TCTM07APPX2 - Calculation of entitlement: A Worked Example

Worked example

Case Details

Two single parents had been claiming tax credits in their own right, each with one child. From 02-05-2009 they make a new claim to tax credits as a couple in a new household. The effective date of claim is therefore 02-05-2009 (DOC).

Claimant 1 details are

  • Date of birth (DOB) is 30-04-1968 (aged 41 at DOC 02-05-2009)
  • Works 16 hours per week

Claimant 2 details are

  • DOB is 01-08-1965 (aged 43 at DOC 02-05-2009)
  • Works 16 hours per week

Children are

  • DOB is 20-09-1992 (aged 16 at DOC 02-05-2009)

And

  • DOB is 08-07-2005 (aged 3 at DOC 02-05-2008)

Income is

  • For 2008/09 tax year - £27,500

Childcare is

  • 48 weeks at £50.00 and 4 weeks holiday at £20.00 for the 3 year old only.
(48 x £50.00 = £2,400.00 and 4 x £20.00 = £80.00, therefore £2,480.00 for the year)

Note: The claim has been found to satisfy both the Working Tax Credit (WTC) and Child Tax Credit (CTC) eligibility rules and an award calculation is required.

Step 1 - Establishing the award and relevant period(s)

The award period will be from the effective date to the end of the tax year, which is

02-05-2009 to 05-04-2010

Entitlement period(s)

The eligibility rules identify that the following elements are due from 02-05-2009

  • WTC - basic element
  • WTC - second adult element
  • WTC - 30 hour element
  • WTC - childcare element
  • CTC - child element for two children
  • CTC - basic family element

For an initial award, eligibility to the CTC child element is assumed to end on the 31st of August on or following the child’s 16th birthday. The eldest child was 16 on 20t h September the previous year, 2008. However, because their 16t h birthday was after 31s t August 2008 their entitlement continues into this year, until 31s t August 2009. Therefore a change in eligibility needs to be taken into account from 01-09-2009 because of the child with the DOB of 20-09-1992.

Two relevant periods will be considered in the award calculation

  • 02-05-2009 to 31-08-2009
And
  • 01-09-2009 to 05-04-2010

Step 2 - Calculating the maximum tax credit entitlement for each entitlement period

Entitlement period 02-05-2009 to 31-08-2009

Number of days in the period = 122

Element maximum amounts

Entitlement period 02-05-2009 to 31-08-2009
Element Calculation Maximum amount
WTC – basic element
£1,890/365 =£5.178		 Round up to £5.18 per day x 122 days £631.96 £1,514.02
WTC – second adult element
£1,860/365 = £5.095 per day		 Round up to £5.10 per day x 122 days £622.20
WTC - 30 hour element
£775/365 = £2.123 per day		 Round up to £2.13 per day x 122 days £259.86
WTC - childcare element
£2,480/52 = £47.692 per week

Weekly amount rounded up to nearest pound = £48.00

£48 x 52/365 x 122 = £834.279

 80% of £834.279 & rounded up to nearest penny £667.43
CTC – child element
£2,235/365 = £6.123 per day		 Round up to £6.13 per day x 122 days £747.86 x 2 = £1,495.72
CTC – family element
£545/365 = £1.493 per day		 Round up to £1.50 per day x 122 days £183

Entitlement period 01-09-2009 to 05-04-2010

Number of days in period = 217

Element maximum amounts

Entitlement period 01-09-2009 to 05-04-2010
Element Calculation Maximum amount
WTC – basic element
£1,890/365 = £5.178 per day		 Round up to £5.18 per day x 217 days £1,124.06 £2,692.97
WTC – second adult element
£1,860/365 = £5.095 per day		 Round up to £5.10 per day x 217 days £1,106.70
WTC - 30 hour element
£775/365 = £2.123 per day		 Round up to £2.13 per day x 217 days £462.21
WTC - childcare element
£2,480/52 = £47.692 per week

Weekly amount rounded up to nearest pound = £48.00

£48 x 52/365 x 217 = £1,483.923

 80% of £1,483.923 & rounded up £1,187.14
CTC – child element
£2,235/365 = £6.123 per day		 Round up to £6.13 per day x 217 days x 1 child £1,330.21
CTC – family element
£545/365 = £1.493 per day		 Round up to £1.50 per day x 217 days £325.50

