Quick Benefits Calculator: Child Tax Credit and Working Tax Credit. Additional Notes for Advisers (April 2008)

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1 Quick Benefits Calculator: Child Tax Credit and Working Tax Credit Additional Notes for Advisers (April 2008) These notes deal specifically with tax credits and should give advisers using the Quick Benefits Calculator sufficient information to use the calculator correctly in tax credit cases. New users should also read the Getting Started booklet. These notes cover the following:- Tax Credits: Operating the calculator p2 Tax credits screens. p3 Entering component elements of the tax credits. p4 Tax credits calculation period. p4-6 Entering income for tax credits purposes. p6 What if I don't want to calculate tax credits? p7-8 Tax credits: Common questions. p9 Tax credits: New Tax Year Tax Credits: Example tasks (Worked examples) p10-18 Tax Credits: Example tasks (A-H) Tax Credits: Multiple Relevant Period Calculations p19-20 Using the Calculator for Multiple Relevant Period calculations p21-23 Multiple Relevant Period - Example calculations. Please note: these guidance notes (together with the online help and Quick Benefits Calculator Getting Started Booklet) are designed to give advisers the information they need to operate the Quick Benefits Calculator correctly. They do not constitute a comprehensive guide to the tax credit system. In particular they do not cover issues concerning what changes of circumstances must be notified to Her Majesty s Revenue and Customs (HMRC) and which are optional. Nor do they cover strategic issues concerning the timing of notifications. If you are advising clients on claiming tax credits you should also refer to the tax credit regulations directly or to an authoritative reference source - for example the Child Poverty Action Group's Welfare Benefits and Tax Credits Handbook 2008/2009.

2 Tax Credits Screens Three screens have been added to the QBC: the tax credits (Main) screen, the tax credits (Calculation / Existing Award) screen and the tax credits (Income Worksheet) screens. The tax credits (Main) screen is accessed by clicking on 'Tax Credits' on the opening screen. (Alternatively, go to the details menu and select 'Tax Credits...'). This screen is used for the following purposes:- Entering WTC 50+ and WTC Disability Element (see below) Selecting the tax credits calculation period (see below) Selecting the income assessment method (see below) Overriding income calculation where tax credit income is estimated Accessing the other tax credits screens (see below) The tax credits (Calculation / Existing Award) screen is accessed by clicking 'View Calculation / Existing Award' on the tax credits (Main) screen. (Alternatively, go to the details menu and select 'Tax Credits Calculation / Existing Claim...'). This screen shows how the tax credit has been calculated and allows you to enter details of an award already in payment. The tax credits (Income Worksheet) screens are accessed by clicking the 'Income Worksheet ' buttons on the tax credits (Main) screen. (Alternatively, these screens can be accessed from the details menu). There are separate screens for the claimant/applicant and partner. These screens are used to enter details of income for tax credit purposes (see below). 2

3 Entering Tax Credit Component Elements Most of the component elements of child tax credit and working tax credit are determined from the information which would be entered anyway for testing entitlement to other benefits. The QBC uses the following information to decide which elements to apply. Element:- CTC child CTC disabled child CTC severely disabled child CTC family element CTC family element (baby) WTC basic WTC severe disability WTC childcare WTC 30 hours+ WTC lone parent / couple (2nd adult) WTC 50+ WTC disability QBC applies element by reference to:- number of dependent children / qualifying young persons. number of children on DLA or blind. number of children on DLA care high. has a child. has a child aged less than one. hours worked, ages, other elements. DLA/AA high claimed by applicant/partner. gross eligible childcare figure entered (eligibility and figure to be determined by adviser but QBC will apply maximum limits by reference to the number of children); hours worked. hours worked. has partner, has children, hours, other elements. age, hours worked and check by adviser. hours worked and check by adviser. The last two elements have complex eligibility criteria and it is therefore left to the adviser to make the final determination. Where appropriate, tick boxes for these elements appear on the tax credits (Main) screen. The eligibility criteria for these elements is summarised in the on-line help (click the 'Help' button on the tax credits (Main) screen to access this). 3

