How are Tax credits calculated?

robindunne1

Does anyone know the calculation used to calculate tax credits. I know where to go to to get a figure at https://www.entitledto.co.uk but was wandering if anyone knows how they get to the figure - and how does the baby element fit into it? Also a pointer on how they are going to factor in this years increase announced in the budget.

Help anyone???

CIS

The figure is quite easy for a basic calc:

1)Calculate whether your eligible

2)Total up the value of the elements that you are entitled to

3)Take your total income and deduct £5220 (if you are entitled to WTC) or £14155 if only entitled to CTC.

4)Take the resulting figure from step 3 and multiply by .37. This gives you an adjusted income figure.

5)Take the amount from step 2 and deduct the amount from step 4 from it, This gives the annual payable amount with a couple of exceptions.
a)If you claim for children , the minimum award is £547.50 p/a
b)if you claim for children and earn over £50K, the £547.50 is tapered by
6.67% for every £ you earn over £50K

(This calc ignores some roundings that might alter the figure by a £1 or £2. If the amount is for a part yr, remember that all of the amounts need to be pro-rated)

Further Guidance here
http://www.hmrc.gov.uk/manuals/tctmanual/TCTM07000.htm
Rates are here
http://www.hmrc.gov.uk/rates/taxcredits.htm

looby75

robindunne1 wrote:

Does anyone know the calculation used to calculate tax credits.

Sometimes I think that even the tax credit people don't know how it all works LOL

robindunne1

I have 2 children, with one under 12 months and work over 30 hours. Does that mean my entitlement before taper is:

1st Child Allowance: 1765
2nd child allowance: 1765
Family element: 545
Baby element: 545
30 hour element: 660

Total:5280???

Also for 6/7 entitlement will that be worked out on 5/6 income of 4/5 income?

CIS

Yeah thats right.

Youjsut need to taper the award by 37% of your income over £5220.

The initial 06/07 award will be estimated on 05/06 income. As long as your 06/07 income isnt more than £25K higher than 05/06, they'll use 05/06 income as your 06/07 income.

mercman_3

we STILL dont understand it and to be honest our accountant isnt much help either

We were before DD was born a couple with a joint income of circa £47k, this now is reduced at the minute to nearer £30k.

We own our own business although currently dont take anything out of it. wife wishes to give up work and work for our company.

What is the best way financially to do this. naturally the longer hours she works for our company the more nursery fees will be

ANY help would be a great help

is there a limit on how many hours she can work prior to losing anything. currently we only get the minimum wtc along with sbc

Cheers


merc

CIS

on 30K you almsot certainly wont be able to claim nursery fees unless they are quite high

With 1 child, you would need to be paying around £85 per week before you had anything back of the tax credits other than the minimum payment of £547.50p/a.

Example
Total elements = £6295
£85p/w childcare @ 80% = £3411
Total £9706

Adjusted income = £9169

Award Payable = £537

As you can see, on £85 p/w childcare (average) you will be just under the limit where you can start claiming extra help. If your childcare is over ,on average, about £85 per week then you should start seeing some money back off your childcare costs.

Award is over £547.50 p/a so you will receive £731 p/a. If the calculate damount was less than £547.50 p/a, you would be paid £547.50 p/a.

Spendless

How many hours is your wife thinking of working mercman? Nursery costs depend on where you live, but I pay £25 a day. Paying for a full day is cheaper than 2 half days at my daughters nursery. As we aren't eligible for childcare costs help from tax credits we use the childcare voucher scheme offered by hubbys employer. There is a thread on them in the marriage/relationship board. You could ask there if and how you could use them when you are self-employed.

Realise this will be some time in the future for you but there is also non-means tested funding available term after childs 3rd birthday.

fannyadams

This is no help I know, but my friend works for HMRC and has 2 children, and even SHE doesn't know how they calculate the tax credit! So what hope do us mere mortals have...

mercman_3

Thanks for all the posts

Our nursery fees are approx £135 per week, that is if she goes full time

Am trying to figure out how best to pay the wife. does she claim alot of hours for the company on a modest rate of say £10 p/hr or does she only claim a small amount of hours at either the same or a higher rate

Ideally would like to give her a good income if at all possible, but is it worth it if she can do less hours and make up the shortfall by credits?

Her SIL has told her that she only goes back to work for 12 hours per week to her old job and that she makes up for what she would of earnt by various credits? I cant see it myself, but if it there to be claimed, then i wanna claim it


Cheers

merc

CIS

It doesn't matter how you do, as you already have the 30hr element, her hours make no difference, just her total salary.

£10 * 5hrs is just the same as 10hrs * £5.