Page last updated at 14:50 GMT, Thursday, 5 April 2007 15:50 UK

Q&A: Tax credits

A baby
Extra financial help is available for parents

The government's tax credits - Child Tax Credit and Working Tax Credit - were introduced in April 2003. How do they work and how can you claim?

Why has the government introduced them?

Tax credits are Labour's flagship "welfare" policy.

Chancellor Gordon Brown favours a social security system in which benefits are integrated within the tax system, rather than straightforward handouts.

He believes this is a much better way of addressing genuine need.

The government is also anxious to reward people who are in work - and make work pay.

Essentially, the system divides the old Working Families Tax Credit, which was dropped in April 2003, into two parts: the Child Tax Credit and Working Tax Credit.

How does the Child Tax Credit work?

Child Tax Credit is paid to families with children regardless of whether the parents work.

Because eligibility is not linked to work, it is paid directly to the carer.

Child Tax Credit*
Child element: £1,765 a year
Disability element: £2,350 a year
Severe disability element: £945 a year
Family element: £1,090 including baby element; £545 if none
*Tax year 2006/2007

It is payable to couples with a combined income of up to £58,000, although people whose income is close to the threshold will get only a minimal amount.

Using the rates for tax year 2007/2008, it has two main parts:

  • A family element of £545 per year, doubled in the financial year of a child's birth
  • A child element: An amount per child of £1,845 per year

All families with incomes of less than £50,000 a year will get at least £545 a year from the "family element" of the credit.

In addition, families with incomes up to £14,495 a year should qualify for the "child element" of £1,845 a year for each child.

This child element is then gradually withdrawn from families with higher incomes.

What about the working tax credit?

The Working Tax Credit is like the old Working Families Tax Credit (WFTC) in that it pays in-work credits to people on low-incomes through the wage packet (including, where appropriate, part of childcare costs).

But unlike the WFTC, the Working Tax Credit is not just restricted to those with children.

The idea is to make work pay for non-parents as well.

Working Tax Credit*
Basic element: £1,730 a year
Disability element: £2,310 a year
Lone parent/couple element: £1,700 a year
30-hour element: £705 a year
Severe disability element: £980 a year
50-plus element (£1,185 a year for 16-29 hours work; £1,770 a year for 30 or more hours work)
Childcare element: Up to £175 a week for one child, or £300 a week for two or more children
*Tax year 2007/2008

The working tax credit also has a childcare element.

Families are 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 is worth up to 70% of eligible childcare costs of up to £300 a week for a family with two or more children, or £175 a week for a single-child family.

Will I lose my child benefit?

No, child benefit will continue to be paid, regardless of income, to all families with children under a certain age. This is unaffected by tax credits.

Will I lose other support?

You may do.

Tax credits can be paid in addition to most other benefits.

However, they may count as income for some means-tested benefits.

How do I get the additional money?

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

There are transitional arrangements for people currently receiving tax credits or other support, to take transfer them over to the new system.

If you think you may be eligible but haven't applied, you can apply over the internet or get a claim pack by phoning 0800 500 222.

The Working Tax Credit / Child Tax Credit helpline is open from 0800 - 2000 BST seven days a week, and can deal with queries about claims.

In Great Britain: 0845 300 3900 (textphone 0845 300 3909).

In Northern Ireland: 0845 603 2000 (textphone 0845 607 6078).

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