Get credit where it is due before deadline

TIME is running out to renew your tax credits if you want to avoid payments being stopped. Nine out of every ten families with children qualify for tax credits, and they are all being warned by HM Revenue & Customs to renew without delay.

After the end of each tax year (5 April), the Revenue sends tax credit claimants a renewal notice. If you have not already responded to this and it is knee-deep under other mail, now is the time to recover it from the pile and respond.

The renewal deadline of 31 July is looming, so it is vital you act now if you want to continue receiving this financial support. If you can't find your renewal notice, call the tax credit helpline urgently on 0845 300 3900.

For claimants entitled to only the family element of child tax credit, which is paid to any family responsible for one or more children, subject to means-testing, the award will automatically be renewed and a response is only required if your income or personal circumstances have changed. All other claimants will need to confirm the information in the notice they receive by 31 July, otherwise payment of your tax credits may stop and a penalty may be charged.

Since its introduction in April 2003, the tax credit system has been a cumbersome piece of welfare "kit", with each budget heralding a change to the rates or the thresholds. Both working tax credit and child tax credit are initially based on the previous year's income, so for those who file tax returns or are self-employed there is an added complication, as at this time of year the final numbers for last year's income may not yet be known.

Various criteria need to be met in order to be eligible to claim working and child tax credits.

For working tax credit, those aged 16 to 25 must do at least 16 hours or more of paid employment or self-employment per week and be responsible for either one or more children. Disabled individuals working at least 16 hours a week also qualify. For those over 25 the figure is 30 hours or more a week, and if you are 50 or older you could still qualify for working tax credit if in receipt of certain benefits. Over-60s also qualify if they work at least 16 hours a week, regardless of whether or not they have dependent children.

Child tax credit, on the other hand, is payable to claimants responsible for at least one child under 16 (or under 20 if the child is still in full-time schooling or doing unpaid work-based training).

The main changes to the tax credit system this year are:

• Changes to the amount by which your income can increase year on year without affecting your tax credits. Tax credits are estimated based on the previous year's income. This is then reconciled after the tax year.Prior to 5 April, 2011, if the actual income for the tax year had increased by less than 25,000 from the prior year then no adjustment was required. If the differential exceeded this then there would be a liability on the claimant to repay the excess credits. From 6 April, 2011, the 25,000 buffer is reduced to 10,000, so in future the level of credits given will be more sensitive to a movement in income and there will be more chance of a liability arising on the claimant.

• Families with joint incomes of up to 50,000 could previously benefit from the "family element" of the child tax credit payment of 545. The income limit was reduced to 40,000 from 6 April, 2011. Families previously entitled to credits earning more than 40,000 in total will no longer be able to claim and must notify the Revenue or face a clawback and penalties.

• There have also been changes from 6 April, 2011, to some of the tax credit rates (or "elements"). One of these is that the maximum amount of the "child element" of child tax credit will go up from 2,300 to 2,555 for each child. So a family with two children (under age 16) and joint income of just under 16,190 will see 510 of additional child tax credit in 2011/12. Those who earn more than 16,190 will, however, see this increase eroded by other changes which reduce the level of credits when earnings exceed this threshold.

• Eligible childcare costs have been restricted as of 6 April, 2011. Individuals who are eligible for working tax credit can claim for an element of childcare costs subject to various conditions. The level of help for childcare costs has decreased from 80 per cent to 70 per cent of eligible costs. The maximum help available for one child is now 122.50, and 210 for two or more children.

The sooner you submit your renewal notice the better, as it will take several months before the notice is processed. This means if you are in an overpayment position you could find a significant chunk, if not all, of your tax credits restricted unexpectedly.

If you fail to notify HMRC of a change in circumstances then penalties of up to 3,000 can apply.

There is also help in the form of pension tax credit for individuals nearing or at retirement. The benefit is made up of two parts: the guaranteed credit and the savings credit.

The guaranteed credit is available to individuals currently aged at least 60 years and six months (from March 2011, the qualifying age is 61). This benefit is meant to provide those over 60 with a guaranteed level of income. The guaranteed credit also tops up a single person's income to 137.35 per week (209.70 for couples). There are additional components to this if you are severely disabled, have a carer or have certain housing costs to cover.

The savings credit only applies to individuals over the age of 65 and is a payment made to those who have made modest savings provision for their retirement.The maximum amount you can obtain in savings credit is 20.52 for a single person and 27.09 for a couple.

The amount of credit you are entitled to is quite difficult to calculate. However, useful guidance and an online calculator is available at www.direct.gov.uk/en/MoneyTaxAndBenefits/index.htm.

• Susannah Simpson is director and personal finance specialist at PricewaterhouseCoopers in Scotland