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 Thursday, 18 April, 2002, 14:25 GMT 15:25 UK
Q&A: How will the new tax credits work?

Gordon Brown promised 2.5bn extra for families in Wednesday's Budget.

Central to his help for families are two new tax credits, which are due to be introduced next year.

How do they work and will you benefit?

Not more tax credits! I'm confused by the existing ones.

Tax credits are notoriously complex, but they are central to Gordon Brown's vision of changing society through the tax system.

Child Tax Credit and Child Benefit. What it means?
All families are guaranteed at least 16.05 a week through Child Benefit
54.25 a week for the first child for the 25% of families with an income of less than 13,000 a year
26.50 a week for the first child for the 85% of families with an income of less than 50,000 a year

Source: HM Treasury

Universal benefits are out. Instead, a new system of social security integrates benefits with the tax system.

Mr Brown believes that this will allow him to help the poorest in society. His key objective: to make work pay, to make work more attractive than relying on benefits.

The new tax credits - child tax credit and working tax credit - aim to simplify this system, but they are just as difficult to understand.

What is the new child tax credit?

Children currently receive support through the working families tax credit, the disabled person's tax credit and income support or jobseeker's allowance, as well as the existing children's tax credit.

The child tax credit will integrate all this support into one package.

Child tax credit
Family element: 10.45 (higher in child's first year)
Child element: 27.75 for each child
Disabled child element: 41.30

*Weekly figures. Source: HM Treasury

It will be paid in addition to child benefit, which remains a universal benefit - paid to all families with children.

The child tax credit run alongside a new working tax credit, which will also be introduced next year.

What will this mean?

Unlike the present working families tax credit, the child tax credit will be based on gross household income, and not the highest earner's income.

Working tax credit*
Basic element: 29.90
Lone parent and couple elements: 28.80
30 hour element: 11.90
Disabled worker element: 39.15
Enhanced disabled adult element: 16.60
Childcare element: 135 (one child); 200 (two or more children)

*Weekly figures. Source: HM Treasury

It will be payable to couples with a combined income of up to 58,000, although those close to the threshold will get a minimal amount.

However, the basic credit is quite generous. All families with incomes of less than 50,000 a year will get at least 10.45 a week from the "family element" of the credit.

In addition, there will be a "child element" of 27.75 a week for each child or young person for families with incomes of up to 13,000 a year.

This child element is then gradually withdrawn from families with higher incomes.

Unlike the present WFTC, the child tax credit will be payable to those in and out of work at the same rate, so it will not disadvantage people who can not work.

A family on income support with children under 16 can expect to receive an additional 9 a week compared to the current system.

What about the working tax credit?

The working tax credit provides support for adults and is related to the child tax credit.

The government says it wants to give people on benefits an incentive to go to work.

Families with children will get an additional layer of support if they have incomes up to a maximum of 14,000.

It will guarantee minimum incomes of 237 a week for families with one child and one earner working full-time on the national minimum wage.

For an eligible couple without children, the minimum income in full-time work under the working tax credit is 183 a week.

The working tax credit will have a childcare element.

Families will be eligible for the childcare tax credit where a lone parent, or both partners in a couple, work for at least 16 hours a week.

It will be worth up to 70% of eligible childcare costs of up to 200 a week for a family with two or more children, or 135 a week for a single-child family.

Families with two children on 35,000 a year will receive up to 50 a week in support for childcare.

I'm on income support. What will I get?

Recipients of income support or income-based jobseeker's allowance will automatically receive the full amount of child tax credit.

What are the problems with the new system?

While some people welcome the fact that the tax credits are based on joint household gross income, some argue that this is a regressive step for women as it does not promote independent taxation.

There are concerns that people may be put off claiming the tax credits, as they are complicated.

There is evidence that existing tax credits are under-claimed, and critics suspect this is because of their complexity.

And any real gain made by people through these new tax credits, particularly for high-income groups, will be reduced by higher national insurance payments announced in Wednesday's Budget.

How do I get the additional money?

The tax credits will be paid by the Inland Revenue direct to the parent who takes most responsibility for childcare.

Later in the year, the Revenue will begin writing to people who are currently receiving one of the existing tax credits, inviting them to apply for the new ones.

People who think they may be eligible for the new tax credits can contact the Inland Revenue either online, through its telephone help line, or through an Inland Revenue enquiry centre (see link).

For people who are already receiving credits and support that will be replaced by the two new credits there are transitional arrangements.

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