In June, the new coalition government announced a series of changes to the tax credits system. These included an increase in the “taper rate”, that is the rate at which the tax credit will disappear over certain income thresholds, a reduction in the threshold for receiving the family element of tax credits, and an increase in the child element of Child Tax Credit.

The income disregard has also been changed. Whereas under current rules your income would have to change by £25,000 for your claim to be altered, from April 2011 this will come down to £10,000, and then down to £5,000 from April 2013. So if your income increases by just £5,000 in 2013, your entitlement will immediately be adjusted. Also, if your income falls, it will have to fall by more than £2,500 under the previous year before your claim will be adjusted.

They have also changed the period in which you may backdate your claim, so that from April 2010 you will only be able to backdate your claim by one month. This makes it even more important that you put in a pre-emptive claim as soon as you think you might be eligible for tax credits. If you leave it too late, they will only backdate your claim by one month from April 2012.

Other changes include removing the additional £545 we used to get for having a child under the age of 1 (from April 2011) and scrapping the previous government plans to increase the amount of CTC where we have children under the age of 3 (which was to go ahead in April 2012).

Previously if your income as a family was £58.000 you could expect some amount of child tax credits due to the threshold for claims being £50,000. However, this threshold is being reduced to £40,000 from April 2011, and then it will be removed completely in April 2012 which means that the point at which the family element tapers away is immediate.

So what might this mean for you? Well, if you are a family of 2 adults earning £25k per annum and with no childcare costs, with one child your claim will be £545 for 2010-11 and 2011-12, but from April 2012 it will drop to just over £30 per annum due to the heavy tapering away of the family element of the child tax credit.

If you would like any advice in this area or any other areas of accounting or tax, please contact me on 01767 260282 or amy@tayloraccountancy.net, www.tayloraccountancy.net

Amy Taylor Accountancy takes every care in preparing material to ensure that the content is accurate and up to date. However no responsibility for loss to any person acting or refraining from acting as a result of this material can be accepted by Amy Taylor Accountancy. You should always ask your accountant to give you specific advice which is tailored to your personal and business circumstances and properly implemented.

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