The BBC's Social Affairs Producer Chris Hogg explains how it works.

What is the Working Families Tax Credit?

The credit is a system for boosting the income of low paid workers with children by reducing the amount of tax they pay or giving them an additional amount in their take-home pay.

From October 5 it will replace the Social Security benefit Family Credit, which will be phased out.

The new system, which is more generous than the old, will be administered by the Inland Revenue.

The first payments will be made in October by order book or direct to a family's bank account.

But from April next year families will be able to choose whether to have it paid through the wage packet or directly by the Inland Revenue.

Who will benefit?

Couples or lone parents who have one or more children and work at least 16 hours a week will benefit.

Claimants must have savings of less than £8,000.

How do you work out what you get?

The WFTC will have four parts:

• A basic tax credit at £53.30 a week
• A 30-hour credit at £11.05 a week (for those working more than 30 hours a week)
• A tax credit for each child at £19.85 - £25.95 a week (depending on age of child)
• A childcare tax credit of up to £70 a week (for one child) and £105 (for two or more)

To calculate the WFTC, families should add these figures together.

This total is then reduced by 55p for every £1 the family earns over £90 a week (after tax and national insurance).

What is the childcare tax credit?

The government says it recognises that access to childcare is an important factor in encouraging people to go out to work.

People using registered childcare will be able to claim back 70% of the first £100 a week of childcare costs for one child. For two or more children the limit rises to £150.

Is it more generous than the old system?

The system is more generous than the Family Credit scheme.

Family Credit used to be reduced when a family's net income reached £79 a week.

It was then cut by 70p for each additional £1 earned.

Under the Working Families Tax Credit, a family will be able to earn £90 a week before benefits are reduced.

Above that, the reduction is 55p in the £1. As a result, the Treasury estimates that around 1.4 million families will benefit - nearly twice the number who currently receive Family Credit.

What are the concerns about it?

Although the credit is more generous than the old system, once you reach the £90 level you are penalised.

This means that some people will effectively lose more than 90% of every £1 they earn over £90 a week.

As a result people in low paid jobs who do not enjoy them may decide to reduce their hours to work part-time and make up the difference with the credit.

Also, Family Credit was usually paid to the woman in a couple.

The Working Families Tax Credit is likely to be paid to more men as it will be available through the pay packet.

There is some concern about transferring that money from women to men as research shows the person with primary care for the children is more likely to spend extra money on them than on themselves.

There are also concerns about the childcare credit as there is still not enough registered childcare for lone parents and couples to take advantage of it.