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 02-05-2008 they make a new claim to Tax Credits as a couple in a new household. The effective date of claim is therefore 02-05-2008 (DOC).

Claimant 1 details are

Date of birth (DOB) is 30-04-1968 (aged 40 at DOC 02-05-2008)
Works 16 hours per week

Claimant 2

details are

DOB is 01-08-1965 (aged 42 at DOC 02-05-2008)
Works 16 hours per week

Children

are

DOB is 20-09-1991 (aged 16 at DOC 02-05-2008)

And

DOB is 08-07-2005 (aged 2 at DOC 02-05-2008)

Income

For 2007/08 tax year - £27,500

Childcare

48 weeks at £50.00 and 4 weeks holiday at £20.00 for the 2 year old only.

(48 x £50.00 = £2,400.00 and 4 x £20.00 = £80.00 Therefore £2480.00 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- 2008 to 05-04-2009

Entitlement period(s)

The eligibility rules identify that the following elements are due from 02-05-2008

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 20th September the previous year, 2007. However, because their 16th birthday was after 31st August 2007 their entitlement continues into this year, until 31st August 2008. Therefore a change in eligibility needs to be taken into account from 01-09-2008 because of the child with the DOB of 20-09-1991.

Two relevant periods will be considered in the award calculation

02-05-2008 to 31-08-2008

And

01-09-2008 to 05-04-2009

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

Entitlement period 02-05-2008 to 31-08-2008

Number of days in the period = 122

Element maximum amounts

Element	Calculation	Maximum amount
WTC – basic element 1800/365 =£4.931	Round up to £4.94 per day x122 days	£602.68	£1440.82
WTC – second adult element £1770/365 = £4.849 per day	Round up to £4.85 per day x 122 days	£591.70
WTC - 30 hour element £735/365 = £2.013 per day	Round up to £2.02 per day x 122 days	£246.44
WTC - childcare element £2480/52 = £47.692 per week	Weekly amount rounded up to nearest pound = £48.00 £48 x 52/365 x122 = £834.279	80% of £834.279 & rounded up to nearest penny	£667.43
CTC – child element £2085/365 = £5.712 per day	Round up to £5.72 per day x 122 days	£697.84 x 2 = £1395.68
CTC – family element £545/365 = £1.493 per day	Round up to £1.50 per day x 122 days	£183

Entitlement period 01-09-2008 to 05-04-2009

Number of days in period = 217

Element maximum amounts

Element	Calculation	Maximum amount
WTC – basic element £1800/365 = £4.931 per day	Round up to £4.94 per day x 217 days	£1071.98	£2562.77
WTC – second adult element £1,770/365 = £4.849 per day	Round up to £4.85 per day x 217 days	£1052.45
WTC - 30 hour element £735/365 = £2.013 per day	Round up to £2.02 per day x 217 days	£438.34
WTC - childcare element £2480/52 = £47.692 per week	Weekly amount rounded up to nearest pound = £48.00 £48 x 52/365 x 217 = 1483.923	80% of £1483.923 & rounded up	£1187.14
CTC – child element £2085/365 = £5.712 per day	Round up to £5.72 per day x 217 days x 1 child	£1241.24
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 02-05-2008 to 31-08-2008

Number of days in the period = 122

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 £6420 / 365 x 122 = £2145.863, rounded up = £2145.87.
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.

Consider if a taper calculation is required

Income £9,191.78 is greater than the initial income threshold £2145.87, therefore a taper calculation is required.

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 £2145.87 (initial income threshold) which gives £7,045.91.
Then multiply by 39% (taper rate) = £2,747.904.
The taper amount £2747.904 is higher than the maximum entitlement amount £1440.82 so all of this entitlement to WTC has been tapered away and will no longer be due. WTC = NIL

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 £9191.78 (income) minus £2145.87 (initial income threshold) = £7045.91
Then multiply by 39% (taper rate) = £2747.904
The taper amount of £2747.904 minus the max WTC elements (excluding childcare) of £1440.82 give the excess of £1307.08
The excess amount £1307.08 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.

