Tax credits for 06/07 - please help!

Jazzking

OK, tax credits question – sorry!

My OH and I are expecting our first child in July, and I’m currently weighing up whether to go for a salary sacrifice scheme offered by our employer to pay the £477/month childcare fee when my OH returns to work in January.

I’ve worked out that using the salaries we will both be on in January (assuming we stay in the same job, get our annual pay rise, and she works a 4 day week) that by using the salary sacrifice scheme for the full amount we would save approx £154 a month in Tax and NI.
We would also get annual child tax credit of £546.50 so our “savings” would be £2394.5 for the year
This is based on 05/06 tax rules btw.

I’ve been on entitledto and run our details through their calculators, using my estimated pay for 05/06 as the “previous” year (since it will be when we make the claim) and our predicted income for 06/07 as the current year, although I’m not too fussed about getting this too accurate at the mo since the threshold for reporting changes is rising to £25,000 in 06/07.

The site tells me that if we pay for our own childcare (i.e. not using the Salary Sacrifice Scheme) then we are going to get annual child tax credit of £2788.6 and WTC of £274.13 so total extra is £3062.73

The problem is, I need to tell work 16 weeks before the due date if we want to be included in the Salary Sacrifice Scheme. This date is before the start of the new tax year so I’m unsure if the figures I worked out for tax credits are going to be right.

I’m thinking it’s not going to get any worse if they’re moving the income disregard to £25,000 and are supposed to be paying 80% of childcare costs instead of 70% but would like to some clarification if this is the case from people more in the know than me since I don’t want to be in the situation where we have to owe money back to them come April 2007!

I also have a one more question:

Assuming we go with the tax credits idea and not the SSS, when can we start claiming them? My OH is on maternity leave for six months so we’re not paying any childcare as such - would we have to put in a claim to HMRC stating no childcare in July and then make an adjustment in January or can we claim reasonable childcare costs for my OH being at home caring for the baby?

Sorry for the long post, hope someone can shed some light on this confusing matter!

Alex
x

CIS

You would have to adjust the tax credit award if no officially registered childcare is actually being paid for , or you would be overpaid.

The salary sacrifice scheme doesn't work for everyone with regards to tax credits, it seems from what you say that it wont benefit you, but take a look at HMRC page before you make your mind up.

http://www.hmrc.gov.uk/childcare/taxcredits-guidance.htm

Jazzking

Thanks CIS for your quick reply - I'd seen a list like what you'd linked to on the HMRC site and I answered yes all the questions which suggested I would probably be no better off with the salary sacrifice scheme.

So, is it just a case of filling in a form with all the current details once the baby's born (to claim what we can in CTC), and then filling in another form once we start paying for registered childcare and my OH is back in work?

CIS

You fill in the initial form and then when you come to change any circumstances, you just ring them up and ask for it to be changed, theres no need to fill any extra forms.

cheepskate_2

Hi Jazz king

in reply to yor first post there seems some confussion. you state you would only get £545 ctc by not claiming for child care. then go on to say you would get wtc of £274 if getting c/c costs from tax credits.

Somewhere the calc is incorrect, as wtc is only payable for incomes under £14400( c/c does not affect wtc levels only ctc ) . if this was the case then you would get more ctc even without the c/c.
your best bet is call the t/c and ask for explanation,

you can only claim c/c for when you are actually paying for it , so if baby in c/c from 7 weeks you would claim then otherwise when baby goes into it. While your prt is on paid maternity leave she is classed as being in empl so c/c rules apply

oppps also forgot your annual ctc would not be £545 per year (assuming income under£50000) it would be about £1200 cos you get extra £10.00 p/w as baby under 1 year old

Jazzking

Thanks cheepskate for your post,

I think the problem lies with the figures I used when I first did the calcs (no childcare to claim, with the salary sacrifice scheme) I did this using our income from 2004/05 as the previous year (as it is now) and 05/06 as the current year. In all subsequent calculations I took 05/06 to be the previous year (as it would be when we actually claim) and 06/07 as the current year.

This will have skewed the figures slightly since our 04/05 income was substantially less than our 05/06 income so the scenarios aren't really comparible.

I'll phone the tax credits people alfter April 6th to confirm the changes and for them to answer my questions. I wondered since CIS' last post.... it asks for the "average weekly childcare cost" if we were to work out the average over the course of the year should this run April - April or Jan - Dec and could we get away with putting in our total predicted c/c costs for the year (including the 6 months where we're not actually using it) and dividing by 52 to get our average costs, just so we have some extra money over mternity leave (but less than we would be receiving if we just declared c/c usage starting in January 07)

Argh - head's spinning!

PS - does anyone "in the know" know when the HMCE online tax credits calculator is coming back online, or is entitledto just as good?

Many many thanks!

cheepskate_2

hi

all c/c cost are checked vigerously and any decrepencies are then verified, also c/c providers are very hot on this issue as they do not want their income to be higher than they actually receive. Best bet is to put the c/c that is used .(i.r can fine for false information ) the costs would run from when they start, to the end of that financial year
When you get your t/c form it explains how to work out your weekly costs the t/c operators are normally clued up on the c/c calc and would give you any help.

I think your first bet is to get a proper calc on the income you are going to be earning for the year that you are going to use, and then compare to the vouchers payout.

irs101

cheepskate wrote:

as wtc is only payable for incomes under £14400( c/c does not affect wtc levels only ctc ) . if this was the case then you would get more ctc even without the c/c.

Cheepskate

That's not right at all - for a start the childcare element is part of WTC - so it affects your WTC entitlement directly. There isn't a threshold for WTC either - it just so happens that the typicals family's entitlement runs out at £15-16K.

Jazzking's calculations look perfectly plausible - although I haven't checked them in detail. The childcare costs are quite high, and that shifts the entitlement curve a lot.

irs