when/how do I claim Child tax credit for 2004/05?

Child Tax Credit in the new one (introduced April 2003).

The Children's Tax Credit was introduced in April 2001 and abolished in April

2003. From what you say you should have got the Children's Tax Credit in full (529) for the 02/03 tax year. Claimed via the income tax system (tax return/PAYE).

NO! The *initial* assessment is based on 2001/2 tax year, but the actual amount you are entitled to depends on your income *in the tax year of the claim*. You have to go through the hassle of claiming it with you 2001/2002 details and then phoning them up and telling them of your changed circumstances. If you can get through.

Besides, the income limit for the new CTC is about 58,000 (joint with your partner if you have one), it's got nothing to do with the 40% tax bracket like the old one did.

No, the 04/05 claim is *initially* based on 03/04 income (not 02/03) - but then, as above, is adjusted if your income in 04/05 is different, expect for the first

2500 of any increase which is ignored.

Yes, it's a hopelessly complicated and bureaucratic system dreamed up by clueless morons who don't live in the real world. But it'll probably be gone in a couple of years if it has the same lifespan as the other tax credits this government has introduced.

Unless you expect your joint income to be more than 58,000, you are eligible, so get your claim form in for this year and they should automatically send you one for next year.

Ian Diddams said

It doesn't quite work like that.

While the original award for 2003/2004 would be based on your income

2001/2002, what you are *actually* entitled is directly related to what you really earn in 2003/2004.

You therefore have to notify them of changes of circumstances and changes of income so they can adjust as you go - and if you receive too much you will have to pay it back...

Freda said

In fact you've got me interested in the detail now. From the IR leaflet...

Your award will initially be based on your income for the previous tax year (although awards for the tax year 2003-04 will initially be based on income of the tax year 2001-02).

If your income in the current tax year rises by less than 2,500, it will not affect your award and we will still base it on your income for the previous year. So for the current year, you will get the benefit of a rise in income up to that amount without it reducing your tax credit award. The increased level of income is not taken into account until the next year.

If your income in the current year is lower than last year's income, we will base your tax credit award on your current year's income. In this case, you may be due more tax credit. You can either

tell us during the year that you expect to receive less income than last year - we will then adjust your payments to make sure you receive the right amount in-year, or wait until we finalise your award at the end of the year and we can pay you any extra tax credit you are due in a lump sum. We will check at the end of the year what your income was. If you tell us during the year about a fall in your income and it falls by less than you expected, you will have to pay back any tax credits we have overpaid.

If your income increases by more than 2,500, then we will base your final award on your current year's income. We will only take that part of the increase over 2,500 into account when working out your tax credit award for the current year. We will, however, use the full amount of income when setting your award for the following year.

You should tell us immediately if you think that your income will rise by more than 2,500 in the current tax year. This will help you to avoid an overpayment of tax credits which you would have to pay back after we finalise the award at the end of the year.

Do you ever get the feeling that you're reading Alice in wonderland when you're reading that sort of stuff?

Mogga said

Oh indeed!

I'm self-employed and was entitled to working tax credit based on my income for 2001/2002 - which has no relevance or meaning to what I may or may not earn in this year.

So we duly received our tax credit payment every 4 weeks but could not actually touch it in case I got a well paid job in the latter part of the year which would mean we would have to pay it back.

Which considering it is supposed to be helping those of us on a low income isn't very, erm, helpful.

...and how are they going to deal with the end of year (April 2004) I wonder, as I don't usually do my accounts until the Jan 2005 due date.

Ho-Hum.

maybe thats the idea. that its too complicated for people to be bothered with unless they're actually employed in the same job forvever.

& what happens if you stop claiming it? Or can't you?

many thanks Andy.. err.. Pandy. I'm right louby lou'd by the truth... Hopefully it'll all come out in the wash!

Thing is ... being selfn employed... as 2002/03 showed I couldn't really even have a guess as to whther joint income may exceed 58K or not. IF the IT industry is bouyant enough to keep me in contract for the vast majority of the year then it probably will exceed 58K... if I can't find work then it won't. Unfortunately I don;t have a crystal ball, so I'm left with the choice of claiming a TC and maybe later paying it back.... or not claiming a TC and maybe later clawing it back that way!

Ho hum!

Ian is waving good-bye.... ;-)

Claim it whatever... put it in a high interest account, then at the end of the year if you've earned loads you'll probably have to pay it back (but keep the interest), if you haven't you probably get to keep it. Tell them immediately if your income goes down relative to the "reference" year, but don't tell them if it goes up (you can wait till it's sorted out at the end of the year).

It is a PITA for people on variable incomes, BUT if you understand the system it can work to your advantage. Someone earning 70k one year then 10k the next will get a *lot* more in tax credits than someone earning 40k both years. Also the

2500 disregard of increased income means after a bad year you'd still be eligible the next year if your earnings are up to 60500.

Note that pension payments and any other tax deductable/tax free payments don't count towards your income for TC purposes. Some people with a stable income can actually play the system by making pension contributions in alternating years, ie pay double contributions one year, then nothing the next, then double etc. They can get up to 96% tax relief on pension contributions doing this!

As your company is paying you a salary, why do you think you are self employed?

Robin

Because if my company doesn't find a contract which my company can use me to fulfill then my company earns stuff all and thus has stuff all to pay me a salary with.

So my salary is completely dependant on me working in a contract.

I'ts not necessarily a purely legal definition of "self employment" I used. But it is the most realistic description.

ian