimant. The elements for 2013/14 (with those for 2012/13 for comparison) are as set out in the table below. All are shown as annual figures, except childcare.
| || |
2012/13 - £
2013/14 - £
|Basic || |
|Disability || |
|30 hour || |
|Second adult || |
|Lone parent || |
|Severe disability || |
|50 plus |
|16-30 hours p/w || |
|30 plus hours p/w || |
|Max eligible cost-1 child (per week) || |
|Max eligible cost-2+ children (per week) || |
|% of eligible childcare covered || |
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, income-related employment and support allowance or pension credit. Note that the normal income test applies during the four week run-on period, even if you are in receipt of any of these benefits. For every £1 by which your income exceeds that amount, your WTC is withdrawn by 41p.
A simple example
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 2013/14 is worked out as follows:
Basic element - £1,920
Second adult element - £1,970
30 hour element - £790
Childcare element - (£100 p/w x 52 weeks at 70%) - £3,640
Adding these elements together gives maximum WTC of £8,320
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 41% of this difference (41% x £8,580 = £3,517.80) from the maximum WTC entitlement (£8,320).
So the net WTC entitlement is £4,802.20
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In order to be entitled to WTC at all, everybody has to meet the conditions attaching to the basic element. Other elements are given in addition to the basic element where the conditions appropriate to each are fulfilled.
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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 (unless the training allowance is chargeable to income tax as profits of a trade, profession or vocation);
- 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.
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.
HMRC 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.
You can find out more about foster carers and tax credits in our carers section.
Requirements as to age and hours of work
You must fulfil certain conditions about your age and the hours you work each week. Those conditions vary according to whether or not you have children, whether you have a disability, or if you are aged 60 or over.
In full, the conditions are these:
In the case of a single claim:
- the claimant is aged 16 or over and works at least 16 hours a week and: is responsible for a child or qualifying young person; or
- qualifies for the disability element of WTC; or
- the claimant is aged 60 or over and works at least 16 hours a week; or
- the claimant is aged 25 or over and works at least 30 hours a week.
In the case of a joint claim where there is no responsibility for a child or qualifying young person:
- the claimant is aged 16 or over and works at least 16 hours a week and qualifies for the disability element of WTC; or
- the claimant is aged 60 or over and works at least 16 hours a week; or
- the claimant is aged 25 or over and works at least 30 hours a week.
In the case of a joint claim where there is responsibility for a child or qualifying young person:
- the claimant is aged 16 or over and works at least 16 hours a week and qualifies for the disability element of WTC; or
- the claimant is aged at least 16 and is a member of a couple where one partner works at least 16 hours a week and the total number of hours for which the couple work is not less than 24 hours a week; or
- the claimant is aged at least 16 and is a member of a couple where one partner works at least 16 hours a week and the other partner is incapacitated, in prison, in hospital or entitled to carer’s allowance; or
- the claimant is aged 60 or over and works at least 16 hours a week.
The requirement that couples with children must work at least 24 hours between them was introduced from 6 April 2012. Prior to that date, such couples could qualify for WTC by only working 16 hours per week. Both members of a couple who meet the 24 hour requirement are treated as being in qualifying remunerative work, even if one of them works less than 16 hours. HMRC stopped the WTC (from 6 April 2012) of all couples with children who did not meet this 24 hour requirement, even if one of them met one of the exceptions to the rule. HMRC expected claimants to contact them before 6 April to tell them that an exception applies, however HMRC have never made the need for contact explicit in any communications. See the LITRG article for more information.
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.
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'.
You can find some examples of these activities in the HMRC tax credits manual.
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.
Sharon's hours of work are 9.00 am to 3.00 pm Monday to Wednesday, taking an hour's paid lunch break between 12.30 and 1.30. Because the lunch hour is paid, Sharon is treated as working 18 hours a week. Otherwise she would only work 15 hours a week and not qualify for WTC.
