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You only qualify for Child Tax Credit

If your income is more than £15,860, elements you qualify for are reduced in a certain order.

The child element, including any extra amounts if your child is disabled, will be reduced first - at a rate of 41 per cent. But the family element is only reduced if your income reduces the child elements to nil.

Your gross income is used - that is before tax and National Insurance are taken off.

Example

You have one child and your joint income is £20,000 per year.

You're entitled to the following tax credit 'elements':

• basic family element - £545
• child element - £2,690

This is a total of £3,235.

Your income is higher than the £15,860 limit so your entitlement is reduced as follows:

Step 1

The child element is reduced first at a rate of 41 per cent.

To work this out, take £15,860 away from your income of £20,000.

So £20,000 - £15,860 = £4,140.

Step 2

Next multiply £4,140 by 41 per cent.

So £4,140 x 41 per cent = £1,697.40.

Step 3

Next take £1,697.40 away from the child element of £2,690.

So £2,690 - £1,697.40 = £992.60.

The reduced amount of the child element that you're entitled to for the year is £992.60 or roughly £19 per week.

Step 4

If the reduced amount of child element was nil, the family element would be reduced next. However, because you're still entitled to an amount of child element, the family element stays at £545.

Total tax credits payment

The total amount of tax credits that you're entitled to for the year is:

• the reduced amount of the child element - £992.60
• plus the family element - £545

This makes a total of £1,537.60 that you can get paid for the year - or roughly £30 a week.

You only qualify for Working Tax Credit

If your income is more than £6,420, your tax credits payments will be reduced - at a rate of 41 per cent.

Your gross income is used - that is before tax and National Insurance are taken off.

Example

You're single with no children, you work 30 hours per week and you earn £9,500 per year.

You're entitled to:

• the basic element of £1,920
• the 30 hour element of £790

This is a total of £2,710.

Your income is higher than the £6,420 limit so your entitlement is reduced as follows:

Step 1

The basic element is reduced at a rate of 41 per cent.

To work this out, you first take £6,420 away from your income of £9,500.

So £9,500 - £6,420 = £3,080.

Step 2

Next multiply £3,080 by 41 per cent.

So £3,080 x 41 per cent = £1,262.80.

Step 3

Next take £1,262.80 away from total of the tax credits you're entitled to - £2,710.

So £2,710 - £1,262.80 = £1,447.20.

Total tax credits payment

The total amount of Working Tax Credit you're entitled to for the year is £1,447.20 - or roughly £28 a week.

You qualify for both Child Tax Credit and Working Tax Credit

Your tax credit payments are reduced if your income is over £6,420 - at a rate of 41 per cent.

Your gross income is used - that is before tax and National Insurance are taken off.

Example

You’re married, have a child, you work 37 hours a week and have an income of £18,000 per year.

The most tax credits you can get will be:

• Working Tax Credit basic element - £1,920
• Working Tax Credit couple element - £1,950
• Working Tax Credit 30 hour element - £790
• Child Tax Credit family element - £545
• Child Tax Credit child element - £2,690

This gives a total of £7,895.

Your income is higher than the £6,420 limit so your award is worked out as follows:

Step 1

First take away £6,420 from your income of £18,000.

So £18,000 - £6,420 = £11,580

Step 2

Next, multiply £11,580 by 41 per cent.

So £11,580 x 41 per cent = £4,747.80.

Step 3

Next, take away £4,747.80 from your tax credits of £7,895.

So £7,895 - £4,747.80 = £3,147.20.

Total tax credits payment

The total amount of tax credit payments you're entitled to for the year is £3,147.20 - or roughly £61 a week.

More useful links

• For intermediaries - Tax Credits Manual chapter on calculating an award Opens new window

Useful contacts

• Tax Credit Helpline - contact details