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Tax credits: changes from 6 April 2012

by Tax Faculty Team on 27.02.2012 08:05

A summary of what’s changing

 

From 6 April 2012 there will be a number of changes to tax credits (working tax credit (WTC) and child tax credit (CTC)).

 

The changes are listed below. We have had a number of comments on our website about the change to the working hours requirements, so at the end of this news item we take a detailed look at this.

 

Increases in rates etc: Some elements of WTC and CTC have been increased for 2012/13. Some remain the same as in 2011/12, including the basic and lone parent/couple elements of WTC. Income thresholds and taper rates have not changed.

 

See the full list of 2012/13 tax credit rates and thresholds

 

Withdrawal of family element of CTC: From 6 April 2012 the £545 family element of CTC will start to be withdrawn immediately after the child element. Currently, the family element is protected from withdrawal until income reaches the upper income limit (£40,000) and is then tapered away.

 

The end of the 50+ element of WTC: This will be withdrawn from 6 April 2012. The 50+ element is currently available to people aged 50 or more for the first year when they return to work after receiving certain benefits. People in this category may also be affected by the change to the working hours requirement, see below.

 

Backdating period changes from three months to one month: From April 2012, backdating of a new claim or of an increased award following a change of circumstances will be limited to one month. Currently the maximum period of backdating is three months.

 

Disregard for falls in income: From 6 April 2012, there will be a new feature in the system – an income disregard of £2,500 for falls in income. Currently, if income falls by any amount as compared to the previous year, tax credits are adjusted so that the claimant receives an amount based on their new (lower) income. The new disregard means that tax credits will not be adjusted until income falls by more than £2,500 compared to the previous year.

 

Working hours requirement

From April 2012, couples with children must work 24 hours between them, with at least one working 16 hours, to qualify for WTC. And for those aged 50+, the withdrawal of the 50+ element of WTC means that they may now need to work 30 hours a week rather than 16.

 

Couples: At present (ie for 2011/12 and prior years), couples with children qualify for WTC if at least one of them works 16 hours a week or more.

 

From 6 April 2012, couples with children must work at least 24 hours a week between them, with at least one of them working 16 or more hours. If only one member of the couple works, that person must work at least 24 hours.

 

There are still some exceptions to the 24-hours rule. Couples with children will be able to work 16 hours a week between them and still qualify for WTC if:

 

  • the partner who is working at least 16 hours per week is eligible for the disabled worker element of WTC, or is aged 60 or over; or
  • one partner works at least 16 hours a week and the other partner is "incapacitated", an in-patient in hospital, or in prison.

People aged 50 or over: From 6 April 2012, those aged 50+ who are not responsible for any children will need to work at least 30 hours a week to qualify for WTC.

 

The change is the result of the withdrawal of the 50+ element of WTC. For 2011/12 and prior years, such people who were eligible for the 50+ element of WTC had to work a minimum of 16 hours.

 

However, the 16 hours minimum requirement still applies to those who are aged 60 or over and those who are entitled to the disability element of WTC.

 

Those aged 50+ who are responsible for at least one child will still qualify for WTC if they are:

 

  • a single claimant and work at least 16 hours a week: or
  • are in a couple and meet the new working hours rules for couples (see above).

Further information

Readers may be interested in an article on the BBC website by Robin Williamson, Technical Director of the Low Incomes Tax Reform Group, which looks at the implications of the April 2012 changes and provides some examples.

 

There is also some HMRC guidance about the April 2012 changes – see Tax credits: effect of Budget changes from 6 April 2012

 

And finally – we have commented on some of the specific questions posted on our 2011 news item about tax credits changes last year – see Tax credits: changes from 6 April 2011