Bateman explains why the children’s tax credit is good news for
families with children, and why it is important for social workers
to understand how the taxation and benefits systems interact.
What is the children’s tax credit?
It is not very often that welfare rights advice involves the tax
system. But the combination of increased levels of employment and
government moves to join up the tax and benefits systems mean that
we now have to look at it from time to time.
Ultimately, one cannot divorce taxation policy from benefits
policy and in an era where welfare to work is a key policy theme,
we must expect to devote more attention to tax issues.
The children’s tax credit (CTC) has now replaced the married
couples tax allowance and additional personal allowance which was
scrapped in 2000. The aim of the CTC is to target tax relief on
families (including lone parent families) who have children,
particularly those on low and modest incomes, rather than favouring
better-off married couples without children, which the old married
couples allowance tended to do. As a measure to address in-work
poverty, the CTC is therefore a positive move which will reduce tax
bills for most families with children by up to £520 a year,
and which complements other measures taken by the government to
“make work pay”.
The CTC is not a higher tax allowance (ie amount of income
earnable tax free) but is an actual reduction in tax payments.
The words “tax credit” are causing some confusion with people
thinking the CTC is the same as the working families tax credit
(which is effectively a social security benefit administered by the
Doubtless some people receiving the latter will not have filled
in the claim forms from the Inland Revenue, as they mistakenly
believed they were already receiving a “tax credit”. It is, of
course, possible to receive both, and although working families tax
credit is reduced by a rise in income, as it tapers away at 55 per
cent of additional income, people will be better off claiming both.
It is estimated that over a million people have not claimed the CTC
they are entitled to.
The CTC is payable if a taxpayer has a child aged under 16
living with them at the start of the tax year (6 April 2001). It
can also be shared between adults where a child spends part of
their time with another person. This can be apportioned by
agreement or the Inland Revenue can make a decision in cases of
This is in marked contrast to the benefits system where sharing
of benefits in shared care situations is just not possible and the
benefits system has still to catch up with the principles behind
the Children Act 1989. The inability to share benefits is a common
cause of friction between separated couples.
Another distinctive feature of the CTC is how it is awarded.
Only one CTC per married/cohabiting couple can be awarded, which in
a way mirrors the old married couples allowance but does not sit
perfectly with a purist view of independent taxation. In social
justice terms, it is right that this purism is challenged. This is
because higher rate tax payers will see their CTC reduced on a
tapering basis depending on how high their income is. This also
applies to couples where one is a higher rate tax payer – they
cannot transfer the CTC to the lower tax payer to reduce their tax
Finally, as well as checking for CTC, do check that people have
actually filled in a tax return. Many people fail to and end up
paying a lot more tax as a result – especially people entering the
casual labour market or after a long period of worklessness. Look
out for the letters “BR” in the tax code section of their
Further details about CTC from the children’s tax credit
helpline: 0845 300 1036.
Neil Bateman manages Suffolk Council and Suffolk Health
Authority’s welfare rights service. He is unable to answer queries
by post or by telephone. If you have a question to be answered in
Welfare Rights please write to him c/o Community