Tax Credits and Universal Credit provide state support to people with children and workers on low incomes. The credits are paid to those who claim them, and are not an adjustment in the tax computation.
Working Tax Credit (WTC) is paid to workers on low incomes. The full entitlement is given for an income of only £6,420, and it is tapered away as a couple’s joint income increases above that.
Child Tax Credit (CTC) is paid to the main carer for children up to 16 years old, or up to 18 in full-time education. Entitlement is built up of elements for each child (£2,780), and for the family (£545). CTC is tapered away at 41p for every £1 by which the couple’s combined income exceeds £16,105.
Tax Credit awards are made provisionally for the coming year based on a previous year’s income (2014/15 for 2015/16 claims), and may be revised up or down after the tax year-end if income has changed significantly. However, increases in income will be disregarded if they are up to £5,000.
Tax Credits claimants are gradually being transferred to Universal Credit, which also covers housing benefit. Universal Credit awards can be adjusted monthly based on the claimant’s income as reported under RTI.
Child Benefit is completely separate from and paid in addition to CTC. A family claims child benefit once per child irrespective of income. However, for high income families, the child benefit is clawed back at the rate of 1% for every £100 of the highest earner’s adjusted net income over £50,000. Where adjusted net income exceeds £60,000 for the tax year, 100% of the child benefit is clawed back through the tax system. The family may elect not to receive child benefit to avoid this tax charge.
The Tax and Universal Credits systems are very complicated. The GOV.UK website has further information: https://www.gov.uk/browse/benefits