Step 3 - Applying Taper If Income Involved

Entitlement period 02-05-2009 to 31-08-2009

Number of days in the period = 122

  1. Establish the income and the initial income threshold amounts for the relevant periods
    • WTC is included in the award for the period, therefore the initial income threshold is £6,420 / 365 x 122 = £2,145.863, rounded up = £2,145.87.
    • Annual income is £27,500, therefore income for the period is £27,500 / 365 x 122 = £9,191.780 and rounded down = £9,191.78.
  1. Consider if a taper calculation is required
    • Income £9,191.78 is greater than the initial income threshold of £2,145.87, therefore a taper calculation is required.
  1. Taper the first entitlement
    • The entitlement, in the award for the period, which appears highest in the required taper order, is the WTC work elements entitlement.
    • The taper amount to be applied to this entitlement is £9,191.78 (income) minus £2,145.87 (initial income threshold) which gives £7,045.91.
    • Then multiply by 39% (taper rate) = £2,747.904.
    • The taper amount £2,747.904 is higher than the maximum entitlement amount £1,514.02 so all of this entitlement to WTC has been tapered away and will no longer be due. WTC = NIL
  1. Taper the second entitlement
    • The entitlement in the award for the period, which appears next highest in the required taper order is the WTC childcare element entitlement.
    • As the working elements of WTC have been reduced to nil, the childcare element of WTC is worked out as follows.
    • The taper amount to be applied to this entitlement is £9,191.78 (income) minus £2,145.87 (initial income threshold) = £7,045.91
    • Then multiply by 39% (taper rate) = £2,747.904
    • The taper amount of £2,747.904 minus the max WTC elements (excluding childcare) of £1,514.02 give the excess of £1,233.88
    • The excess amount £1,233.88 is higher than the maximum childcare element £667.43 so all of this entitlement to WTC childcare has been tapered away and will no longer be due. WTC childcare = NIL.
  1. Taper the third entitlement
    • The entitlement, in the award for the period, which appears next highest in the required taper order is the CTC individual elements entitlement.
    • As the WTC childcare elements have been reduced to nil, the CTC individual elements are worked out as follows
    • CTC individual elements have a minimum income threshold of £16,040. This threshold is compared with the amount used to taper the previous WTC work elements and WTC childcare elements to nil. Comparison of the two resulting tapers provides the highest figure, which is used in calculating entitlement to the individual elements of CTC.
    • Establish the amount used to taper the previous elements to nil. This is the WTC work elements of £1,514.02 plus the WTC childcare amount £667.43 (£2,181.45) then divided by the taper rate 0.39 = £5,593.461, added to the initial income threshold £2,145.87 = £7,739.34 rounded up.
    • Establish the minimum income threshold for the entitlement period. This is the CTC minimum income threshold of £16,040 divided by 365 days and multiplied by the number of days in the period, 122 = £5,361.315 and rounded up = £5,361.32.
    • A comparison of the two taper figures £7,739.34 and £5,361.32 is made. The highest figure of £7,739.34 is used as the income threshold.
    • Income of £9,191.789 is higher than the income threshold of £7,739.34 so a taper amount needs to be calculated.
    • The taper amount to be applied to this entitlement is £9,191.78 (income) minus £7,739.34 (income threshold) = £1452.44.
    • Then multiplied by 39% (taper rate) = £566.451
    • The taper amount of £566.451 is less than the entitlement maximum amount £1,495.72 so the taper amount is deducted from CTC to find the net amount due = £929.269 rounded up = £929.27 = the CTC individual element.
  1. Taper the fourth entitlement
    • The amount of the only other entitlement, CTC family element is not tapered because the combined family income is less than £50,000 (£16,712.32 pro rata for 122 days).The CTC family element of £183, will therefore be due in full.
  1. Summary of calculation for entitlement period 02-05-09 to 31-08-09

within the award period 02-05-2009 to 05-04-2010

Entitlement period - 02-05-2009 to 31-08-2009
Entitlement Maximum amount Taper amount Net amount due

