On 6 April 2003 the new ‘Child Tax Credit’ will replace the existing ‘Children’s Tax Credit’ and the Inland Revenue has embarked on a publicity campaign to raise awareness of the new credit.
Although the two credits have very similar names they are rather different. Both are means tested and available to families who have responsibility for one or more children but beyond that the similarities end. The present credit is a tax reducer and is either coded out (for parents in employment) or factored into the annual tax liability for the self-employed. The new credit will be paid directly to the main carer together with the child benefit which will continue to be payable in the normal way. The new credit will be much more widely available than the Children’s Tax Credit and is estimated to apply to 9 out of 10 families with children. Both credits are income related but entitlement to the new credit is by reference to the income of the family rather than the income of the higher earning partner. Claims for the new credit should be made in good time because only a limited amount of backdating is possible. Claims made more than three months into the 2003/04 tax year will cause some of the available credit to be lost.
Don’t underestimate the new credit. It comprises various elements and these will only be available in full to families with annual income not exceeding £5,060. Above this level the available credit is tapered. However it will not run out until total family income is well over £50,000. For example a family with children where one spouse earns £50,000 and the other spouse does not work would not currently be entitled to any Children’s Tax Credit. This family will be entitled to the ‘family element’ of the new credit which will amount to £545 in 2003/04. Not enough to change your life we admit but better than nothing.