The Child Tax Credit: Further Thoughts
The Child Tax Credit (CTC) was introduced in April 2003 and has not proved a successful operation for the Inland Revenue. The sorry saga of delays and confusion has been well documented elsewhere but as the end of the tax year approaches there are a few thoughts to bear in mind.
The Inland Revenue has issued a 17 page document entitled ‘What happens if we have paid you too much tax credit?’ It is hardly likely to make the bestseller list but there are some important points to take on board and we summarise these for you.
Initial awards of CTC for 2003/04 have been based on income levels in 2001/02. The final credit for 2003/04 will be based on:
- 2003/04 income where that is lower than income in 2001/02
- 2001/02 income where the 2003/04 income level is higher but the difference is not more than £2,500
- 2003/04 income less £2,500 where the 2003/04 income exceeds that for 2001/02 by more than £2,500.
What could be simpler?!
The Inland Revenue says it will write to CTC claimants following the end of the tax year on 5 April 2004 to ask for confirmation of 2003/04 income levels. That will enable them to establish the final CTC entitlement for the year.
If too little credit has been paid for the year, the extra will be paid out as a single payment. This will include some of the 100,000 or so people who apparently made ‘protective claims’ for 2003/04. These are people who made a claim for 2003/04 despite their 2001/02 income being too high to receive an initial award just in case their 2003/04 income turned out to be low enough to be eligible.
In the case of an overpayment, the Inland Revenue would like you to pay back the excess! They identify three possible mechanisms for this:
- reduction of the 2004/05 CTC
- adjustment of PAYE codes to collect the overpayment
- making a payment directly to the Inland Revenue although for overpayments made in 2003/04 you will be able to pay this in 12 monthly instalments.
The favoured method will be by reducing the award for 2004/05. Where your income in 2003/04 is significantly higher than in 2001/02 you can expect a rather lower award in 2004/05.
Please give us a call if you want to discuss any of the points raised in this article or any other aspect of CTC.