4 Tax Credits Calculation Period Tax credits are calculated for each 'relevant period'. A relevant period is a period during which there is no change of circumstances sufficient to alter the maximum tax credit payable*. Where the maximum credit payable stays the same for the whole the tax year, the relevant period is the whole tax year, ie 365 days for tax year 2008/9. You can specify the length of the relevant period by giving the first and last dates of the relevant period (right click on the date box to access the calendar) or by entering the number of days in the relevant period. By default, the calculator will use a relevant period of the whole tax year (365 days). Alternatively, calculations can be performed on an approximate weekly, monthly or annual basis. Note that calculations performed on these bases are always approximations as they do not apply the daily-rate rounding rules which apply to actual tax credit awards. Regardless of the length of the relevant period, the income taken into account is the income for the whole tax year (apportioned where necessary over each relevant period) - see 'Income' below. (* This is a simplification of the rules.) Tax Credits Income Assessment Unlike income for other means-tested benefits, income for tax credits is assessed on an annual basis. The weekly income entered into the calculator for assessing other means-tested benefits is not necessarily going to reflect the annual figure taken into account for tax credits. For example, a claimant may be temporarily between jobs and so have no income for just a few weeks but a high annual income. Conversely a claimant may have a source of income which lasts only for a short period. In addition, tax credit income is also assessed by reference to both the current tax year and the previous tax year - a claimant's current weekly income grossed up is even less likely to be a good reflection of their income in the previous tax year. For these reasons, the recommended method of calculating a claimant's income for tax credits is to use the tax credits (Income Worksheet) screens. These screens allow you to enter the annual income for tax credits for both 2007/8 and 2008/9. There are separate screens for applicant and partner. The calculator will apply the 300 annual disregard to certain types of income and the 25,000 disregard to any increase in income between previous and current year. (The current year/previous year disregard was increased for 2,500 to 25,000 from April 2006). NB: Because tax credits income is assessed over a whole year, it may be worth advising people to apply for tax credits even if appears that their income will be too high. This should protect their entitlement from the backdating rules if their income falls unexpectedly later in the year. 4

5 Where you have entered information for tax credits income for only one tax year the QBC makes the following assumptions: Entry for previous tax year only: QBC assumes no information is available on current year income and no current year / previous year calculation is applied. If you have not entered income for the current year because it is expected that there will be no income for the current tax year you can check the effect of this on the tax credit that will be payable by entering a line of income for the current year and setting the amount to nil. Entry for current tax year only: QBC assumes that there was no income for tax credits in the previous tax year and will apply the 25,000 increase in income disregard as appropriate. The 'calc' button assists in the calculation of annual figures from money amounts payable over different periods. The income worksheet also accepts various income disregards (listed at the end of the income types), the most important of which is pension contributions (which should not be confused with pension income). Advisers should enter any SMP/SPP/SAP net of the disregard of up to 100 per week - note that this disregard does not apply to SSP. Advisers may find the QBC slightly more cumbersome to use because income is entered twice (once for tax credits and once for other means-tested benefits). For the reasons mentioned above there can be no strong link between income entered for means-tested benefits and income for tax credits. However, in the following situations, the calculator will offer to fill in entries on the relevant tax credit work sheet automatically. Where the person has:- Earnings but has no current year worksheet entry for:- Employment/Self Employment Taxable Incapacity Benefit (Long Term) Social Security Carer's Allowance Social Security Retirement Pension Widowed Mothers Allowance Widowed Parents Allowance Widow's Pension Industrial Death Benefit Pension Pension Pension Pension Pension For the following benefits (which are unlikely to be payable for the whole tax year), the calculator will not make entries but will still remind you to go to the tax credits worksheet in the following cases:- 5

