Changes to Tax Credits

As of 6 April 2011, the following changes have been made to tax credits:

Working Tax Credit (WTC) and Child Tax Credit (CTC)
These have been largely uprated in line with inflation. The basic and 30-hour elements of WTC will then be frozen for three years;

CTC
The child element is increased above inflation – to £2,555 per year. The baby element, which currently is £545 per year, is withdrawn;

Income Disregard
In a move that will hit many CTC recipients, the income disregard is reduced from £25,000 to £10,000. This will reduce to £5,000 in 2013. The upper income limit is being reduced from £50,000 to £40,000 from April 2011; and

Withdrawal Rate
The ‘withdrawal rate’ for all tax credits for those exceeding the income limits is being increased to 41 per cent: this is a huge jump for CTC, for which the withdrawal rate is currently 6.67 per cent.

Other changes have been announced for future years, the broad effect of which will be to reduce tax credit entitlement.