This article relates to the UK tax system and more specifically the Child and Working Tax Credits and the anticipated changes to the system.

The UK system of Child and Working Tax Credits is due to be reformed over the next few years, and it is expected a new benefit called Universal Credit will replace the familiar Tax Credits from April 2014. After much criticism many people will be hoping that it it easier to understand than the current complex system.

In line with the current UK government’s spending cuts, as anticipated before then there will be some significant cuts in the benefits paid to many tax credit claimants, phased in over the next three years. The following summarises the rates and thresholds that will be cut or frozen in 2011/12 compared to 2010/11.

Changes to Child Tax Credit

Family element: no change at £545
Baby element: decrease from £545 to nil

First income threshold: decrease from £16,190 to £15,860
Second income threshold: decrease from £50,000 to £40,000

Changes to Working Tax Credit

The Childcare element changes:
Maximum costs for one child: no change at £175 per week
Maximum cost for all children: no change at £300 per week
Percentage of costs covered: decrease from 80% to 70%
First income threshold: no change at £6,420
First withdrawal rate: increase from 39% to 41%
Income disregard: decrease from £25,000 to £10,000

The income disregard provides a buffer for changes in income, so overpayments of tax credits do not arise where income varies within this threshold year on year. The reduction in this threshold is likely to adversely affect families with fluctuating incomes, such as the self-employed. In the future, in order to avoid a claw-back of tax credits, the claimant will need to finalise their self-employed profit figures as close to the tax year end as possible. This can be difficult for busy self-employed people and to many one of the draw backs of the current system of tax credits.

For specific UK taxation advice it is recommended that you contact a firm of Chartered Accountants such as Bridgend Accountants or alternatively for tax credit advice contact the HM Revenue and Customs (HMRC) helpline.

For many helpful UK tax tips and business information visit the Pontypridd Accountants website.

The author does not guarantee the accuracy of any of the information provided in this article and recommends that you do not take any action, whatsoever, based on the information provided. By the fullest extent permitted by law, the author does not accept any responsibility for any actions you may or may not take based on information contained in this article. This article contains general information and is not a substitute for specific independent professional advice. In addition it is emphasised that much of the information provided in this article is time sensitive and information contained within it may be out of date.

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