This example shows how tax credits are worked out if you qualify for both Working Tax Credit and Child Tax Credit for part of a year, or if your circumstances change. It's based on the tax credits rates and income limits up to 5 April 2012. It will be updated on 6 April 2012.
On this page:
For the purpose of this example, these are your circumstances:
You're entitled to tax credits for the period from 2 May 2011 to 31 August 2011 - a total of 122 days.
Your joint annual income is £27,500. The annual limit before your tax credits are reduced is £6,420. Because you're not entitled to tax credits for a full year, both these figures are worked out over the shorter period on a 'pro rata' basis.
The income limit is worked out on a pro rata basis for the 122 days as follows:
£6,420 ÷ 366 x 122 = £2,140.
This gives a pro-rata income limit of £2,140.
Your income for the 122 day period is also worked out on a pro rata basis as follows:
£27,500 ÷ 366 x 122 = £9,166.67.
As this is more than the income limit for the period, your tax credits payments will be reduced.
The next step is to work out how much tax credits you’re entitled to.
If you were entitled to tax credits for a whole year, the most you would get would be made up of:
As you’re only entitled to tax credits for 122 days, each amount is reduced. For all elements, except the childcare element, this is worked out as follows:
The Working Tax Credit childcare element is worked out differently, as follows:
The most tax credits you can get for the 122 day period is:
| Element | Daily rate | The most you can get |
|---|---|---|
| Working Tax Credit basic element | £5.25 | £640.50 |
| Working Tax Credit couples element | £5.33 | £650.26 |
| Working Tax Credit 30 hour element | £2.16 | £263.52 |
| Working Tax Credit childcare element | - | £582.40 |
| Child Tax Credit child element (the amount shown is for two children) |
£13.97 | £1,704.34 |
| Child Tax Credit family element | £1.49 | £181.78 |
| Total | £4,022.80 |
If your income is over the pro-rata limit, the elements you qualify for are reduced in a certain order.
The Working Tax Credit elements, apart from childcare, are reduced first.
In this example, the Working Tax Credit elements you'd be entitled to are:
This makes a total of £1,554.28 that you'd be entitled to.
The basic, couples and 30 hours elements are added together and reduced as follows:
| Steps involved | Amount (£) |
|---|---|
| Income for the period | 9,166.67 |
| Less income limit for the period | -2,140 |
| Income above the income limit | 7,026.67 |
| Multiply by 41 per cent (the rate at which Working Tax Credit elements - apart from the childcare element - is reduced) | 2,880.93 |
| Reduced amount of basic, couples and 30 hours elements | 2,880.93 |
The reduced amount of £2,880.93 is higher than the £1,554.28 you'd be entitled to.
This means you won't get the basic element, second adult element or 30 hour element.
The Working Tax Credit childcare element is reduced second. The most you'd be entitled to is £582.40 (as worked out in step 2).
The amount of Working Tax Credit childcare element is worked out as follows:
| Steps involved | Amount (£) |
|---|---|
| Income for the period | 9,166.67 |
| Less income limit for the period | -2,140 |
| Income above the income limit | 7,026.67 |
| Multiplied by 41 per cent (the rate at which the Working Tax Credit childcare element is reduced) | 2,880.93 |
| Less Working Tax Credit entitlement apart from the childcare element | 1,554.28 |
| The difference | 1,326.65 |
The difference of £1,326.65 is higher than the £582.40 you'd be entitled to.
This means you won't get the Working Tax Credit childcare element.
The Child Tax Credit child elements are reduced third.
In this example, the Child Tax Credit family element isn't reduced because your annual income is less than £40,000.
Because all the Working Tax Credit has been reduced to nil, the income limit of £2,140 worked out in step 1 is no longer used. So a new income limit is used. This is the higher of:
The Child Tax Credit income limit is worked out as follows:
£15,860 ÷ 366 x 122 = £5,286.67
The amount used to reduce the Working Tax Credit elements to nil is worked out as follows:
| Steps involved | Amount (£) |
|---|---|
| Working Tax Credit work elements | 1,554.28 |
| Plus Working Tax Credit childcare element | 582.40 |
| Total 2,136.68 | |
| Divide by 41 per cent | 5,211.41 |
| Plus Working Tax Credit income limit | 2,140 |
| Total | 7,351.41 |
Because £7,351.41 is higher than your Child Tax Credit income limit (£5,286.67), the income limit of £7,351.41 is used.
Using the new income limit of £7,351.41, the child elements are reduced as follows:
| Steps involved | Amount (£) |
|---|---|
| Income for the period | 9,166.67 |
| Less new income limit for the period | 7,351.41 |
| Income above income limit | 1,815.26 |
| Multiply by 41 per cent | 744.26 |
| Child Tax Credit child element you're entitled to (as worked out in step 2) | 1,704.34 |
| Less reduced amount | 744.26 |
| Amount of Child Tax Credit child element due | 960.08 |
You’re due:
This is a total of £1,141.86.
| The elements you're entitled to | The most you're entitled to | Reduced amount you're entitled to | Net amount due |
|---|---|---|---|
| Working Tax Credit work elements
|
£1,554.28 | £2,880.93 | Nil |
| Working Tax Credit childcare elements
|
£582.40 | £1,326.65 | Nil |
| Child Tax Credit child elements
|
£1,704.34 | £744.26 | £960.08 |
| Child Tax Credit family element
|
£181.78 | Nil | £181.78 |
| Total payment due | - | - | £1,141.86 |
If you need more help you can call the Tax Credit Helpline.
Contact details for the Tax Credit Helpline
For intermediaries - Tax Credits Manual chapter on calculating an award