6 Where the person receives:- SSP SMP/SPP/SAP but has no current year worksheet entry for:- Employment Employment Contributory JSA Social Security Incapacity Benefit - Short Term Higher Social Security Bereavement Allowance Social Security In addition to this, if a person's earnings, benefits counting as income for tax credits (listed above) or other income (apart from child maintenance) changes then the calculator will detect this and offer to go that person's tax credit income worksheet. If you are not interested in tax credits income, you can turn this feature off (on a case by case basis) [Click on 'Don't show this screen again]. If you choose not to use the tax credits (Income Worksheet) screens for entering tax credits income the above warnings will not apply. Refer to page 20 of the Getting Started booklet for details of how tax credits income is estimated from income for other benefits. What If I don't want to calculate tax credits? For the reasons described above, calculating tax credits is significantly more complex than for other benefits and in some cases you may not wish to carry out the full tax credits calculation. For example, you may already know that a claimant has chosen not to claim tax credits (or will not qualify for some other reason) or they may already have an award in place. 1) If you want to indicate that the claimant has chosen not to claim tax credits at all (or already has an existing award), go to the tax credits (Calculation / Existing Award) screen (see above) and tick the box marked 'existing award'. Set the award figures for CTC and WTC to zero if there is no claim. If there is an award, enter the weekly amounts for CTC and WTC. 2) If the claimant is eligible for child tax credit only and they choose not to claim (perhaps because they would be no better off as they would remain on income support anyway), you can indicate this by ticking the 'Defer' CTC button on the opening screen (or on the tax credits (Main) screen). In this case, the calculator will assume nil child tax credit except where there is eligibility for working tax credit and/or if eligibility for income support or income based JSA is lost. 3) If you do want to calculate tax credits, but you don't want to be reminded about the tax credit income calculation each time the current income is changed (perhaps because you already know that annual income will be below the relevant threshold or you have already entered the correct income figures onto the tax credits income worksheet(s)), click on 'Don't Show This Screen Again' on the 'Tax Credits Income Reminder' screen. 6

7 Tax Credits : Common Questions Q: Why do I have to enter income twice - once for income support, housing benefit, etc and once for tax credits? Are there any links between the two sets of income entered? A: Income for IS/IBJSA/HB/CTB is assessed on a weekly basis whereas income for tax credits is worked out by looking at two complete tax years. If the claimant has current weekly income of a type which counts for tax credits then they must have at least some income for tax credits purpose and so the calculator will prompt you to make an entry on the worksheet to reflect this. See page 4 for more details. If you have entered current year income on the tax credits worksheet it does not necessarily mean that you are currently receiving that income (for example it may be income from work which has now finished or which is expected to start later in the tax year). For this reason, there are no prompts from the tax credits income worksheet. Some advisers find it easier to complete the tax credit income worksheet(s) first before entering other details. Q: Where a previously unemployed claimant starts work late in the tax year, there may be a fall in tax credits the following year(s) because their annual income for tax credits will be higher. Is there an easy way to look at long term entitlement? A: Yes. In this case the 'Income Calculation: Estimate from income for other benefits' option on the Tax Credits (Main) screen may be useful. Instead of calculating income from the worksheets the income figure is calculated by grossing up weekly income for other means tested benefits. Only income which definitely counts as income for tax credits is included. The calculator will show a 'more information' prompt if there are other types of income which may require a manual adjustment by the adviser. See page 20 of the Getting Started booklet for details. Q: How do I enter the disability and age 50+ elements of working tax credit? These elements have complex eligibility criteria and so rely on the adviser to check entitlement (see page 3). Tick the relevant boxes at the top of the Tax Credits (Main) screen if these elements apply. Remember that the 50+ credit is normally only payable for 12 months. Q: Why are the annual figures calculated for each element a few pence higher than the officially quoted rates? A: Most elements of tax credit are calculated by working out a daily rate, rounding up any fraction of a penny and then multiplying by the number of days in the relevant period. 7

8 Q: Why has the calculator applied the previous year/current year (up to 25,000) increase in income disregard when I haven't entered income for the previous tax year? A: The tax credits income worksheets are designed to record all tax credits income for both the current and previous tax year. If you enter no details of previous year income for tax credits the calculator assumes there was no income for the previous year and will therefore apply the disregard. (See page 5). Q: Do I need to enter the length of each relevant period? This is not strictly necessary if you are only interested in the weekly tax credit payable during one relevant period as the weekly rate of tax credit payable during the relevant period is the same regardless of the length of the period. However, if you are calculating entitlement for more than one relevant period (e.g. when checking entitlement at reconciliation), entering the lengths of each relevant period will allow you work out the total amount of tax credit due for each period. Q: Why doesn't the calculator automatically award maximum tax credit when the claimant is on income support, income based jobseeker's allowance, or state pension credit? A: This is due to a circularity in the tax credit regulations. An award of IS,IBJSA or SPC results in award of maximum tax credit. However, working tax credit counts as income when calculating IS, IBJSA and SPC and in some cases the award of maximum credit results in the claimant floating off IS,IBJSA or SPC and thus receiving a reduced amount of tax credit which allows them to requalify for IS,IBJSA or SPC. In cases where the tax credit is reduced but IS,IBJSA or SPC is in payment the calculator will show a warning prompt. 8

