The "WFTC" replaces Family Credit. From 5 October 1999 it aims to give working families a top-up to their pay which should be an incentive to work rather than staying at home. A working family can be either a single parent or a couple with one or more children. Children qualify up to the September after their 15th birthday, and this is extended by one year for disabled children.
A parent will receive a tax credit administered by the Inland Revenue. This differs from Family Credit where a claim had to be made at a Benefits Agency office of the DSS.
To be eligible a parent or their partner must work 16 hours or more a week, have at least one dependent child under 16 living with them, have savings not exceeding £8,000 and be resident in the UK.
The amount will be calculated by the Inland Revenue based on earnings, the number of hours worked each week, the number and ages of the children and childcare fees. A family with a full-time worker will receive take-home pay of at least £200 a week. No family will pay income tax if it has income of less than £235. Child Benefit and maintenance payments are not counted as income. The childcare tax credit element will be up to £70 a week for one child and £105 a week for two or more children.
Couples can choose who will receive the tax credit. If the couple has separated only the parent claiming the tax credit can receive the childcare tax credit element.
The tax credits will be paid by the Inland Revenue for the six months from October 1999. This will continue for the self-employed and the unemployed. Employers will become responsible for their employees from April 2000 and they will be told the amounts of tax credit by the Inland Revenue but not the details thus preserving confidentiality. Employers must provide the Inland Revenue with details of the payments at the year end and if the employee changes jobs.
The attached set of questions and answers [PALL/?????/B/01] may be of interest.
The threshold of £235 a week is the highest starting tax point for over 30 years; this will remove 500,000 Family Credit recipients from the tax net. The WFTC is more generous than the Family Credit; this will result in an additional 400,000 families benefiting where they previously did not.