'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 work in a school, other educational establishment or other place of employment and 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 working hours for WTC are the hours you normally work during term time. It is those that determine whether you usually work 16 hours, 24 or 30.
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).
Leyla works 14 hours one week, 18 hours one week, in two-week cycles throughout the year. Her average hours of work over the cycle (two weeks) 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.
Nasreen is a dinner lady in a secondary school who works 9 am to 3 pm Monday to Friday during term time: a 30 hour week. During 10 weeks of holidays she does not work. The school holidays are disregarded in determining the number of hours Nasreen works, so she is treated as working 30 hours a week all year round.
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.
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.
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 article on this.)
We discuss the problems this causes in the section on Overpayments and underpayments and explain the circumstances.
Temporary reduction in working hours
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 four 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 four weeks or that you are laid off indefinitely or for more than four weeks, your change in hours will be effective when you are notified of this. This four week ‘grace’ period is in addition to the 4 week run-on below.
The full guidance can be found here.
Four week run-on
The four week run-on was introduced in its original form from 6 April 2007. From that date 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. The 4 week run-on applies in addition to HMRC’s guidance on temporary reduction in working hours.
The original regulations were unclear whether the childcare element was included in the four week run-on, but subsequent amendments made clear HMRC’s policy intention that it should be. Any elements in payment when the claim ends should be paid during the four week run-on if the conditions are met.
Originally, the four week run-on did not apply to WTC claimants who worked 30 or more hours a week and whose working hours fell to below 30 but remained above 16 hours a week. Then from July 2009, the four week run-on was extended to that group of WTC claimants.
Also with effect from July 2009, parents whose working hours fall to the extent that the childcare element of WTC is lost (but entitlement to the basic and other elements of WTC remains) receive a run-on of this element for four weeks.
Further changes from April 2010 mean that if a means tested benefit is claimed during the four week run-on (which under normal tax credit rules would entitle a person to maximum tax credits) maximum credits will not be payable and the income test will be applied.
With the introduction of the requirement for most couples with children to work at least 24 hours a week between them (with one person working at least 16 hours), the four week run-on rules were amended from 6 April 2012. The four week run-on will apply where a one or both members of a couple, who qualify for WTC via the 24 hr rule, cease to work or reduce their hours to the extent that they cease to meet the condition that one member of the couple works not less than 16 hours per week and the aggregate number of hours for which the couple are engaged in qualifying remunerative work is not less than 24 hours per week.
Periods of illness
Periods when you receive statutory sick pay are counted as periods of qualifying remunerative work for the statutory leave period of 28 weeks, so long as you have been working up to the point when your sick leave started.
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.
The same rules on statutory leave and statutory sick pay etc apply if you are self-employed, but would have been entitled to the benefits if you had instead been employed.
Periods of maternity, paternity and adoption leave
Similarly, you are counted as in qualifying remunerative work during any periods when you receive statutory maternity pay, statutory paternity pay, statutory adoption pay or maternity allowance
In addition you are also treated as being in qualifying remunerative work during ordinary maternity leave (usually 26 weeks) or ordinary adoption leave, and during the first 13 weeks of additional maternity or adoption leave. (Note: You are not treated as in work during any further additional maternity leave).
For babies due on or after 3 April 2011, parents may have the right to take up additional paternity leave. This has resulted in changes to the tax credit system for those taking paternity leave. You are treated as being in qualifying remunerative work during ordinary paternity leave (usually two weeks).
You are also treated as in qualifying remunerative work during any period of additional statutory paternity leave providing that during that period you would have been paid additional statutory paternity pay had the conditions of entitlement in Parts 2 or 3 of the Additional Statutory Paternity Pay (General) Regulations 2010 been satisfied.
This means, effectively, that you can continue to receive tax credits for so long as your partner would have been entitled to statutory maternity pay or additional SMP. For example, a woman takes 24 weeks of maternity leave and receives SMP for that period. She then goes back to work and the man takes additional paternity leave. He is entitled to take 26 weeks additional paternity leave but can only continue to receive tax credits for 15 weeks, being the balance of time remaining on the woman’s SMP entitlement.