9 Tax Credits : New Tax Year Provisional payments At the start of the new tax year, existing tax credit claimants will receive provisional payments of tax credit based on their previous year's award. For this reason, the amount of tax credit received may differ from that calculated by the Calculator. You can enter the actual amount of tax credits by going to the tax credits (Calculation / Existing Award) screen (see p2) and ticking the box marked 'existing award'. Updating previous year's cases If you open a case created with a previous year's version of the Quick Benefits Calculator which involves tax credits, the calculator will automatically update benefits and tax credits. As well as uprating the tax credits figures, tax credit information is updated as follows:- 1) The relevant period is set to the whole of the current tax year. 2) Any entries on tax credits worksheets for last year's previous year's income are discarded (i.e. income for those years is now irrelevant). Entries for last year's current year's income become entries for this year's previous year income (i.e. what was current last year is this year's previous year income). Entries for last year's current year's income are also copied as this year's current income (i.e. program assumes that what happened last year will also happen this year). Advisers should review the updated case to ensure that all information entered is correct. 9

10 Example A: checking an award based on previous year's income. Situation:- Claimant is a lone parent aged 42 with one child aged seven. The child receives DLA mobility component at the lower rate. The claimant works 20 hours a week for 160 gross. In tax year 2007/8 she earned 7,500. She has been told that her tax credit entitlement will be 5, for the whole year (ie the 365 days from 6 April 2008 to 5 April 2009.) She wants to know if this is correct. Method:- Enter claimant's age as 42. Go to the 'Children Screen', click on 'Add' and enter the child's age as 7. Click on 'DLA...' and enter the DLA mobility component at the lower rate. Click on 'OK'. Click on 'Done'. Go to the 'Claimants Work' screen and enter her hours as 20 and gross earnings as 160. Click on 'Done'. The calculator will offer to make an entry on the tax credits work sheet. Because we are checking an initial award based on year 2007/8 we don't need to enter a figure for 2008/9. Click on 'Yes, go to the worksheet but make no changes (update manually instead)'. On the applicant's income worksheet click 'Add'. Enter her employment income for 2007/8 as Click on 'Done'. Go to the tax credits (Calculation / Existing Award) screen to view the calculation of tax credits. Alternatively select File Print Preview to view the calculation. She should get an annual award of 8, In this case HMRC have missed the disabled child element. Example B: better off claiming CTC? Situation:- Claimant is a lone parent aged 26 with two children aged four and eight. She receives child support maintenance (under the CSA 'new rules' ) of 85 per week. She wants to know if she should claim CTC. She is claiming income support and has not yet been moved onto CTC. She wants to know if she will be better off if she claims CTC straightaway rather than waiting to be transferred by DWP/HMRC. Method:- Enter the claimant's age as 26. Go to the 'Children Screen', click on 'Add' and enter the childrens' ages as 4 and 8. Click on 'Done'. Go to the other income screen and set 'child maintenance' to 85. As she receives maintenance under the 'new rules' she qualifies for CMP so tick the box marked 'Child Maintenance Premium'. Click on 'Done'. In order to maximise income, the calculator assumes by default that CTC is claimed. Her income including child benefit ( 31.35), CTC ( 90.58) and maintenance ( ) is in total. 10

