Income support is soon to become an adults-only benefit. This means that all the elements for children within income support (and jobseeker’s allowance) are to be withdrawn from October 2004. Existing claimants will be “migrated” onto child tax credit (CTC), leaving income support only for adults in the family.
Some existing claimants, however, would be better off switching to CTC earlier than October. This is because of the differing ways that certain types of income are treated by the Department for Work and Pensions (DWP) and the Inland Revenue. One of the key groups who could gain substantially are people on income support who are getting an adoption allowance.
Here is a recent letter I received: “A single parent receives income support (including an amount for her adopted child), carer’s allowance and adoption payments of around £102 a week from her local authority. She has already adopted the child but continues to receive payments because the child is severely disabled, getting disability living allowance (DLA) care and mobility components at the highest rates. The adoption payments are taken into account for income support, up to an amount equal to the child’s income support personal allowance and disabled child premium.
“The parent’s income, taking carer’s allowance, child benefit, adoption payment and income support into account, comes to £216.23 a week in total (plus DLA). As the child is adopted, there is no reason why the mother can’t get CTC. Is it worth her while switching to CTC before she is transferred automatically later in the year?”
Adoption payments are completely ignored as income when calculating CTC. This is because the Inland Revenue wants tax credits to be consistent wherever possible with taxation, and adoption allowances have traditionally been tax-free.
What is less well-known is that adoption allowances are also ignored when working out a parent’s income support entitlement after switching to CTC. Paragraph 51 of an internal DWP memo, DMG JSA/IS 64, makes that very clear: “As a result of the changes (to child tax credit)… adoption allowances paid for a child or young person who is a member of the family are fully disregarded.”
This would take effect from when the family switches to CTC and relinquishes that part of their income support that relates to children. In the case above, the claimant would still qualify for carer’s allowance, child benefit and the adoption payment. Also, she would get £101 CTC plus income support for herself. Her grand total of £300.70 a week is an increase of more than £80 a week. Full housing benefit and council tax benefit would also continue.
The same principle would apply to families on income support who are receiving a payment from a council because they are looking after a child on a residence order.
There may be some adoptive parents who would not be better off if they came off or reduced their income support – those who are getting help with their mortgages through income support, for example. But overall, many parents on income support who are also getting an adoption allowance could gain considerably by switching to CTC as soon as possible, simply by calling the tax credits helpline on 0845 300 3900.
Gary Vaux is head of money advice, Hertfordshire Council. He is unable to answer queries by post or telephone. If you have a question to be answered please write to him c/o Community Care.