Be sure to take tax credit where it is due

Published on Saturday 25 July 2009 14:25

RAMPANT fraud and errors with tax credits have caused £16 billion to be lost from public funds, according to the latest data from HM Revenue & Customs.

The figures come ahead of the deadline by which claimants must renew their applications for the credits which support 20 million individuals, including 10 million children.

Failure to return renewal packs by Friday 31 July could see their credits stopped. Similarly, if you neglect to notify the authorities of any change in circumstances you could face frightening cuts in your income when HMRC claws any overpayments back.

More than three million pensioners also receive a boost to their weekly income through tax credits, but these are administered separately by the Department for Work and Pensions. These do not have to be renewed this month.

The tax credit system has been riddled with fraud and bungling since its launch in 2003. Organised criminals alone last year filed an estimated 50,000 false claims, robbing taxpayers of 200 million.

On the other hand, many who should benefit from them are missing out. DWP estimates that more than a quarter of pensioners who are due tax credits do not claim them. Similarly, nearly one in ten families may not be getting the support they are entitled to.

The whole area is a minefield. Scotland on Sunday leads you through the hazards by answering your questions.

Who qualifies for tax credits?

Single adults on low wages may qualify for Working Tax Credit, as will lone parents. Other adults can qualify for Child Tax Credit if the household income is below 58,000, or 66,000 if you have just had a new baby. Low-income families can get both. Pensioners can also get their state pensions topped up via tax credits to a minimum level.

How do you know if you are a low earner?

If you don't have children, you can qualify for Working Tax Credit if you are over 25, work at least 30 hours weekly and earn less than about 14,000 annually after stoppages, or 17,000 for a couple.

At that level of earnings, the extra credit will be worth less than 2 weekly to a single person, which will still give you an additional 100 a year in your pocket. A couple earning 17,000 can enjoy 7 weekly or 400 annually.

The biggest payments go to those with net earnings of 8,940, which is what someone working 30 hours weekly on the minimum wage would get. If your household income after tax and national insurance is below that level, the government will top up your wages by another 32 weekly, or 1,685 annually. A couple with that level of income will get 68 weekly or 3,545 annually.

As your income rises, the support is withdrawn, so where household income is 9,000 a single person will get 31 weekly or 1,660 annually and a couple 67 weekly or 3,520 annually. When you get to 13,000 support drops to 1.90 weekly, although a couple on this level of earnings can still get 37 weekly or 1,960 annually.

The over-50s can also qualify for Working Tax Credit after a spell unemployed, and provided they are working 16 hours weekly. There are further concessions for the disabled.

Are tax credits subject to tax and national insurance?

No, they are free from tax and national insurance.

What about children?

All families with children earning under about 58,000 qualify for Child Tax Credit, which starts at 53.46 weekly for one child (2,780 annually); 96.53 weekly for two children (5,020 annually) or 139 weekly for three children (7,255 annually). Again this is phased out as your earnings rise to a point where, once the net household income reaches 30,000 the maximum you can get is 10 weekly (545 annually) irrespective of how many children you have.

You can receive a higher amount in the first year after a baby is born, which tops up your credit by another 545 annually, which is payable to those with annual household incomes as high as 66,000 annually.

Will Child Tax Credit affect my Working Tax Credit?

No, Child Tax Credit is paid on top of Working Tax Credit and child benefit. If you have a child you can claim Working Tax Credit if you are 16 and working at least 16 hours a week, whereas the childless must be aged 25 and working 30 hours weekly. Someone working between 16 and 30 hours weekly with a household income of 5,000 with three children could see their weekly income boosted by 211 (11,010 annually), 168 weekly (8,770 annually) for two children, or 125 weekly (6,535 annually) with one child. The credits remain at these kinds of levels, trimmed only slightly as income rises up to about 25,000. After that they fall sharply.

If I go back to work will I lose out because of childcare costs?

Not necessarily, as the government will also help with childcare costs by adding on a childcare element which could pay you a further 140 weekly for one child or 240 for two children. Essentially the government will pay 80p in every pound you lay out in childcare up to a maximum of 175 weekly for one child or 240 weekly for two.

Who gets the money?

If you're married or living with a partner you'll need to make a joint claim for tax credits. You can only make a single claim if you don't have a partner. If you're both working and you both qualify for Working Tax Credit, you can decide who'll get the payments.

If you're claiming Child Tax Credit, you need to decide which one of you is the children's main carer, as this is who gets the credit.

When should I claim?

You should claim as soon as you think you qualify, because they are only backdated for three months from the date HMRC receives your claim form. If you have a baby in June but do not claim until 12 October, your payments will only be backdated to July.

It might be worth making a claim even if you think your income is too high to get any money at the moment. You might want to do this if you expect your income to go down later in the year, perhaps because of redundancy.

How do I get the money?

It is paid directly into your bank or building society account – either weekly or every four weeks.

What happens if I don't renew?

If you are receiving only the minimum 545 Child Tax Credit and nothing has significantly changed in your circumstances, then if you do nothing your credit will be renewed automatically. However, where you are receiving higher levels of support, your payments will be stopped.

Do I qualify for Pension Credit?

To qualify, you must be aged at least 60, and if you live alone, have a weekly income below 130, or 189.45 for a couple.

If so, you can qualify for Pension Credit by dialling 0800 1991234. Your state pension will then be topped up to ensure you enjoy this minimum level of income.

Do savings disqualify me from Pension Credit?

Currently you can have savings of 6,000 and your pension credit will be unaffected.

Above this, you lose 1 per week in top-up for every 500 you have in savings.

From November, however, you can have 10,000 without it affecting your Pension Credit.

Do I need to renew my Pension Credit?

No.