11 To see what the position is if she doesn't claim CTC, tick the box marked 'Defer CTC' on the QBC opening screen. If she doesn't claim CTC her income is child benefit ( 31.35), IS ( 76.08) and maintenance ( 85.00) in total. She would therefore be per week better off claiming CTC. Note that the 'Defer CTC' box only has effect where there is no element of WTC applicable and IS remains payable. As with any change of circumstances, you can use the Quick Benefits Calculator 'What if..? report' feature to produce a printout showing how much better off the claimant might be. Example C: better off starting work and claiming WTC? Situation:- It is Monday 9 June The claimant, a single 25 year old, is currently on income based JSA of He is offered a job starting immediately for 32 hours per week at 200/week. He wants to know how much (if any) tax credit he could claim. Method:- Enter the date as 9th June. (You can type the date as 9/6/2008 or right-click on the date box to use the calendar). Go to the 'Claimants Work' screen and enter his hours as 32 and gross earnings as 200. Click on 'Done'. The calculator will offer to make an entry on the tax credits work sheet. Select the option 'Yes, go to the worksheet and add this work starting today - to end of this tax year.' He has no other income for tax credits in 2008/9 and had no income for tax credits in 2007/8 so there is no need to make any further entries on the worksheet - click on 'Done'. An 'Important Information! box will appear - click 'Yes' and 'Done' again.click on 'Tax credits' to go to the Tax Credits (Main) screen. Select 'between dates' as the calculation period. By becoming entitled to WTC a new relevant period has started. Set the start date to today ( ) and leave the end date set to the end of the tax year. Click on 'View calculation' to see how the applicant's WTC is calculated or return to the basic details screen to see the weekly earnings income and WTC payable ( in total). Tax credits due for the year are 2, ( per week). This is the maximum level of tax credits payable as all his income is disregarded in 2008/9. If his circumstances remain the same and current rules continue to apply, his tax credits will probably fall significantly (to around 19) by tax year 2010/11. (See the more info box on the basic details screen). Note: if you are only interested in the weekly amount payable and are not working out total entitlement during the relevant period there is no need to enter the dates of the relevant period. It would normally be best to enter the dates, however, so that the claimant can check the calculation against HMRC's notifications. 11

12 Example D: baby reaches first birthday. The claimant aged 27 is a lone parent with two children: one age 6 and a baby whose first birthday is 19 August She claimed child tax credit at the start of the tax year and wants to know her total entitlement for the year. When the baby reaches the age of one the family element (baby rate) will cease to be payable. Therefore maximum tax credit will change and this therefore marks the start of a new relevant period. HMRC should be able to anticipate this change as they should already know the baby' s date of birth. The year consists of two relevant periods:- (Start of tax year) 6 April 2008 to 18 August 2008 and 19 August 2008 to 5 April 2009 (end of tax year). Method:- First relevant period:- Set the claimants age to 27. Go to the children screen and enter the children s ages as 0 and 6. Go to the tax credits (main) screen and set the calculation period to between dates (*), the start date to (*) and the end date to (* these are the default settings so you probably will not need to change them). Click on View Calculation : the total credit figure shown is the total credit payable for the first relevant period : 1, The weekly figure is the amount of credit she should receive per week during this period : Second relevant period:- Go back to the children screen and set the baby s age to 1. Go to the tax credits main screen and set the start date to and the end date to Click on 'view calculation' : the tax credit figure shown is the tax credit payable for the second relevant period : The weekly figure is the amount of credit she should receive per week during this period : The total child tax credit payable for the whole tax year is therefore , = 4, Note: if you are only interested in the weekly amounts payable and are not working out total entitlement there is no need to enter the dates of the relevant periods. 12

13 Example E: partner's DLA increases. The claimant, aged 33 works 35 hours for 210 per week. Her partner aged 32 claims DLA care component at the middle rate. The partner is not in work. The claimant's gross earnings were 9,500 in tax year 2007/8 and are expected to be 10,920 in tax year 2008/9 They have no other income for tax credits purposes. In March 2009 the partner is awarded DLA care component at the highest rate backdated to 5 January They want to know their total tax credit entitlement for the year. The award of DLA Care at the highest rate changes the maximum tax credit payable (as severe disability element of working tax credit becomes payable). Therefore the award starts a new relevant period. Method:- Tick the 'has partner' box and enter their ages as 33 and 32 respectively. Go to the claimant's work screen and enter the hours as 35 and the income as 210. Click on 'Done'. The tax credits income reminder screen appears - select 'Yes, go to the worksheet but make no changes (update manually)'. Click 'Add' and enter employment income for tax year 2008/9. Click 'Add' again and enter 9500 employment income for tax year 2007/8. Click on done. First relevant period:- Go to the partner's benefits income screen and set the partners DLA Care component to the middle rate. Click on 'Done'. Go to the tax credits (main) screen and set the calculation period to between dates (*), the start date to (*) and the end date to (* These are the default settings so you probably will not need to change them). Click on 'view calculation/existing award'. For the first relevant period (to 4 January 2009) they are entitled to 2, ( per week). Second relevant period:- Go to the partner's benefits income screen and set the partner's DLA Care component to the highest rate. Click on 'Done'. Go to the tax credits (main) screen and set the start date to and the end date to Click on 'view calculation/existing award'. For the second relevant period (from 5 January 2009) they are entitled to ( per week). Their total tax credit entitlement for the year will therefore be 2, = 3,

