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 02-05-2018 they make a new claim to tax credits as a couple in a new household. The effective date of claim is therefore 02-05-2018 (DOC).

Claimant 1 details are

  • Date of birth (DOB) is 30-04-1972 (aged 46 at DOC 02-05-2018)

  • Works 16 hours per week

Claimant 2 details are

  • DOB is 01-08-1969 (aged 48 at DOC 02-05-2018)
  • Works 16 hours per week

Children are

  • DOB is 20-09-2001 (aged 16 at DOC 02-05-2018)

And

  • DOB is 08-07-2014 (aged 3 at DOC 02-05-2018)

Income is

  • For 2017/18 tax year - 拢27,500.00

Childcare is

  • 48 weeks at 拢50.00 and 4 weeks holiday at 拢20.00 for the 3 year old only.

(48 x 拢50.00 = 拢2,400.00 and 4 x 拢20.00 = 拢80.00, therefore 拢2,480.00 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 02-05-2018 to 05-04-2019

Entitlement period(s)

The eligibility rules identify that the following elements are due from 02-05-2018

  • 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鈥檚 16th birthday. The eldest child was 16 on the 20th September the previous year, 2017. However, because their 16th birthday was after the 31st August 2017 their entitlement continues into this year, until the 31st August 2018. Therefore a change in eligibility needs to be taken into account from 01-09-2018 because of the child with the DOB of 20-09-2001.

Two relevant periods will be considered in the award calculation

  • 02-05-2018 to 31-08-2018

and

  • 01-09-2018 to 05-04-2019

Step 2 鈥� Calculating the maximum tax credit entitlement for each entitlement period

Entitlement period 02-05-2018 to 31-08-2018

Number of days in the period = 122

Element maximum amounts:-

Element Calculation Maximum amount Award when elements combined
WTC - basic element 拢1,960/365 = 拢5.369 per day Round up to 拢5.37 per day x 122 days 拢655.14 拢1,598.20
WTC - second adult element 拢2,010/365 = 拢5.506 per day Round up to 拢5.51 per day x 122 days 拢672.22 拢1,598.20
WTC - 30 hour element 拢810/365 = 拢2.219 per day Round up to 拢5.51 per day x 122 days 拢270.84 拢1,598.20
WTC - childcare element 拢2,480/52 = 拢47.692 per week Weekly amount rounded up to nearest pound = 拢48.00\n拢48 x 52/365 x 122 = 拢834.279 70% of 拢834.279 & rounded up to nearest penny 拢584.00
CTC - child element 拢2,780/365 = 拢7.616 per day Round up to 拢7.62 per day x 122 days 拢929.64 x 2 = 拢1,859.28 拢1,859.28
CTC - family element 拢545/365 = 拢1.493 per day Round up to 拢1.50 per day x 122 days 拢183.00 拢183.00

Entitlement period 01-09-2018 to 05-04-2019

Number of days in period = 217

Element maximum amounts:

Element Calculation Maximum amount Award
WTC 鈥� basic element 拢1,960/365 = 拢5.369 per day Round up to 拢5.37 per day x 217 days 拢1,165.29 拢2,842.70
WTC 鈥� second adult element 拢2,010/365 = 拢5.506 per day Round up to 拢5.51 per day x 217 days 拢1,195.67 拢2,842.70
WTC - 30 hour element 拢810/365 = 拢2.219 per day Round up to 拢2.22 per day x 217 days 拢481.74 拢2,842.70
WTC - childcare element 拢2,480/52 = 拢47.692 per week Weekly amount rounded up to nearest pound = 拢48.00 拢48 x 52/365 x 217 = 拢1,483.923 70% of 拢1,483.923& rounded up 拢1,038.75
CTC 鈥� child element 拢2,780/365 = 拢7.616 per day Round up to 拢7.62 per day x 217 days x 1 child 拢1,653.54 拢1,653.54
CTC 鈥� family element 拢545/365 = 拢1.493 per day Round up to 拢1.50 per day x 217 days 拢325.50 拢325.50