WTC Work Elements

£1,514.02

£1,514.02

Nil

WTC Childcare Elements

£667.43

£667.43

Nil

CTC Individual Elements

£1,495.72

£566.451

£929.27

CTC Family Elements

£183

Nil

£183

Entitlement period 01-09-2009 to 05-04-2010

Number of days in the period = 217

  1. Establish the income and the initial income threshold amounts for the relevant periods.
    • WTC is included in the award for the period, therefore the initial income threshold is £6,420 / 365 x 217 = £3,816.821 and rounded up = £3,816.83
    • Annual income is £27,500 therefore income for the period is £27,500 / 365 x 217 = £16,349.314 and rounded down = £16,349.31
  1. Is a taper calculation required?
    • Income £16,349.31 is greater than the initial income threshold £3,816.83, therefore a taper calculation is required.
  1. Taper the first entitlement.
    • The entitlement, in the award for the period, which appears highest in the required taper order is the WTC work elements entitlement.
    • The taper amount to be applied to this entitlement is £16,349.31 (income) minus £3,816.83 (initial income threshold) = £12,532.48.
    • Then multiply by 39% (taper rate) = £4,887.667
    • The taper amount £4,887.667 is higher than the maximum entitlement amount £2,692.97 so all of this entitlement to WTC has been tapered away and will no longer be due. WTC = NIL.
  1. Taper the second entitlement
    • The entitlement in the award for the period, which appears next highest in the required taper order is the WTC childcare element entitlement.
    • As the working elements of WTC have been reduced to nil, the childcare element of WTC is worked out as follows.
    • The taper amount to be applied to this entitlement is £16,349.31 (income) minus £3,816.83 (initial income threshold) = £12,532.48
    • Then multiply by 39% (taper rate) = £4,887.667
    • The taper amount of £4,887.667 minus the max WTC elements (excluding childcare) of £2,692.97 gives the excess of £2,194.697.
    • The excess amount £2,194.697 is higher than the maximum childcare element £1,187.14 so all of this entitlement to WTC childcare has been tapered away and will no longer be due. WTC childcare = NIL.
  1. Taper the third entitlement
    • The entitlement, in the award for the period, which appears next highest in the required taper order is the CTC individual elements entitlement.
    • As the childcare elements have been reduced to nil, the CTC individual elements are worked out as follows
    • CTC individual elements have a minimum income threshold of £16,040.00. This threshold is compared with the amount used to taper the previous WTC work elements and WTC childcare elements to nil. Comparison of the two resulting tapers provides the highest figure, which is used in calculating entitlement to the individual elements of CTC.
    • Establish the amount used to taper the previous elements to nil. This is the WTC work elements of £2,692.97 plus the WTC childcare amount £1,187.14 (£3,880.11) then divided by the taper rate 0.39 = £9,949.00, added to the initial income threshold £3,816.83 = £13,765.83 (rounded up).
    • Establish the minimum income threshold for the entitlement period. This is the CTC minimum income threshold of £16,040.00 divided by 365 days and multiplied by the number of days in the period, 217 = £9,536.109 and rounded up = £9,536.11.
    • A comparison of the two taper figures £9,536.11 and £13,765.83 is made. The highest figure of £13,765.83 is used as the income threshold.
    • Income of £16,349.31 is higher than the income threshold £13,765.83 so a taper amount needs to be calculated.
    • The taper amount to be applied to this entitlement is £16,349.31 (income) minus £13,765.83 (income threshold) = £2,583.48.
    • Then multiplied by 39% (taper rate) = £1,007.557
    • The taper amount £1,007.557 is less than the entitlement maximum amount £1,330.21 so the taper amount is deducted from CTC to find the net amount due = £312.653 and rounded up = £312.66 = the CTC individual element.

Note: The rate of CTC individual elements entitlement is lower in the second entitlement period in response to the loss of the child element for the 16 year old child who did not go on to meet the conditions for qualifying young person element.

  1. Taper the fourth entitlement
    • The amount of the only other entitlement, CTC family element is not tapered because the combined family income is less than £50,000 (£29,726.02 pro rata for 217 days).The CTC family element of £325.50, will therefore be due in full.

Summary of calculation for entitlement period 01-09-09 to 05-04-10 within the award period - 02-05-2009 to 05-04-2010

Entitlement period - 01-09-2009 to 05-04-2010
Entitlement Maximum amount Taper amount Net amount due

WTC Work Elements

£2,692.97

£2,692.97

Nil

WTC Childcare Elements

£1,187.14

£1,187.14

Nil

CTC Individual Elements

£1,330.21

£1,007.557

£322.66

CTC Family Elements

£325.50

Nil

£325.50

Step 4 - Summary for the total tax credit due for each entitlement period

Entitlement

2/5/09 to 31/8/09

1/9/09 to 5/4/10

WTC work elements entitlement

Nil

Nil

WTC child care elements entitlement

Nil

Nil

CTC individual elements entitlements

£929.27

£322.66

CTC family element entitlement

£183.00

£325.50


The award calculation is complete.

Top of page

Total award for the year

NIL (WTC)

£929.27 + £183.00 = £1,112.27 (CTC 122 days)

£322.66 + £325.50 = £648.16 (CTC 217 days)

Therefore total Tax Credits due for the year = £1,112.27 + £648.16 =£1,760.43 from 2/05/09 to 5/04/10


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