14 Example F: income goes up during the year. In many cases, an increase in income will not create an overpayment. This is because the first 25,000 of any rise in income between the current year (2008/9) and previous year (2007/8) is disregarded. If the 25,000 disregard has been used up, any further increase in income may lead to an overpayment. Situation:- The claimant aged 22 has one child age 4. Her income for tax credits in 2007/8 was wages of 10,000. In tax year 2008/9 she expects to earn 12,000 gross. She is working for 30 hours each week (currently for 230 per week gross). Method:- Enter her age as 22. Go to the children's details screen, click on 'Add' and set the child's age to 4. Go to the work details screen and enter her gross earnings as 230 and her hours as 30. The calculator will prompt you to go to the tax credits income worksheet. Select 'Go to the worksheet but make no changes'. On the claimant's tax credits income worksheet click 'Add' - set this income to employment income of for tax year 2007/8. Click on 'Add' again and set this income to employment income of for tax year 2008/9. She has no other income for tax credits so click on 'Done'. Her income for tax credits purposes is 10,000 (because her current year income does not exceed previous year by more than 25,000) and she should be getting:- 2, child tax credit ( per week) and 2, working tax credit ( per week). 5, total tax credit for the year ( per week). Change in circumstances:- Half way through the tax year she is promoted and her salary is increased to 18,000pa. She wants to know how this will affect her tax credits. NB: This is not a change which starts a new 'relevant period' nor is it a change which must be reported to HMRC straight away (although it must be disclosed at the end of the tax year). Her expected gross income for the tax year will now be approximately 15,000 (6 months on 12,000pa and 6 months on 18,000pa). 14

15 Method:- Go to the claimant's tax credits income worksheet and change her employment income from tax credits for 2008/9 from 12,000 to 15,000. (Alternatively, you may prefer to show this as two sets of employment income for 2008/9 : 6,000 for the first half of the year and 9,000 for the second half.) Her income for 2008/9 is now going to be 5,000 higher than it was in 2007/8 but this does not affect her tax credit award for 2007/8 (income can rise by 25,000 over the previous year before the current year s award is affected). Her income for tax credits remains 10,000. Assuming that her actual 2008/9 income does not eventually turn to be much higher, her entitlement to tax credits for the whole year will be unaffected. However, her higher earnings will affect her awards for future years. 15

16 Example G: fall in income. The claimant aged 37 works 35 hours per week for 220 per week gross. He earned at that rate throughout 2007/8 and expects to earn the same in 2008/9. Method:- Set the claimant's age to 37 and go to the 'claimant's work' screen. Enter his hours to 35 and gross earnings to 220 per week. Click on 'done'. The tax credits income reminder screen will appear. Select the option 'Yes, go to the worksheet and add this work - for the whole of the tax year and the previous year as well'. The calculator will insert the incomes figures on the worksheet automatically (on a 365 day basis 220/week gives 11, for each year). Click on 'Done'. Go to the tax credits (main) screen and click on 'View Calculation/Existing Award'. His entitlement to working tax credit for the year is ( per week). Change in circumstances:- On 1st December his hours fall to 30 per week for 176 gross. Method:- This change does not introduce a new relevant period (maximum tax credit does not change) but his annual income for tax credits is now going to be lower. Go to the applicant's tax credit income worksheet and click on the 'Calc' button next to the employment entry for 2008/9. Input the following information and click OK :- 16

17 Enter in the description box 'Work to end Nov'. The worksheet now has his income up to the point his hours and weekly earning fell. To add his income after the change click on 'Add', select employment income, set the tax year to 2008/9 and click on 'calc' and enter the following details. Click on OK and enter in the description box 'Work from start Dec'. Click on 'Done'. Go to the tax credits (main screen) and click on 'View Calculation/Existing Award'. His annual entitlement to tax credits is ( per week). If he does not inform HMRC of this change (and there are no other relevant changes) then he will be underpaid = during the year and should receive this as a lump sum at the end of the tax year. 17