Step 3 鈥� Applying Taper If Income Involved

Entitlement period 02-05-2018 to 31-08-2018

Number of days in the period = 122

  1. 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 拢6,420 / 365 x 122 = 拢2,145.863, rounded up = 拢2,145.87
  • Annual income is 拢27,500, therefore income for the period is 拢27,500 / 365 x 122 = 拢9,191.780 and rounded down = 拢9,191.78
  1. Consider if a taper calculation is required
  • Income of 拢9,191.78 is greater than the initial income threshold of 拢2,145.87 therefore a taper calculation is required.
  1. 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 拢9,191.78 (income) minus 拢2,145.87 (initial income threshold) which gives 拢7,045.91.
  • Then multiply by 41% (taper rate) = 拢2,888.823.
  • The taper amount of 拢2,888.823 is higher than the maximum entitlement amount 拢1,598.20 so all of this entitlement to WTC has been tapered away and will no longer be due. WTC = NIL
  1. 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 拢9,191.78 (income) minus 拢2,145.87 (initial income threshold) = 拢7,045.91
  • Then multiply by 41% (taper rate) = 拢2,888.823
  • The taper amount of 拢2,888.823 minus the max WTC elements (excluding childcare) of 拢1,598.20 give the excess of 拢1,290.623.
  • The excess amount of 拢1,290.623 is higher than the maximum childcare element of 拢584.00 so all of this entitlement to WTC childcare has been tapered away and will no longer be due. WTC childcare = NIL.
  1. 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 拢16,105.00. 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 拢1,598.20 plus the WTC childcare amount 拢584.00 (拢2,182.20) then divided by the taper rate 0.41 = 拢5,322.439, added to the initial income threshold 拢2,145.87 = 拢7,468.31 rounded up.
  • Establish the minimum income threshold for the entitlement period. This is the CTC minimum income threshold of 拢16,105.00 divided by 365 days and multiplied by the number of days in the period, 122 = 拢5,383.041 and rounded up = 拢5,383.05.
  • A comparison of the two taper figures 拢7,468.31 and 拢5,383.05 is made. The highest figure of 拢7,468.31 is used as the income threshold.
  • Income of 拢9,191.78 is higher than the income threshold of 拢7,468.31 so a taper amount needs to be calculated.
  • The taper amount to be applied to this entitlement is 拢9,191.78 (income) minus 拢7,468.31 (income threshold) = 拢1,723.47
  • Then multiplied by 41% (taper rate) = 拢706.6227
  • The taper amount of 拢706.6227 is less than the entitlement maximum amount 拢1,859.28 so the taper amount is deducted from CTC to find the net amount due = 拢1,152.657 rounded up = 拢1,152.66 = the CTC individual element.
  1. Taper the fourth entitlement
  • The entitlement in the award for the period, which appears next highest in the required taper order is the CTC family element entitlement.
  • As the CTC individual elements have only been partly tapered away, the CTC family element is worked out as follows.
  • The CTC family element has a minimum income threshold of 拢16,105.00. This threshold is compared with the amount used to taper the previous WTC work elements, WTC childcare elements and CTC individual elements. Comparison of the two resulting tapers provides the highest figure, which is used in calculating entitlement to the CTC family element.
  • Establish the amount used to taper the previous elements. This is the WTC work elements of 拢1,598.20 plus the WTC childcare amount of 拢584.00 plus the CTC individual elements of 拢1,859.28 (a total of 拢4,041.48) then divided by the taper 0.41 = 拢9,857.268, added to the initial income threshold 拢2,145.87 = 拢12003.14
  • Establish the minimum income threshold for the entitlement period. This is the CTC minimum income threshold of 拢16,105.00 divided by 365 days multiplied by the number of days in the period, 122 = 拢5,383.041 and rounded up to 拢5,383.05
  • A comparison of the two taper figures 拢12003.14 and 拢5,383.05 is made. The highest figure of 拢12003.14 is used as the income threshold.
  • Income of 拢9,191.78 is lower than the income threshold of 拢12003.14 so a taper amount does not need to be calculated. The CTC family element of 拢183.00, will therefore be due in full.

Summary of calculation for entitlement period 02-05-18 to 31-08-18 within the award period - 02-05-2018 to 05-04-2019

Entitlement period 鈥� 02-05-2018 to 31-08-2018

Entitlement Maximum amount Taper amount Net amount due
WTC Work Elements 拢1,598.20 拢1,598.20 Nil
WTC Childcare Elements 拢584.00 拢584.00 Nil
CTC Individual Elements 拢1,859.28 拢709.63 拢1,152.65
CTC Family Elements 拢183.00 Nil 拢183.00

