Tax credits changes

Issue 227 (April 2012)

Edward Graham with a reminder that a number of important changes to tax credits took effect from 6 April 2012.

  • The family element of child tax credit (CTC) is now withdrawn immediately after the child element, the second income threshold of £40,000, is removed. This does not mean no families on more than £40,000 will qualify – it depends on circumstances and income. The family element will now be reduced immediately after other elements – ie, it’s just part of the normal calculation. Around a million families will lose tax credits altogether.
  • The period for which a tax credit claim and certain changes of circumstances can be backdated is reduced from three months to one month, ‘saving’ around £300 million.
  • The 50-plus element has been removed from working tax credit (WTC) altogether, both as a component and as a route to eligibility.
  • Most controversially, the rules on work for couples claiming WTC have been changed. Couples must now either work a combined total of 24 hours a week, with one working at least 16, or one of the couple must work at least 16 hours a week, and the other be disabled, in hospital, in prison or a carer. Nearly 300,000 families will lose entitlement to WTC, at a cost of half a billion pounds.
  • Finally, a disregard of £2,500 is introduced in the tax credits system for in-year falls in income. Only falls in income of over £2,500 per year will result in claimants getting more tax credits, and then only the fall over £2,500 will be taken into account. This change will save the government (or cost claimants) almost half a billion pounds.

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