18 Example H: claimant loses job. This case is the same as the previous one except that instead of reducing hours from 1 December 2008, the claimant is instead made redundant. This means that entitlement to working tax credit ceases. He hasn't met the contribution conditions for contributory JSA and so instead he claims incomebased jobseekers allowance which does not count as income for tax credits. Although his entitlement to tax credits ceases at the end of November 2008 the claimant has still been underpaid tax credits because his initial award (see previous example) was based on an annual income figure which turned out to be higher than it actually was. Method (continuing from previous example):- Go to the applicant's tax credit income work sheet and remove the second entry for 2008/9 employment ('Work from start Dec'). Assuming he doesn't find another job or other income until the end of the tax year, the worksheet now accurately reflects his income for tax credits. Click on done. Go to the tax credits (main) screen, set the calculation period to 'between dates' and set the relevant period to start at and to end at Click on 'View calculation / existing award'. His entitlement to tax credits for the whole year is 1, By the 30th of November he would have received approximately 34 weekly payments of WTC (calculated as in example G) - this is He can therefore expect to receive a further ( ) of working tax credit for the year. 18

19 Tax Credits: Multiple Relevant Period Calculations This feature of the Quick Benefits Calculator allows you to carry out "whole year" calculations looking the effects of changes of circumstances which introduce new relevant periods (RPs). The Multiple Relevant Period (MRP) calculation has also been added to last year's version of the calculator (available on the Quick Benefits Calculator CD). The MRP feature may be particularly useful when checking final award calculations. NB: some changes of circumstance will result in a new award as well as a new RP - calculations involving more than one award are not covered. The MRP calculation feature is an optional feature (you can turn it on by selecting Configuration Configure and ticking the "Allow Multiple Relevant Period Calculations" box. Until you are confident working with tax credits and are familiar with the way the calculator handles them (as described on pages 1-18 of this document) you may prefer to leave this feature turned off. Working with Multiple Relevant Periods: Overview Two methods of working with MRPs are provided: Using the Tax Credit Menu to add, select or remove RPs individually or by using the MRP Manager Screen to get an overview of all the RPs. You can use a mixture of the two methods if you prefer. It is probably simplest to enter all the details of the claimant's and partner's circumstances which do not change during the year before adding the first relevant period. In particular, it is a good idea to fill in the claimant's and partner's income worksheets (entering all relevant income (including anticipated income) for both relevant tax years). For a single award of tax credits the same income figure (apportioned appropriately) is used for all relevant periods (except where income can be ignored because the claimant is on IS/IBJSA/SPC). Adding Relevant Periods (Entering MRP mode) To add a relevant period, click the tax credits menu and select "Add Relevant Period" or go to the MRP Manager screen ("Tax Credits Manage Relevant Period Calculation") and click "Add". Adding a relevant period to the calculation puts the calculator into MRP mode. In MRP mode, you are limited to the "calculate from worksheets" method of income calculation and "between dates" calculation. You can tell the QBC is in MRP mode as the name of the current RP is shown on the Quick Benefits Calculator title bar. When a relevant period is added, the new RP copies the case details from the previous current RP (or from the current case as details as already entered if this is the first RP) The tax credit relevant period start and end dates are not copied - these are entered directly. 19

20 Default start and finish dates are:- Start of Tax Year to today [or mid-year for 2007/8 version] (for the first RP) or Day after End of Previous RP to End of Tax Year (for all subsequent RPs). For each RP added, prompts are also given for the reason why the RP started, reason why it ended, and whether the claimant received IS/IBJSA/SPC during the period. Removing Relevant Periods To delete a relevant period select "Tax Credits Remove Relevant Period" or go to the MRP Manager screen ("Tax Credits Manage Relevant Period Calculation") and click the "Remove" button for the RP you want to get rid of. Deleting the only relevant period in the calculation takes the calculator out of MRP mode. Selecting Relevant Periods To work with a relevant period other than the current one, select the RP you require from the "Tax Credits" menu or go to the MRP Manager screen ("Tax Credits Manage Relevant Period") and click the "Goto" button for the RP you want to get rid of. Entering Details of Claimant's Circumstances for Each Relevant Period Claimant's circumstances are entered and/or altered in just the same way as when operating the calculator normally. For example, if a child has their first birthday at the start of a relevant period, go to the children's details screen and change the child's age to from 0 to 1. Viewing Multiple Relevant Period Calculations. Select Tax Credits View Multiple Relevant Period Calculation or click on "View Calculation" on the MRP Manager screen. The MRP Manager screen also offer option (at bottom right) for choosing whether a summary of the claimant's circumstances appears at the start of the printout, for each relevant period or not at all. Checking for Errors in Multiple Relevant Period Calculations. The calculator will perform some checks for errors/problems in the calculation. These appear as error or warning notes at the bottom of the MRP Manager screen or in a dialog box if you select "View MRP Calculation" from the tax credits menu. Saving MRP Calculations MRP case files cannot be saved [only the current RP is saved]. However, MRP Calculation printouts can be saved from Print Preview in HTML format. This option is available under Printout Options. 20

