April 17 2002
(See
the full text of the Chancellor's speech here!)
NEW TAX CREDITS: A #2.7 BILLION BOOST FOR FAMILIES AND THE LOW
PAID
Two new tax credits - the Child Tax Credit and the Working
Tax Credit
- will be introduced from April 2003 providing an additional
#2.7
billion to support families with children, tackle poverty and
make
work pay.
Announcing the rates and thresholds for the new tax credits,
the
Paymaster General, Dawn Primarolo said:
"The Child Tax Credit and Working Tax Credit modernise the existing
tax credit system to improve support for children whether or
not
their parents are in jobs and to make work pay. We are determined
to
build a tax system fit for the 21st century and these new credits
mark a radical step forward in our tax and benefit reforms."
- Child Tax Credit will combine all income-related support for
children and will be paid direct to the main carer, usually
the
mother, creating one system of support spanning welfare and
work;
- The Working Tax Credit will provide a guaranteed income from
full-time work for those aged 25 or over without children or
a
disability of #183 per week for couples and #154 per week for
single
people;
- The Child Tax Credit will provide a total of #13 billion in
support, benefiting around 5.75 million families;
- For the first child, universal Child Benefit and the Child
Tax
Credit will provide #54.25 a week to all families with incomes
less
then #13,000 while all families with incomes less than #50,000
are
guaranteed #26.50 a week;
- Child Tax Credit will be extended to some who are currently
excluded from all but Child Benefit such as students and student
nurses;
- From April 2004, the child elements of the Child Tax Credit
will
be uprated at least in line with earnings rather than prices
for the
rest of the Parliament.
The Child Tax Credit brings together the various strands of
support
for families with children - the child elements in Income Support,
Jobseeker's Allowance, Working Families' Tax Credit (WFTC),
Disabled
Person's Tax Credit (DPTC) and the Children's Tax Credit - into
one
streamlined system.
The Working Tax Credit will broadly replicate the adult support
in
WFTC and extend the principles of WFTC and DPTC to adults without
children to create one transparent instrument to make work pay,
paid
through the wage packet. It will also include support with the
costs
of childcare, building on the success of the existing childcare
component of WFTC and DPTC.
NOTES
The new tax credits will offer recipients a number of advantages
over
the current systems of support. Compared to the current WFTC
and
DPTC, the main advantages are:
- greater generosity - a single earner couple working full-time
at
the National Minimum Wage with two children will receive around
#400
a year more from the new tax credits compared to WFTC and the
existing Children's Tax Credit;
- less form filling - families will have one renewal each year,
rather than two; and
- better incentives to save - families will no longer be unfairly
penalised for having savings. The system will treat income from
savings just like any other income. For example a single earner
family earning #18,000 with #6,000 of savings (generating #300
of
interest a year) would gain over #14 a week from the new tax
credits,
mainly as a result of the abolition of the capital rules.
Families receiving Income Support or income-based Jobseeker's
Allowance (IS/JSA) will automatically receive full Child Tax
Credit.
For them, the main advantages are:
- greater generosity - compared to the child allowances in IS/JSA.
For example, most families with two children on IS/JSA will
gain over
#9 a week from the Child Tax Credit; and
- more security on the move into work - families continue to
receive Child Tax Credit when they return to work without the
need to
reapply. The Child Tax Credit will be paid at the maximum rate
for
all families until income reaches #13,000 a year, delivering
a secure
stream of income for families moving off welfare and into work.
Compared to the current Children's Tax Credit, the new tax credits
will offer a number of advantages:
- payment to the main carer - the Child Tax Credit will be paid
direct to the main carer, usually the mother, providing a secure
and
regular stream of income; and
- a fairer system - awards will be based on the income of the
family, so one and two earner couples on the same income will
be
treated the same. For example, under the Child Tax Credit a
single
earner family on #40,000 will receive #545 a year, the same
as a
couple where both earn #20,000 and #320 a year more than they
would
have received from the Children's Tax Credit.
The Child Tax Credit
The Child Tax Credit replaces the income-related child elements
of
out of work benefits (Income Support and Jobseeker's Allowance),
the
Working Families' and Disabled Person's Tax Credits and the
Children's Tax Credit, building on the foundation of universal
Child
Benefit. The Child Tax Credit will provide #13 billion of support,
benefiting around 5.75 million families.