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 £15,575. 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 £1,440.82 plus the WTC childcare amount £667.43 (£2108.25) then divided by the taper rate 0.39 = £5405.769, added to the initial income threshold £2145.87 = £7,551.643 rounded up.
Establish the minimum income threshold for the entitlement period. This is the CTC minimum income threshold of £15575.00 divided by 365 days and multiplied by the number of days in the period, 122 = £5205.890 and rounded up = £5205.90.
A comparison of the two taper figures £7551.64 and £5205.89 is made. The highest figure of £7,551.64is used as the income threshold.
Income £9191.789 is higher than the income threshold £7551.64 so a taper amount needs to be calculated.
The taper amount to be applied to this entitlement is £9191.78 (income) minus £7551.64 (income threshold) = £2145.87.
Then multiplied by 39% (taper rate) = £639.654
The taper amount £639.654 is less than the entitlement maximum amount £1395.68 so the taper amount is deducted from CTC to find the net amount due = £756.026 rounded up = £756.03 = the CTC individual element.

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.

Summary of calculation for entitlement period 02-05-08 to 31-08-08

within the award period 02-05-2008 to 05-04-2009

Entitlement period – 02-05-2008 to 31-08-2008

Entitlement	Maximum amount	Taper amount	Net amount due
WTC Work Elements	£1,440.82	£1,440.82	Nil
WTC Childcare Elements	£667.43	£667.43	Nil
CTC Individual Elements	£1,395.68	£639.654	£756.03
CTC Family Elements	£183	Nil	£183

Entitlement period 01-09- 2008 to 05-04-2009

Number of days in the period = 217

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 £6420 / 365 x 217 = £3816.821 and rounded up = £3816.83
Annual income is £27,500 therefore income for the period is £27,500 / 365 x 217 = £16349.314 and rounded down = £16349.31

Is a taper calculation required?

Income £16349.31 is greater than the initial income threshold £3816.83, therefore a taper calculation is required.

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 £16349.31 (income) minus £3816.83 (initial income threshold) = £12,532.48.
Then multiply by 39% (taper rate) = £4887.667
The taper amount £4887.667 is higher than the maximum entitlement amount £2562.77 so all of this entitlement to WTC has been tapered away and will no longer be due. WTC = NIL.

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 £3816.83 (initial income threshold) = £12,532.48
Then multiply by 39% (taper rate) = £4887.667
The taper amount of £4887.667 minus the max WTC elements (excluding childcare) of £2562.77 gives the excess of £2324.897.
The excess amount £2324.897 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.

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 £15,575.00. 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 £2562.77 plus the WTC childcare amount £1,187.14 (£3,749.91) then divided by the taper rate 0.39 = £9615.153, added to the initial income threshold £3,816.83 = £13431.983 and rounded up £13431.99.
Establish the minimum income threshold for the entitlement period. This is the CTC minimum income threshold of £15,575.00 divided by 365 days and multiplied by the number of days in the period, 217 = £9259.657 and rounded up = £9259.66.
A comparison of the two taper figures £9259.66 and £13431.99 is made. The highest figure of £13,431.99 is used as the income threshold.
Income £16,349.31 is higher than the income threshold £13,431.99 so a taper amount needs to be calculated.
The taper amount to be applied to this entitlement is £16,349.31 (income) minus £13,431.99 (income threshold) = £2917.32.
Then multiplied by 39% (taper rate) = £1137.754
The taper amount £1137.754 is less than the entitlement maximum amount £1241.241 so the taper amount is deducted from CTC to find the net amount due = £103.487 and rounded up = £103.49 = 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.

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 01-09-08 to 05-04-09 within the award period – 02-05-2008 to 05-04-2009

Entitlement period – 01-09-2008 to 05-04-2009

Entitlement	Maximum amount	Taper amount	Net amount due
WTC Work Elements	£2,562.77	£2,562.77	Nil
WTC Childcare Elements	£1,187.14	£1,187.14	Nil
CTC Individual Elements	£1,241.24	£1137.754	£103.49
CTC Family Elements	£325.50	Nil	£325.50

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

Entitlement	2/5/08 to 31/8/08	1/9/08 to 5/4/09
WTC work elements entitlement	Nil	Nil
WTC child care elements entitlement	Nil	Nil
CTC individual elements entitlements	£756.03	£103.49
CTC family element entitlement	£183.00	£325.50

The award calculation is complete.

Total award for the year

NIL (WTC)

£756.03 + £183.00 = £939.03 (CTC 122 days)

£103.49 + £325.50 = £428.99 (CTC 217 days)

Therefore total Tax Credits due for the year = £939.03 + £428.99 =£1368.02 from2/05/08 to 5/04/09

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