You can find out more about the changes to paternity pay and leave on GOV.UK.
Other non-working periods
You are treated as being in qualifying remunerative work for any period during which you are on strike for up to 10 days at a time, provided you were working up to the beginning of that period. If the strike goes on for longer than 10 days, you lose your WTC entitlement; but curiously your strike pay still counts as income for tax credit purposes.
If you receive pay in lieu of notice you are not treated as working during the period for which you receive the pay but this does not affect your entitlement to the four-week run-on payment of WTC if you qualify for that.
If you are suspended from work while complaints or allegations against you are investigated, you are nevertheless regarded as engaged in qualifying remunerative work, so long as you were working up to the time you were suspended.
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Qualifying for the disability element
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.
It is important to note that it is the person working who must qualify for the disability element. If the claimant is working (and has no disability) and their non-working partner is disabled there can be no disability element included (however the non-working partner may qualify for the severe disability element).
If both you and your partner fulfil these conditions, you are each entitled to a disability element.
Permitted work counts towards the requisite 16 hours a week. Also, if you normally work 16 hours or more, but have had to reduce your hours while convalescing or receiving treatment, your normal working hours will not necessarily change and you can continue to receive WTC - though if the period of reduced working exceeds the six month period for which statutory sick pay is payable, the situation may change.
This was the substance of a response from the Government minister Baroness Hollis during the House of Lords debate on the Tax Credits Bill (House of Lords, 12 June 2002, col 354). If you are off work and on statutory sick pay, you qualify in any event.
Disadvantage of getting a job
The physical or mental disabilities which put you at a disadvantage in getting a job are listed along with explanatory commentary here. You need only have one of those disabilities to qualify.
If you are making an initial claim to the disability element, you only need to show that you are going through a period of 'habilitation or rehabilitation' - you don't necessarily have to have one of the listed disabilities.
You make an 'initial claim' if you have not previously claimed the disability element in the two years prior to making the claim, or if you report a change of circumstances as a result of which you have become entitled to the disability element.
To satisfy the disability benefit condition you must for each day of your claim:
- Have received, on at least one day in the preceding 182 days:
- higher rate short-term or long-term incapacity benefit
- severe disablement allowance
- employment and support allowance where you have been entitled to ESA, a limited capability for work credit, statutory sick pay, higher rate short-term incapacity benefit, long-term incapacity benefit or severe disablement allowance for a period of 28 weeks, which must comprise either one continuous period or two or more periods which are linked together; or
- Have received, on at least one day in the preceding 182 days, higher pensioner or disability premium in income support, income-based jobseeker's allowance, housing benefit or council tax benefit; or
- Be currently in receipt of disability living allowance, personal independence payment (PIP) or, attendance allowance. You can also qualify if you current receive a mobility supplement or constant attendance allowance paid in conjunction with a war pension or industrial injuries disablement benefit or mobility supplement (if your DLA, PIP, AA, or mobility supplement or constant attendance allowance 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 for at least one day in the preceding 56 days (except if you received the disability element by virtue of getting DLA, PIP, AA or the invalid car scheme); 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 or a limited capability for work credit where you have been entitled to that allowance or credit or statutory sick pay or higher rate short-term incapacity benefit, long-term incapacity benefit or severe disablement allowance 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.
It is important to note that you must have received or be in receipt of one of these benefits in your own right. It is not enough that you were an appointee for someone else.
We have seen examples where HMRC have removed the disability element because a person is no longer in receipt of a qualifying benefit, nor have they been in receipt of one very recently. The legislation is clear that receipt of the disability element of WTC itself allows continued qualification for the disability element (unless qualification for that disability element was by virtue of DLA, PIP, AA or having an invalid carriage).
For example, if a person qualifies for the disability element originally because they received incapacity benefit prior to their claim for WTC, they will continue to qualify for the disability element indefinitely as long as they meet the other conditions for the element. This is so even though they can no longer say they received incapacity benefit in the last 182 days.
