 Toni
is a single parent and has three children: Jason (8), Wayne (11),
and Sharon (13). She gets Child Benefit for all of them. Wayne is
disabled, and she gets Disability Living Allowance for him (higher
rate mobility and middle rate care).
Maximum Child Tax Credit
- Start with £545
- Add three ‘child elements’ (£2,780 + £2,780 + £2,780 =
£8,340)
- Add the ‘disabled child element’ (£3,140)
- Don’t add the severely disabled child element because Wayne
doesn’t get the highest rate of the care component of
Disability Living Allowance.
- Toni’s Maximum Child Tax Credit is therefore £12,025
(£545 + £8,340 + £3,140)
Childcare element of Working Tax Credit
Toni has to pay an average of £340 per week for the childcare for
her three children.
- The yearly amount would be about £17,729 (340 divided by 7
and multiplying by 365)
- Because this is more than £15,643, Toni has to pretend the
£17,729 is £15,643
- Her childcare element is therefore about £10,950
(70% of £15,643)
Maximum Working Tax Credit
Back to Toni. She works for 35 hours per week. She is not
disabled. I have worked out her childcare element as £10,950
(click here
to see how I've done this).
- Start with £1,960 (the basic element)
- Add £2,010 (the lone parent element)
- Add £810 (the thirty-hour element)
- Add £10,950 (the childcare element)
- Toni’s maximum Working Tax Credit not including the
childcare element is £4,780
- Toni’s maximum Working Tax Credit including the childcare
element is £15,730
Relevant Income
Toni’s gross annual income is £25,000 a year. She pays £1,000 a
year from her earnings into a pension fund, though, so we can
treat her earnings as £24,000. She doesn’t get any taxable
benefits. She does have £5,000 savings but this give a lot less
interest than £300 per year.
Toni’s annual relevant income is therefore £24,000
The calculation
- Toni is entitled to both Child Tax Credit and Working Tax
Credit, so her threshold figure is £6,420.
- The difference between her relevant income and the threshold
is £17,580 (£24,000 minus £6,420).
- The taper is therefore about £7,208 (£17,580 x 41%).
- As Toni’s Maximum Working Tax Credit apart from the
childcare element is £4,780 this is completely eaten
up by the taper, which leaves £2,428 (£7,208 minus £4,780).
- This remaining bit of £2,428 eats into the childcare element
of the Maximum Working Tax Credit but doesn’t use it all
up, leaving £8,522 left to be paid towards childcare
(£10,950 minus £2,428).
- As none of the taper is left over now, the maximum Child Tax
Credit is not affected (hurray).
Let’s see where this leaves Toni
- Her actual Child Tax Credit is the same as her Maximum Child
Tax Credit: £12,025 per year
- She doesn’t get any Working Tax Credit, except for £8,522
towards her childcare per year
- This works out as about £230 per week Child Tax Credit, and
about £163 per week childcare costs (compare this with her
actual childcare costs of £340…)
Just for completeness, let’s suppose she actually applies for tax
credits in August, 100 days into the tax year (so there’s only 266
days left). Her provisional award letter should therefore tell her
that she is entitled to the following amounts for that tax year:
- Child Tax Credit: about £8,739 (£12,025 x 266 divided by
366)
- Working Tax Credit (childcare): £6,194 (£8,522 x 266 divided
by 366)
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