The new system will offer families with children a number of
benefits
over the current systems of support. The Child Tax Credit will
provide:-
- a continuous stream of income for families with children,
which
does not depend on the work status of the parents, creating
a stable
income bridge when families move into work;
- extended eligibility, to some who are currently excluded from
all
but Child Benefit, such as students and student nurses;
- a system in which all support for children is paid direct
to the
person with main responsibility for the child's care, in line
with
Child Benefit;
- a more transparent system which brings together all
income-related child payments into a single payable tax credit
administered by the Inland Revenue;
- greater flexibility, enabling families to continue to access
support from one system, even as their incomes rise or circumstances
change; and
- a common framework for assessment, so that most families are
part
of a single, inclusive system ending the stigma often associated
with
more traditional forms of support.
Budget 2002 announces the rates and thresholds for the new tax
credits (fully detailed in the Annex). As an illustration for
families with two children, Child Tax Credit and Child Benefit
will
work together to provide:
- at least #26.80 a week in support guaranteed for all families;
- #37.25 a week in support guaranteed for families with an income
of
less than #50,000; and
- #92.75 a week in support guaranteed for families with an income
of
less than #13,000 a year.
In advance of the introduction of the Child Tax Credit, the
child
allowances in Income Support and Jobseeker's Allowance will
be
brought into line with those in Working Families' Tax Credit
from
October 2002, providing an increase of #3.50 a week.
The Working Tax Credit
The Working Tax Credit will make work pay for low income workers.
It
replaces the Working Families' Tax Credit, Disabled Person's
Tax
Credit and New Deal 50 plus Employment Credit. It improves on
these
forms of support by:
- increasing the minimum income guarantee for a single disabled
person working full time from #172 a week now to #194 a week
in
April 2003; and
improving the work incentives of second earners in couples with
children, for example, in a family with two children where the
first
earner has an income of #14,100 (half average earnings) and
the
non-working partner takes a part-time job at typical entry wages,
the
gain to work will increase by over #14 a week in 2003-04 compared
to
the current system.
The Working Tax Credit will also for the first time extend support
to
those aged 25 or more without children or a disability where
they
work at least 30 hours a week. For this group, the Working Tax
Credit
means:
- a guaranteed minimum income from full-time work of #183 for
couples
and #154 for single people; and
- improved gains to work - for a couple where one person moves
into
full-time work, the gain to work will rise to nearly #50 a week
compared with #20 now.
Budget 2002 announces the rates and thresholds that will apply
to the
Working Tax Credit from April 2003 (fully detailed in the Annex).
In
advance of the introduction of the new tax credits, the basic
credit
in the Working Families' Tax Credit and the couple and lone
parent
credits in the Disabled Person's Tax Credit will rise by #2.50
from
June 2002. Responsive tax credits
The Working and Child Tax Credits will be based on annual income
for
a tax year and will run for up to 12 months. They are designed
to
combine continuity of support for those whose circumstances
are
stable, with the flexibility to respond quickly for those who
are
experiencing change.
At the start of the tax year or the start of a claim, the tax
credits
award will be based on the current circumstances (for example,
number
of children, hours worked) of the individual or couple claiming
and
on their income for the last tax year. Those with income below
the
first withdrawal threshold will be paid the full amount of tax
credits available for their circumstances. Those who qualify
for
Income Support or income-based Jobseeker's Allowance will also
be
entitled to maximum Child Tax Credit, without a further income
test.
Those with income over the threshold will have their maximum
tax
credit award reduced by 37p for every pound of income (before
tax and
NICs) over the threshold. Claimants eligible for both the Working
Tax
Credit and the Child Tax Credit will have their maximum awards
reduced in the order:
- Working Tax Credit apart from childcare;
- The childcare element of Working Tax Credit;
- Child Tax Credit apart from the family element; and finally
- the family element where income exceeds the higher threshold
of
#50,000
That means that Working Tax Credit paid through employers is
the
first to be withdrawn, so that for many families with children,
tax
credits will be paid wholly to the person with main responsibility
for the child's care.
Once an award has been set, it can run until the end of the
tax year
when entitlement will be reviewed. But if there is a change
affecting the maximum available amount of tax credit, the tax
credit
award can be adjusted from the point of the change.
An award can also be adjusted if income in the current year
falls in
comparison with last year. This will help people who have a
fall in
income to stay in work. Awards will also be based on the income
of
the current year if income rises in comparison with the previous
year. But to maintain the incentive to increase earnings, rises
in
income of up to #2,500 will be ignored and only the rise in
income
over #2,500 can trigger a reduction in a tax credit award.
For more details see The Child and Working Tax Credits, published
by
HM Treasury today
Working Tax Credit and Child Tax Credit - Ensuring A Smooth
Transition
The Government wants to ensure that people receiving one of
the
current tax credits, who will be eligible for one or both of
the new
credits make a claim for the new tax credits in good time and
do not
experience any gaps in support. To this end, a number of changes
are
being made this year to prepare for the transition.