If you are relying on receiving one of those benefits in order to establish your claim to the disability element, and there is a delay in settling your claim to the benefit, there are certain circumstances in which you may be able to backdate your claim to the disability element to the date when your benefit entitlement started to run, even if that is more than the 31 days allowed for backdating tax credit claims. For more information see Backdating the disability element.
If you fall sick whilst in work . . . 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 due to incapacity for work for a period of 140 days (20 weeks), or have been credited with Class 1 or 2 national insurance contributions for a period of 20 weeks due to incapacity for work (providing the last of those days fall in the last 56 days)
Employment and support allowance or any of the benefits in the bullet point above on account of having incapacity for work or 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.
In some instances, the 140 days or 20 weeks can be made up of two periods during which you received the benefits above or were credited with contributions.
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 31 days. However, in certain circumstances it may be possible to backdate more than 31 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.
The rules were very complex.
- 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.
- 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.
After representations from LITRG and other welfare rights bodies, the rules were simplified from 6 April 2009. It should be noted that normal backdating for initial claims was reduced to 31 days (from 93 days) and for changes of circumstances reduced to one month (from three months) from 6 April 2012.
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 one month 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 31 days 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 31 days 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 31 days (for initial claims) or one month (for existing claims) after your have received your disability benefit decision, you will only ever be able to receive 31 days or one month 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.
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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.
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.
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If you are claiming jointly with your partner, you are usually entitled to the second adult element, unless:
- one of you is serving a custodial sentence of more than 12 months; or
- one claimant is subject to immigration control under Section 115(9)(a) of the Immigration and Asylum Act 1999.
But these exclusions do not apply if one or both of you are responsible for a child or young person.
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The lone parent element
If you are a single claimant, and you are responsible for a child or young person you can claim the lone parent element.
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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, the enhanced daily living component of the personal independence payment (PIP) or an attendance allowance (AA) payable at the higher rate. You are still entitled to the severe disability element even if your DLA, PIP 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, PIP 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 31 days 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.
Unlike the disability element, there is no work requirement attached to the severe disability element.
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The 50+ element was abolished from 6 April 2012 for all claimants, even those who had not received it for a full 12 months. Claimants will need to work at least 30 hours to continue getting the basic element of WTC unless they are responsible for children, qualify for the disability element or are aged 60 or over.
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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, in prison or entitled to Carer’s Allowance (this exception applies only from 6 April 2012);
- 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
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;
- housing benefit or council tax benefit with a childcare earnings disregard because the other member is ‘incapacitated’ under the HB/CTB regulations
- disability living allowance (DLA);
- attendance allowance (AA);
- personal independence payment (PIP);
- severe disablement allowance;
- increase of disablement pension under Section 104 Contributions and Benefits Act 1992;
- incapacity benefit at the short-term higher rate or the long-term rate;
- industrial injuries benefit with constant attendance allowance;
- war disablement pension with constant attendance allowance or mobility supplement;
- a vehicle under the Invalid Vehicle Scheme.
- contributory employment and support allowance (CBESA) or a limited capability for work credit (from 1 May 2012) where entitlement to that allowance, that credit, statutory sick pay (SSP) or short term higher rate incapacity benefit, long term incapacity benefit or severe disablement allowance has existed for a period of 28 weeks comprising one continuous period or two linked periods (provided that, if the person received statutory sick pay, they also met the relevant contribution conditions);
Under the last bullet point, linked periods can include any periods of:
- CBESA providing they were no more than 12 weeks apart
- SSP as long as they were no more than 8 weeks apart
- CBESA after receiving SSP as long as they were no more than 12 weeks apart
- CBESA after receiving short term higher rate or long term incapacity benefit or severe disablement allowance as long as they were no more than 12 weeks apart.
If the you are in hospital, but would be getting severe disablement allowance, DLA, AA or an increase of disablement pension if you were not, you will still qualify.
