Independent Taxation Manual - IN1310

Children's Tax Credit (CTC): Frequently Asked Questions (FAQ)

SECTION 257AA ICTA 1988 AND SCHEDULE 13B ICTA 1988

In the year 2000 Network Offices were issued with a list of questions and answers that might arise on the introduction of Children's Tax Credit (CTC). This was Section 2 of a document headed `MCA/CTC - FREQUENTLY ASKED QUESTIONS`. The questions and answers that remain relevant to CTC are reproduced here.

WHAT IS THE CHILDREN'S TAX CREDIT?

The Children's Tax Credit is a new income tax credit available from 6 April 2001*. It replaces the married couple's allowance/additional personal allowance. But it will specifically target support for people with children.
* Children's Tax Credit ended in 2002-03, see In1300a.

WHO CAN CLAIM THE CHILDREN'S TAX CREDIT?

Children's Tax Credit can be claimed by married couples, couples living together and single parents who have one or more children under the age of 16 living with them for all or part of a tax year.

I HAVE A CHILD WHO IS OVER 16 AND I HAVE PREVIOUSLY BEEN ABLE TO CLAIM AN ALLOWANCE (ADDITIONAL PERSONAL ALLOWANCE) FOR HIM/HER, WHY DON'T I GET THIS NEW ALLOWANCE?

The Children's Tax Credit has been introduced to give more help to families with younger children. The Government therefore decided to target the credit on families with children aged under 16.

I HAVE MORE THAN ONE CHILD UNDER THE AGE OF 16 LIVING WITH ME, DO I GET MORE THAN ONE CREDIT?

No, there is only one tax credit available per household.

WILL THE WORKING FAMILY TAX CREDIT (OR CHILDCARE ELEMENT OF THE WFTC) I RECEIVE BE AFFECTED BY THIS NEW CHILDREN'S TAX CREDIT?

Any Children's Tax Credit you are entitled to will be given in addition to your Working Family Tax Credit (WFTC). Because it affects your after tax income, you may find that your WFTC entitlement changes next time it is assessed.

WHY MUST THE CHILDREN'S TAX CREDIT BE CLAIMED BY THE HIGHER EARNER?

The rules allow couples where neither partner pays higher rate tax to decide how to allocate the credit between them. But we need a rule that allows us to decide who, in a couple, initially claims the credit to help us ensure that couples only get one credit per family, like single claimants. There are two reasons why that rule says the initial claim is made by the partner with the higher income

• first, where there is a higher rate taxpayer in a couple, the rule ensures that they do not avoid the withdrawal of the credit

• second, it means that for couples where one of the partners does not have enough income to use the credit, and they decide not to share it, it goes to the partner who can make most use of it.

WILL MY ENTITLEMENT TO CHILD BENEFIT BE AFFECTED BY THIS NEW CHILDREN'S TAX CREDIT?

No. Child Benefit is not affected by the introduction of this new tax credit.