child tax credit & working tax credit
childcare - it's not so taxing
Did you know that in April 2006 the government increased the weekly exempt amount for childcare vouchers (and other directly contracted childcare) by 10% from £50 to £55 per week with effect from 6 April 2006. Which means working parents can now claim up to £55.00 per week in childcare vouchers tax free!
what are tax credits?
Tax Credits offer extra financial support to help with your everyday costs - they are flexible and change whenever your life changes. There are two types of tax credits - Child Tax Credit and Working Tax Credit, both of which you may be eligible for. Child Tax Credit is a payment created to support families, or individuals with at least one child or young person who they are responsible for. Working Tax Credit is additional financial support for workers on a low income and can be claimed even if you do not have any children.
child tax credit
Nine out of ten families with children qualify. Families with children can claim Child Tax Credit if their income is no more than £58,175 a year (up to £66,350 if you have a child under one). How much you get depends on things like:
- how many children or qualifying young people live with you. You may get more if you care for a child under one.
- if any child or young person is disabled
- your income
You don't have to be a parent either - anyone who's mainly responsible for a child can claim. If you share responsibility with someone else whom you live with as if you were married or civil partners, you must claim together whether you're married or civil partners or not. If you share responsibility with someone else who doesn't live with you, and the children or young people also live with them for part of the time, you need to decide between you who has main responsibility. Only the family member with main responsibility can claim Child Tax Credit.
The payment is made up of two elements:
- A family element paid to any family with at least one child and worth up to £545 (2008-2009 tax year)
- A child element paid for each child in the family and worth up to £2,085 (2008-2009 tax year)
Child Tax Credit is paid directly into the bank of the main carer.
working tax credit
If you're in work but on low pay, you can apply for Working Tax Credit to top up your earnings. It includes a childcare element to help families who are working and spending money on childcare. You can claim this whether you're employed or self-employed and you may get extra if:
- you're a parent or responsible for one or more children or young people
- you pay for childcare
- you are disabled
- you're aged 50 or over
The childcare element of Working Tax Credit is aimed specifically at helping working parents with the cost of registered and approved childcare. This can pay up to 80% of childcare costs up to a limit of £175 per week if you are paying for one child and up to £300 per week for two or more children (meaning the most you can receive for the childcare element is £122.50 for one child or £210 for two or more children).
how to claim
You can order a claim pack over the 'phone by calling the tax credits helpline on 0845 300 3900. Lines are open every day (except Christmas Day, Boxing Day, New Year's Day and Easter Sunday) from 8am to 8pm. If you're part of a couple or civil partnership and you both work at least 16 or 30 hours a week, you can decide who'll get the Working Tax Credit payments.
For more information on eligibility and how to claim tax credits, you can visit www.taxcredits.inlandrevenue.gov.uk
what employers can do
- provide up to £55.00 per week (£243.00 per month*) in childcare vouchers to each employee free of National Insurance (NI) contributions and income tax credited through their payslip
- directly contract a nursery or after-school club on behalf of their staff and pay up to £55.00 each week to each parent towards childcare
- offer a workplace nursery or crèche, managed by the employer or a contracted nursery, contributing up to £55.00 a week for each parent, also free from tax and National Insurance
restrictions
- the new revised benefit of £55.00 per week per parent is in addition to existing tax credits. However it is only payable through your employer's payroll and can only be paid in vouchers into a workplace-provided nursery, or paid by the employer direct to the nursery.
- the provisions do not cover purchase of childcare vouchers directly by employees
- vouchers must be used with a registered or approved childcare provider
- the employer must be responsible for the purchasing of childcare or you will not qualify for the tax reductions
further benefits
- if two parents of a child are working, they are both entitled to the £55.00 provision
- similarly, same-sex parents are both entitled to benefits if both of them work
how the changes to taxation could affect you
- your employer may run a salary sacrifice scheme, approved by the Inland Revenue, where you as an employee formally agree to a reduction in your salary and instead receive that amount in childcare vouchers. As long as the value of childcare provided by your employer does not exceed £55.00 per week you do not need to declare anything on your PI ID (expenses and benefits) form.
- salary sacrifice schemes must not allow basic pay to fall below the minimum wage level set by the Government
- if the scheme shows the sacrifice through the payroll as a negative allowance to reflect the reduction in pay, the first £55.00 per week should reduce tax and National Insurance contributions
- salary sacrifice schemes will only be approved if there has been a true cut in pay to receive the benefit
- payslips need to show the reduction in the salary for the benefit received. A notional salary of the original pre-reduction salary can be shown on the payslip for administrative purposes and for the employer to calculate other benefits.
For any further information please call the Tax Credit helpline on
0845 300 3900
or visit www.taxcredits.inlandrevenue.gov.uk