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 on the HMRC's website and in their WTC5 leaflet.
The rules about who is registered or approved in England and Wales changed from 18th July 2009. Since that date, a childcare provider in England and Wales must be registered with OFSTED in order for childcare provided by them to qualify for tax credits purposes. An article explaining the changes in greater detail can be here in our news section.
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 child-minder. If an approved provider, they must also care for at least one non-family member.
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 were in qualifying remunerative work 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 last day of the week in which 1 September falls 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 or personal independence payment 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 70% 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 70% = £122.50 a week, and £300 x 70% = £210 a week for two or more children. It is important to note that these thresholds are applied once you have calculated your average weekly childcare costs. See Example 2.
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 70% = £210 a week.
James and Juliette have 2 children in childcare while they both work. They pay £100 per week during term time (40 weeks) and £350 per week during the school holidays. Their average weekly childcare costs are:
(£100 x 40) + (£350 x 12) / 52 = £158 per week
Because they pay less than £300 on average, they can claim the full £158 per week. Their childcare element is restricted to:
£158 x 70% = £110.60 per week.
Those are the figures for the 2013/14 tax year. Childcare support was reduced to 70% from April 2011.
This means that support for childcare through tax credits is available to parents on quite high incomes, even those on incomes of £60,000 or £70,000 if they are eligible to claim maximum childcare.
Ben and Anna have four children, one of whom is disabled, for whom they pay maximum childcare charges. Their joint income is £61,000 for tax credits purposes in 2013/14 (they also had income of £61,000 in 2012/13), and they both work full time. Their tax credit entitlement in 2012/13 is as follows:
To work out the maximum tax credits add together the various elements:
WTC basic - £1,920
Couple element - £1,970
30 hour element - £790
Childcare [(£300 x 70%) x 52] - £10,920
Child element x 4 [£2,720 x 4] - £10.880
Disabled child element - £3,015
Family element - £545
Maximum credit - £30,040
The next stage is to work out the first income threshold 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 £61,000 - the difference is £54,580.
Then to work out the actual tax credits entitlement take 41% of £54,580 (£22,377.80) from the maximum entitlement (£30,040). This comes to £7,662.20 entitlement.
You cannot claim childcare element if your childcare costs are already being paid from another source: for example, if you are sacrificing your salary for childcare vouchers from your employer.
Where your employer offers you the option to receive childcare vouchers in return for sacrificing your salary you should seek advice and ensure that you understand how it may impact on your tax credits claim. Some people will be better off overall by taking vouchers, however some people will lose out if they claim vouchers and give up some of the childcare element of WTC.
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.
- 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 have not used 52 weeks of childcare, you can estimate using the next 52 weeks.
- 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 - HMRC 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.
- From April 2010, if you pay for childcare only for fixed periods (for example just the school holidays) you can choose to claim your costs over that fixed period rather than averaging over the year. If you choose to do this, you must let the tax credit helpline know before the fixed period starts.
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What to tell HMRC
You need to tell HMRC if your average weekly childcare costs fall by more than £10 a week. If you have fixed weekly childcare costs, this will need to be reported if your costs fall by more than £10 per week for four consecutive weeks. You must also tell HMRC 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 HMRC of any such change within one month of it occurring, otherwise you may incur a penalty of up to £300.
You should also tell HMRC if your average weekly childcare costs rise, as this will cause your tax credit entitlement to increase. You should inform HMRC within one month of the change, as it is not possible to backdate an increase in credit by more than that.
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 HMRC within one month of the change in order not to miss out on any increase in her tax credit entitlement.
Changes to childcare payments
If you report a decrease in your average weekly childcare costs of £10 a week or more, HMRC will amend your tax credit award from the first day of the week which starts four weeks after the change occurred.
If you have chosen to average your childcare costs over a fixed period (such as the school holidays) because you don’t pay childcare all year then your award will be changed at the end of the fixed period.
Finally, HMRC 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.
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