21 Example 1 : Effect of eldest child leaving home (Tax Year 2008/9). Situation:- The claimant age 43, works full time for 44 hours ( 420 gross) /week; her partner age 47 does not work but had income from savings of 3,000pa in 2007/8 and expects the same savings income in 2008/9. The claimant earned 20,000 gross in 2007/8 and expects to earn 22,000 gross in 2008/9. They have two dependent children age 14 and 17 (still at school). Their oldest child will be leaving home to live with his grandmother; the last day he will normally be living with his parents is 4 October They want to know what their total entitlement to tax credits for the whole year will be. There are two relevant periods. 1) 6 April 2008 (start of tax year) to 4 October 2008; and 2) 5 October 2008 to 5 April 2009 (end of tax year). Method:- Use the current year version of the Quick Benefits Calculator (2008/9). Tick the 'Has a Partner' box on the opening screen and enter the claimant's and partner's ages. Go to the "Children" screen and add one child age 14 and one child age 17. Go to the claimant's work screen and enter her work hours as 44 and her gross weekly income as 420. Click on 'Done'. The calculator will offer to go to the claimant's tax credits income worksheet - choose the option to update the worksheet manually (the fourth option). Enter her employment income for 2008/9 as and her employment income for 2007/8 as Go to the partner's tax credits income worksheet income and enter 3000 for his investment income in 2007/8 and 3000 for his investment income in 2008/9. Add a relevant period [Select "Add relevant period" from the tax credits menu or Select "Manage Multiple Relevant Period Calculation" from the tax credits menu and click on Add], ensure the start date is set to and set the end date of this relevant period to You may wish to set the end of relevant period reason to ("Oldest child leaves home ") but this is optional. Make sure that the "on IS/IBJSA/SPC?" tickbox for this relevant period is set to No. Add a second relevant period. The default dates for the second relevant period should already be the required dates ( to ). Make sure that the "on IS/IBJSA/SPC?" tickbox for this relevant period is set to No. Go to the "Children" screen and remove the 17 year old child. Click on 'Done'. View the MRP calculation by selecting 'View Multiple Relevant Period Calculation' from the tax credits menu (alternatively click on the View Calculation on the MRP manager screen). For the second relevant period the family qualify for CTC family element only. Their total expected tax credits entitlement for the year is CTC of

22 Example 2 : Claimant starts work and child reaches first birthday (2007/8). Situation:- Claimant is a single parent age 22. She has one child who was born on 22 October On 5 May 2007, she started work for thirty hours per week ( 240 gross / week) with child-minding costs of 100 / week. She claimed tax credits at the start of tax year 2007/8 and informed HMRC as soon as she started work. Her income for tax credits purposes during 2006/7 was earnings of 10,400 gross. Her income for tax credits purposes in 2007/8 was her earnings which totalled 11,540 gross. During the tax year 2007/8 she was on income support up until the point she started work. She wants to know if her final award notice for 2007/8 tax credits is correct. For tax year 2007/8 there are 3 relevant periods:- 1): 6 April 2007 (start of tax year) to 4 May ): 5 May 2007 (day work started) to 21 October ): 22 October 2007 (child's first birthday) to 5 April 2008 (end of tax year). Method:- NB: You will need to use the 2007/8 (previous year) version of the Quick Benefits Calculator (available on the QBC File Menu or from the CD). Set the claimant's age to 22 and go to the 'Children's details' screen to enter one child age 0. Click on 'