Making Ends Meet
Careful budgeting is the order of the day for many families who have undoubtedly been affected by the recent economic cutbacks and increase in the cost of living. 
Yet fortunately, to supplement the family income, there are grants, tax credits and benefits available to many families that can also help towards the costs of childcare. Here’s an update on allowances available to families (as at October 2011):
Tax Credits
Nine out of ten families with children qualify for the tax credits that are designed to provide payments of extra money to people who are bringing up children. There are two types - Working Tax Credit (WTC) and Child Tax Credit (CTC). Neither one is taxable. You might be eligible for one or both.
What you get
The amount you receive is based on your circumstances at the time you make the claim, and on your previous year's income. It will depend on things like how many children you have living with you, if you are a lone parent, how many hours you work, if you pay for childcare, if you or any child living with you has a disability and the payments also depend on your income. The lower your income, the more tax credits you will receive.
Tax credit claims run for a tax year (from 6 April to the following 5 April), and can only normally be backdated up to three months. CTC and WTC are made up of different 'elements', and the amount of credit you'll receive depends on how many of these elements you are eligible for. All the elements to which you are entitled are added together to make up your maximum award, but whether or not you receive the full award will depend on your income.
What are the income limits for getting tax credits?
The total annual income limits that generally apply before your tax credits are reduced or stopped altogether are:
•if you have children it is £41,300
•if you're single without children it is £12,900
•if you’re in a couple without children it is £17,700
Working Tax Credit
Working Tax Credit (WTC) is a payment to top up the earnings of working people on moderate or low incomes. Working Tax Credit is based on the hours you work and your income.
The WTC elements
Anyone who qualifies receives the basic element, worth up to £1,920 depending on income. In addition, you could also receive extra elements, depending on your circumstances - for example if you are a couple or lone parent (£1,950) or work more than 30 hours a week (£790).
Help towards the cost of childcare:
Childcare element of Working Tax Credit
Parents who work could get extra tax credits to help towards childcare costs. The childcare element of Working Tax Credit is an extra allowance for working families who spend money on approved childcare. This includes a registered child minder, nursery or play scheme, an out-of-hours club on school premises run by a school or local authority, or a childcare scheme run by an approved provider. There are different registration and approval rules for each part of the UK. Do check that your childcare provider meets these rules before you make your claim*.
You can claim up to 70 per cent of childcare costs up to £175 a week for one child and £300 a week for two or more children. This means that the maximum help you can get for your childcare through tax credits is £122.50 a week for one child or £210 a week for two or more children.
You won't necessarily get the full £122.50 or £210 a week - the actual amount you get will depend on your income. The lower your income, the more tax credits you will receive.
Childcare Vouchers
Your employer may offer you childcare vouchers in return for a reduction in your gross pay, also known as a 'salary sacrifice', to help with your childcare costs. This may affect the amount of tax credits you can get, as it depends on how much you pay in cash, and not vouchers, for childcare.
How Childcare Vouchers work
The childcare voucher scheme is only available via some employers. The childcare voucher scheme works by the employer allowing you to pay for your childcare out of your gross income (pre-tax and National Insurance). In essence you are not paying for your childcare out of your net income, so there is a tax benefit. If your employer doesn’t currently offer the scheme it may be worth highlighting that childcare vouchers shouldn't cost them any money.
Childcare Vouchers vs. Tax Credits
If you are not eligible to receive tax credits for childcare then you will always be better off using childcare vouchers. Subject to the number of children you have you may be better off using only the childcare element of tax credits. There's an online calculator at www.hmrc.co.uk which will help you decide whether to opt for tax credits or childcare vouchers.
Child Tax Credit
Child Tax Credit (CTC) is a payment to support families with children. Child Tax Credit is paid to you if you are responsible for at least one child or young person who normally lives with you. You don't have to be working to claim it and any payment made is in addition to Child Benefit payments.
Who can claim
To be eligible you must have at least one dependent child and a joint income of less than £41,300 a year. It's important to know that this income limit doesn't apply to everyone - for example if you have a large family and pay a lot in childcare, or have a disability, the income limit could be higher. You will need to make a claim to get a definite answer to how much you are entitled to.
Your income and your award
If you receive only Child Tax Credit (so, no Working Tax Credit) you will be entitled to the full amount until your annual household income reaches £15,860. After that, your CTC award (apart from the basic family element of £545) will be reduced by 41p for every £1 of income above £15,860. The family element of CTC is reduced only when the household income exceeds £41,300.
For more information...
To get a clearer idea of what tax credits you may be entitled to, go to the entitlement tables or complete the quick online questionnaire at www.hmrc.gov.uk/taxcredits. There's also an online tax credits calculator you can use.
The Tax Credits Helpline is 0845 300 3900 open 8am to 8pm seven days a week.
Child Benefit
Each household with a child will receive Child Benefit, a tax-free payment that is usually paid every four weeks. There are two separate amounts of child benefit, with a higher amount for your eldest (or only) child at £20.30 a week and £13.40 a week for each of your other children.
(All figures quoted relate to the 2011/2012 financial year).
*Childcare regulators:
England: Go to the Ofsted website www.ofsted.gov.uk or call 0300 123 1231
Scotland: Go to the Social Care and Social Work Improvement Scotland website at www.scswis.com or call 0845 600 9527
Wales: Go to the Care and Social Services Inspectorate website at www.cssiw.org.uk There are separate contact telephone numbers for different parts of Wales. Go the website to find out more.
Northern Ireland: Go to the Department of Health, Social Services and Public Safety website www.dhsspsni.gov.uk or call 028 9052 0500
Kirsty Woodgate
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