Campaigners call on government to clear up child tax credit confusion - LITRG press release

The Low Incomes Tax Reform Group (LITRG) is calling on HMRC to clear up confusion over future levels of child tax credit thresholds. LITRG have conveyed these concerns in the following statement issued today:

The Summer Budget 2015 announced that the working tax credit threshold would be reduced from £6,420 to £3,850 from April 2016. The Budget was surprisingly silent about the child tax credit threshold, which has led to confusion about what will happen from April 2016. We urge HMRC to confirm publicly the CTC threshold level from April 2016.

We explained the Summer Budget tax credit changes in our article published soon after the budget. In that article we explained that the threshold for WTC will reduce from £6,420 to £3,850 from April 2016 and that consequently the CTC threshold will reduce from £16,105 to £12,125. Some commentators have presumed that because there was no announcement about the change to the CTC threshold that it will remain at £16,105 (the 2015/16 rate).

The reduction of the CTC threshold was not mentioned in any Budget documents. However, since tax credits began in 2003, the threshold has always been calculated in the same way: WTC basic element + WTC second adult element x (100/WTC taper) + WTC threshold.

Therefore, following this calculation, we expect the CTC threshold will be £12,125 from April 2016 which is significantly lower than the current level.

Why is this important?

Anyone who does not qualify for working tax credit but who has a child (or children) will have the CTC threshold used to calculate their tax credits award. If the CTC threshold remains as it is now from April 2016, a family with income of £15,000 would see no change to their child tax credit award. However if it reduces as we expect, it would mean they would lose £1,380 of child tax credit.

And it isn’t just those claiming CTC who this will affect, it would also make a difference to those claiming both WTC and CTC. For example, a married couple with two children, with one person working full time on an income of £17,900 currently receive WTC and CTC amounting to £6,178 a year. From April 2016 the amount they will receive depends in part on the CTC threshold – if it remains at £16,105 then the couple would lose tax credits of around £935 whereas if the CTC threshold falls to £12,125 then they will lose just over £2,000 – a significant difference.

Given the importance of the threshold, we urge HMRC to confirm quickly the CTC threshold level from April 2016 so that families who are already set to lose a significant amount can fully understand their tax credit position from April 2016.


Contact

Victoria Todd (please use from at https://www.litrg.org.uk/contact-us) or follow us on Twitter: @LITRGNews

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