Claims for Working Tax Credit and Child Tax Credit
Subject to the necessary legislation being approved, later this
year,
the Inland Revenue will begin writing to all those currently
receiving one of the existing tax credits inviting them either
to
apply for the new tax credits on-line, or to complete and return
the
paper form they will be receiving. Help will be provided both
on-line
and with the form and additional support will be available by
phone
or in person at local Inland Revenue offices. The Revenue wants
to
ensure that all those eligible for the new tax credits claim
as soon
as possible so that they will start to receive payments in April
2003.
People not currently receiving tax credits but who think they
may be
eligible will be encouraged to go on-line and check their
eligibility. If they find they are entitled to tax credits,
they will
be able to make their application electronically - there and
then.
Otherwise, people will be able to able to ring up for a paper
form,
or pick one up from Inland Revenue Enquiry Centres. An extensive
publicity campaign is planned to help ensure no-one misses out.
Special Arrangements for WFTC and DPTC recipients
To avoid people having to renew their tax credit awards for
relatively short periods in the run-up to April 2003, and help
ensure
a smooth transition to the new tax credits, awards of WFTC and
DPTC
will be lengthened from this summer.
From June this year, all new awards of WFTC and DPTC will run
until 7
April 2003 instead of the normal 26 weeks. This will mean that
no-one will have to re-apply for WFTC or DPTC from December
2002
onwards for an award which would last for less than four months.
To ensure that all WFTC and DPTC awards end on 7 April 2003,
to
coincide with the introduction of the new tax credits, awards
starting on or after 15 October 2002 will be shortened and will
run
to that date.
Changes to social security benefits
Child Tax Credit will replace the child elements of Income Support,
including the Minimum Income Guarantee, and income-based Jobseeker's
Allowance and the support for children currently provided within
certain other benefits. The Child Tax Credit replaces Child
Dependency increases paid in non- means tested benefits for
new
claims to Retirement Benefit, Bereavement Benefit, Incapacity
Benefit
(including residual Severe Disablement Allowance) and Invalid
Care
Allowance. Existing recipients will have their entitlement
transitionally protected.
For families who receive income related benefits, continuity
of
payment will be of particular importance. The Government has,
therefore, decided that there will be a transition period for
people
on these benefits, to minimise the risks in this area. Current
plans
are for:
- families with children on the Minimum Income Guarantee to
be
migrated to Child Tax Credit by October 2003, to coincide with
the
planned introduction of Pension Credit; and
- families on Income Support or income-based Jobseeker's allowance
to
be migrated to Child Tax Credit from April 2004.
Families will not be disadvantaged by the transition period.
The
rates of the child elements within the income related benefits
will
be adjusted so that families receive the same amount in respect
of
their children as they would if they were receiving Child Tax
Credit.
For the vast majority of families in this position, there will
be no
need for them to claim Child Tax Credit until they move into
work.
If they are still on benefit when the migration begins, the
Department for Work and Pensions will handle their cases
automatically.
Helping Employers
Paying WFTC and DPTC through the wage packet has been a key
element
in delivering on the promise to make work pay. The Government
is
committed to that principle, which is why the new Working Tax
Credit
will be paid to employees through the wage packet, providing
a clear
and targeted top-up to wages.
But the Government also wants to ensure the transition to Working
Tax
Credit runs smoothly for employers. The system for paying Working
Tax Credit through the wage packet will build on the successful
WFTC
system. But there will be some key simplifications to the system
which will together save employers #11 million annually.
To allow employers time to adjust to the new system and to smooth
the
transition to the Working Tax Credit for claimants, payments
of WFTC
and DPTC by employers will gradually be phased out from 27 August.
All awards of WFTC and DPTC in place before 27 August will be
paid as
normal for the first 26 weeks, but the Inland Revenue will make
the
remaining payments up to 7 April 2003. Awards which begin on
or
after 27 August will be paid direct by the Inland Revenue throughout.
Employers should not, therefore, have to make payments of WFTC
or
DPTC alongside the new Working Tax Credit. This will ensure
that
payment of the Working Tax Credit through the wage packet is
introduced with minimum disruption to employers and employees.
More detail about the Working Tax Credit and the Child Tax Credit
and
how the new system will work is available in a new document,
The
Child and Working Tax Credits, published today by HM Treasury
and the
Inland Revenue.
HM TREASURY PRESS OFFICE
Non-media enquiries: 020 7270 4558
INLAND REVENUE PRESS OFFICE
Non-media enquiries: 020 7944 3000
(office hours only)
GOVERNMENT DEPARTMENT INTERNET SITES
Further information and all published documents relating to
Budget
2002 may be found on the Internet at the following addresses:
HM Treasury www.hm-treasury.gov.uk
Inland Revenue www.inlandrevenue.gov.uk
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