Entitlement period 01-09-2018 to 05-04-2019

Number of days in the period = 217

  1. 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 拢6,420 / 365 x 217 = 拢3,816.821 and rounded up = 拢3,816.83
  • Annual income is 拢27,500 therefore income for the period is 拢27,500 / 365 x 217 = 拢16,349.315 and rounded down = 拢16,349.31
  1. Is a taper calculation required?
  • Income 拢16,349.31 is greater than the initial income threshold 拢3,816.83, therefore a taper calculation is required.
  1. 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 拢16,349.31 (income) minus 拢3,816.83 (initial income threshold) = 拢12,532.48.
  • Then multiply by 41% (taper rate) = 拢5,138.316
  • The taper amount of 拢5,138.316 is higher than the maximum entitlement amount of 拢2,842.70 so all of this entitlement to WTC has been tapered away and will no longer be due. WTC = NIL.
  1. 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 拢16,349.31 (income) minus 拢3,816.83 (initial income threshold) = 拢12,532.48.
  • Then multiply by 41% (taper rate) = 拢5,138.316
  • The taper amount of 拢5,138.316 minus the max WTC elements (excluding childcare) of 拢2,842.70 gives the excess of 拢2,295.616.
  • The excess amount of 拢2,295.616 is higher than the maximum childcare element of 拢1,038.75 so all of this entitlement to WTC childcare has been tapered away and will no longer be due. WTC childcare = NIL.
  1. 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 拢16105.00. 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 拢2,842.70 plus the WTC childcare amount 拢1,038.75 (拢3,881.45) then divided by the taper rate 0.41 = 拢9,466.951, added to the initial income threshold 拢3,816.83 = 拢13,283.79 (rounded up).
  • Establish the minimum income threshold for the entitlement period. This is the CTC minimum income threshold of 拢16,105.00 divided by 365 days and multiplied by the number of days in the period, 217 = 拢9,574.753 and rounded up = 拢9,574.76.
  • A comparison of the two taper figures 拢13,283.79 and 拢9,574.76 is made. The highest figure of 拢13,283.79 is used as the income threshold.
  • Income of 拢16,349.32 is higher than the income threshold of 拢13,283.79 so a taper amount needs to be calculated.
  • The taper amount to be applied to this entitlement is 拢16,349.32 (income) minus 拢13,283.79 (income threshold) = 拢3065.53.
  • Then multiplied by 41% (taper rate) = 拢1,256.87.
  • The taper amount 拢1,256.87 is less than the entitlement maximum amount 拢1,653.54 so the taper amount is deducted from CTC to find the net amount due = 拢396.67 and rounded up = 拢396.67 = 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.

  1. Taper the fourth entitlement
  • The entitlement in the award for the period, which appears next highest in the required taper order is the CTC family element entitlement.
  • As the CTC individual elements have only been partly tapered away, the CTC family element is worked out as follows.
  • The CTC family element has a minimum income threshold of 拢16,105.00. This threshold is compared with the amount used to taper the previous WTC work elements, WTC childcare elements and CTC individual elements. Comparison of the two resulting tapers provides the highest figure, which is used in calculating entitlement to the CTC family element.
  • Establish the amount used to taper the previous elements. This is the WTC work elements of 拢2,842.70 plus the WTC childcare amount of 拢1,038.75 plus the CTC individual elements of 拢1,653.54 (a total of 拢5,534.99) then divided by the taper 0.41 = 拢13,499.975 added to the initial income threshold 拢3,816.83 = 拢17,316.805.
  • Establish the minimum income threshold for the entitlement period. This is the CTC minimum income threshold of 拢16,105.00 divided by 365 days multiplied by the number of days in the period, 217 = 拢9,574.753 and rounded up to 拢9,574.76.
  • A comparison of the two taper figures 拢17,316.805 and 拢9,574.76 is made. The highest figure of 拢17,316.805 is used as the income threshold.
  • Income of 拢16,349.32 is lower than the income threshold of 拢17,316.805 so a taper amount does not need to be calculated. The CTC family element of 拢325.50, will therefore be due in full.

Summary of calculation for entitlement period 01-09-18 to 05-04-19 within the award period 鈥� 02-05-2018 to 05-04-2019

Entitlement period 鈥� 01-09-2018 to 05-04-2019

Entitlement Maximum amount Taper amount Net amount due
WTC Work Elements 拢2,842.70 拢2,842.70 Nil
WTC Childcare Elements 拢1,038.75 拢1,038.75 Nil
CTC Individual Elements 拢1,653.54 拢1,256.87 拢396.67
CTC Family Elements 拢325.50 Nil 拢325.50

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

Entitlement 02/05/18 to 31/08/18 01/09/18 to 05/04/19
WTC work elements entitlement Nil Nil
WTC childcare elements entitlement Nil Nil
CTC individual elements entitlement 拢1,152.65 拢396.67
CTC family element entitlement 拢183.00 拢325.50

The award calculation is complete.

Total award for the year

NIL (WTC)

拢1,152.65 + 拢183.00 = 拢1,335.65 (CTC 122 days)

拢396.67+ 拢325.50 = 拢722.17 (CTC 217 days)

Therefore total tax credits due for the year = 拢1,335.65 + 拢722.17 =拢2,057.82 from 02/05/18 to 05/04/19