CPAG in Scotland Tax Credits Project: Factsheet 1Tax Credits and ChildcareIntroduction IntroductionThere are two types of tax credit; child tax credit and working tax credit. You claim them together and may get either or both. Tax credits are administered by Her Majesty’s Revenue and Customs (referred to as the Revenue in this leaflet). You may get:
Tax credits are made up of various ‘elements’. The amount you get depends on the elements appropriate to your circumstances. Working tax credit is made up of a basic element which is included in every claim and either a couple or lone parent element. There is an extra element if you work at least 30 hours per week. Couples with one or more children can combine their hours to reach the 30 hours threshold. There are extra elements for disabled claimants and for some people aged 50 or over. Childcare elementWorking tax credit also includes a childcare element to help towards the cost of paying a registered or approved childcare provider for looking after your children. You may be entitled to the childcare element if:
You cannot get help with childcare through tax credits if you are not working enough hours to qualify for working tax credit. If you meet these conditions, you may also get extra help with rent or council tax through housing benefit or council tax benefit. Claiming help with childcareIf you are already getting tax credits, you should claim the childcare element within three months of starting to pay childcare costs. Only three months backdating is possible so if you delay you will lose out on help with childcare costs. Phone the Tax Credit Helpline or write to the Tax Credit Office. If you are not already getting tax credits, you should complete a claim form. This includes a section for the childcare element. Claims can be made by completing a tax credit claim form (TC 600). In some cases, claims can be made at a Jobcentre Plus office and assessed more quickly – for example if you have been claiming income support or jobseeker’s allowance and are now starting work. In either case you should provide contact details for the childcare provider, the childcare provider’s registration number and details of the average weekly childcare costs paid. You should work out the average weekly cost and put this figure in the claim form. See below for how to do this. Average weekly cost of childcareIf the childcare costs do not vary, the average weekly cost is just the weekly cost you pay. To convert a monthly payment, multiply by 12 and divide by 52. However, the amount you pay for childcare may vary during the year. For example you may pay more or less during school holidays. The childcare element is based on an average over the year. If costs vary, work out the average weekly costs by adding the last 52 weeks before the claim and dividing by 52. If the costs are paid monthly, add the last 12 months and divide by 52. Round up the result to the nearest pound.
If there is insufficient information to establish the cost, the Revenue calculates the weekly charge using any method which in its opinion is reasonable. If you have just entered into an agreement to pay for childcare, you can estimate the costs of the average weekly charge. How much is the childcare elementThe most help that you can get with child care costs is 80% of the actual weekly cost up to £175 if you have one eligible child, or £300 if you have 2 or more eligible children. The absolute maximum is therefore 80% of £175 (£140) if you have 1 eligible child, and 80% 0f £300 (£240) if you have 2 or more eligible children. Many people will receive less than the maximum because working tax credit is means-tested and therefore the amount actually paid will depend on the level of earnings and other income. You might not actually receive any working tax credit if your income is too high, but you may be entitled to additional child tax credit when childcare costs are included in the overall calculation. Childcare vouchers and subsidiesIf your childcare costs are subsidised through another scheme such as Sure Start or Working for Families you can still claim the childcare element of tax credits but only for the amount you actually pay. So the most help you could get is 80% of the subsidised cost. Some employers offer childcare vouchers. Sometimes this is offered instead of cash pay. You cannot get tax credits childcare element for the part of the childcare costs covered by the vouchers. The most help you can get is 80% of the childcare costs still to pay once the amount of the voucher is taken off (subject to the maximum level as explained above). If you are offered the choice of cash or vouchers you you can use the childcare indicator on the Revenue’s website http://ccincalculator.inlandrevenue.gov.uk/CCIN0.aspx. You should also seek advice to check the results. Lower earners, in particular people who get child tax credit at more than the family element of £545 a year, are not usually better off choosing vouchers instead of cash. Who can get help with childcare costs
Reporting changes of circumstancesIt is your responsibility, not the childcare provider’s, to report a change in circumstance, including changes to your childcare provision. The childcare provider will not be responsible for any tax credit overpayment or penalty arising because you have not reported a change. This does not mean that childcare providers have no responsibilities. If the Revenue asks childcare providers for information about your childcare usage and cost then the childcare provider should supply it. If average weekly childcare costs go down by £10 a week or more, there is a 4-week run-on period during which the childcare element remains the same before the Revenue takes the change into account. Similarly if childcare costs stop altogether, there is a 4-week run-on period. You must tell the Revenue within one month of the date childcare costs went down or the date you became of aware of the change if that was later (although if you pay a fixed weekly charge and this has gone down, you should have one month from the end of the 4-week run-on period). If you do not tell them within this time limit, the Revenue can impose a penalty of up to £300. The best advice is to notify the Revenue as soon as possible to avoid any overpayment or penalty. If average weekly childcare costs go up by £10 a week or more for 4 weeks in a row, the childcare element goes up from the first week in which the costs increase, so long as you tell the Revenue within 3 months. Only 3 months backdating of an increase in childcare costs is possible. To check if the average weekly childcare costs have changed by £10 or more, you need to work out a new average.
You should also remember to tell the Revenue if you or you partner stops working for 16 hours or more a week as this might stop not just the childcare element but the whole working tax credit entitlement. If you stop working, you are entitled to a 4-week run-on of working tax credit, including the childcare element. Further information and adviceCPAG in Scotland Tax Credits Project summary webpages Child
Poverty Action Group in Scotland Email: advice@cpagscotland.org.uk Website: www.cpag.org.uk
CPAG in Scotland’s advice line is only for advisers. If you are having problems with your own tax credit or benefit claim and are in need of advice you should contact your citizens advice bureau or other local welfare rights service. HM
Revenue and Customs (formerly the Inland Revenue) Scottish
Commission for the Regulation of Care
Child Poverty Action Group is a charity registered in England and Wales (registration number 294841) and in Scotland (registration number SC039339). Company limited by guarantee registered in England (registration number 1993854). Registered office: 94 White Lion Street, London N1 9PF CPAG in Scotland’s Tax Credit Project is funded by the Scottish Government. This fact sheet was last updated October 2008
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