The children's tax credit
January 2001

What is the children's tax credit?
The children's tax credit (CTC) is a new income tax relief for people with a child under the age of 16. It can reduce the amount of income tax you pay by up to £10 a week or £520 a year.
It will be introduced from 6 April 2001.

The CTC replaces the married couple's allowance and the additional personal allowance, which were abolished from April 2000.

Who can receive the CTC?
To be eligible for the CTC you, or a partner living with you, must be in employment (employed or self employed) and paying income tax.

You must have at least one child aged under 16 on 6 April 2001.

You can claim the CTC even if the child lives with you for only part of the tax year. If someone else can also claim for the same child, you may have to share the CTC between you (see below).

You cannot receive the CTC if your youngest child is aged 16 or over on 6 April 2001, even if they are still at school after that date.

How much is the CTC worth?
The CTC could mean a reduction in the income tax you have to pay of up to £10 a week or £520 a year. This will be shown on your tax code.

The Government originally announced that the CTC would be worth £8.50 a week, but in November 2000 the Chancellor announced that it would be increased to £10 a week.

The maximum reduction (£520) applies per household. You will not receive a higher amount if you have more than one child under 16 or if you are one of a couple and you are both working and paying income tax.

How do I claim the CTC?
To receive the CTC you or your partner must complete an application form and return it to the Inland Revenue.

You should return the form to the Inland Revenue by the end of February 2001 to ensure that you receive a reduction in income tax at the start of the new tax year.

If you claim the CTC after April 2001 the CTC can be backdated.

The Inland Revenue should have sent you a claim form if you were receiving the married couple's allowance or the additional personal allowance. If you have not received a form you can still claim – contact the Inland Revenue.

Once you have made a claim for CTC, you will not have to reclaim. However, you should contact the Inland Revenue if your circumstances change (for example, the child you are claiming for no longer lives with you, or you start living with a partner, or you and your partner separate).

I am self employed – when can I claim the CTC?
If you are self employed or claim an annual repayment you will not be able to claim CTC until after April 2002. You will be able to claim on a self-assessment tax return or annual repayment claim form which will be sent to you in April 2002.

Both my partner and I are working and paying income tax – who can claim the credit?
This will depend on whether one or both of you are taxed at the higher (40 per cent) rate.

If one of you is taxed at the higher rate, the higher earner must claim the credit (see below).

If both of you are higher rate tax payers, the person who is likely to earn the most must claim.

If neither of you are taxed at the higher rate, one of you can claim the CTC in full or you can split the CTC between you. If the person who claims the CTC does not pay enough to use all the credit, s/he will be able to transfer the rest of the unused credit to the other partner after the end of the tax year.

I am a higher rate tax payer – can I claim?
You can claim the CTC if you are a higher rate tax payer, however the CTC will be withdrawn if you or a partner living with you have income which is taxed at the higher (40 per cent) rate.

The credit is withdrawn at the rate of £1 for every £15 of income taxed at the higher rate. This means that you are unlikely to receive any CTC if your individual income is above around £41,000 (based on tax bands in the current tax year).

You are a higher rate taxpayer if your individual annual income exceeds £32,785 (based on tax bands in the tax year 2000/01). The level at which income is taxed at the higher rate should be increased for the new tax year, but the precise amount will not be known until the Budget (expected in March 2001).

Because income tax liability is assessed on an individual basis (rather than as part of a household test), couples with a combined income of more than £41,000, but where neither is a higher rate tax payer, may receive the full rate of the CTC.

Can couples with children who are not married claim?
Yes. You can claim the CTC if you are an unmarried couple.

Can I claim the CTC if I do not have a partner?
Yes. If you are a single parent, or living with a partner of the same sex you are eligible for the CTC.

Will the CTC continue if my youngest child reaches 16 after 6 April 2001?
So long as your youngest child is under 16 on 6 April 2001, the CTC will continue until April 2002.

What happens if the child I am claiming for lives with someone else for part of the year?
If you child also lives with someone else, the arrangement will depend on whether the other person also claims the CTC. If they do, the CTC can be divided between you – you can agree this between you.

If you both claim the CTC but cannot agree how to divide the CTC between you, contact the Inland Revenue for what to do next.

If you are separated but you have more than one qualifying child under the age of 16 you may both be able to claim the full CTC – you should contact the Inland Revenue for advice.

Is the CTC the same as working families' tax credit?
No. The CTC will work as a tax allowance reducing your income tax - it is not part of the working families' tax credit (WFTC) scheme. For the CTC there is no savings limit and, other than the usual income assessment by the Inland Revenue to calculate income tax liabilty, there is no means test.

Working families' tax credit is a scheme to provide extra cash support for people on lower wages who have children. There is a savings limit and the Inland Revenue will require more information about other household income and family circumstances.

If I am already receiving WFTC should I bother claiming the CTC?
If you or any partner do not earn enough to be liable to pay income tax you will not gain from the new CTC at the moment.

If you do receive WFTC you should apply for the CTC. Because of the way that WFTC is calculated you may not be as much as £10 a week better off, but the amount you gain overall will depend on your circumstances. Because WFTC is usually awarded for six months at a time, the timing of your claim for WFTC may be important. You should be better off with the CTC - but if in doubt, seek advice.

What is CPAG's view of the CTC?
CPAG supports the abolition of the married couple's allowance and its replacement with the new tax relief that provides more financial support for families with children. The CTC will be worth almost twice as much in cash terms, although some families will have lost out because of the 12 month gap between the ending of the married couple's allowance/additional personal allowance (in April 2000) and the new allowance's introduction this April.

CPAG is concerned that the CTC will not be paid where a child is over 16 but remains at school or college. The Government plans to extend the scope of the new educational maintenance allowance (which is currently being 'piloted' in some areas) to encourage children from low-income households to stay on at school or training after 16. However, the allowance will not be implemented nationally before April 2001.

This factsheet is for guidance only. The information and conditions for receiving the children's tax credit may change. We regret that we are not able to provide personal advice for members of the public. For more information or advice contact your Tax Office or a local Citizens Advice Bureau (CAB). More detailed information about the CTC is available on the Inland Revenue's website: www.inlandrevenue.gov.uk/ctc/index.htm

January 2001