From April two new tax credits will be introduced as part of the Government's drive to streamline the tax and benefit system and ensure support is available to families with children in recognition of the costs and responsibilities involved in parenthood.
Child Tax Credit and Working Tax Credit, which were outlined by Chancellor Gordon Brown in last year's Budget, come into effect at the beginning of the new tax year and supersede Working Families Tax Credit, Children's Tax Credit and Disabled Person's Tax Credit.
The help currently given to parents to cover up to 70 per cent of childcare costs with an approved provider continues under the new childcare element of the Working Tax Credit but the existing rates have been increased.
Parents will now be able to claim weekly credits of up to 94.50 towards childcare for one child and up to 140 for two or more children.
In a new departure the childcare element and the Child Tax Credit will be paid directly to the main carer, usually the mother. In a speech in January, Mr Brown said, 'April's new tax credits are the biggest financial boost for mothers since the introduction of Child Benefit, and evidence shows that money paid direct to mothers is more likely to be spent on the child, than if it goes to fathers. Up to 2bn will be transferred from dads, to mums - for their children.'
Parents claiming the existing tax credits should automatically receive application forms for the new credits. To ensure no-one misses out the Inland Revenue, which will administer the tax credits, has posted details of how to apply on its website and has set up a help line (see opposite).
Child Tax Credit will combine the current benefits and tax credits for families into a single system which will aid all families with an income of up to Pounds 58,000 a year. It will be paid in addition to Child Benefit and any Working Tax Credit to which a family might be entitled. The amounts that parents will be able to claim depend upon their circumstances. For instance, there will be extra money in the year following a child's birth or for families with a disabled child. Overall, the level of support will taper as a family's income rises.
According to Government estimates, Child Tax Credit will provide 13bn of support and assist nearly 5.75 million families. Announcing the rates and thresholds for the new tax credits for 2003/2004, the paymaster general, Dawn Primarolo, said, 'The Child Tax Credit and Working Tax Credit modernise the existing tax credit system to improve support for children whether or not their parents are in jobs and to make work pay. We are determined to build a tax system fit for the 21st century and these new credits mark a radical step forward in our tax and benefit reforms.'
She explained that for the first child, universal Child Benefit and the Child Tax Credit will provide 54.25 a week to all families with incomes less than 13,000, while all families with incomes less than 50,000 are guaranteed 26.50 a week.
For families with two children, Child Tax Credit and Child Benefit will work together to provide at least 26.80 a week in support guaranteed for all families, and 92.75 a week in support guaranteed for families with an income of less than 13,000 a year.
The Working Tax Credit will top up the wages of low-paid workers, including those who do not have children. There are extra amounts for working households in which someone has a disability.
One of the major features of the re-organisation is that from now on there will be a single claim form covering both types of credits, and awards will run for up to 12 months rather than having to be renewed every six months as occurred with WFTC.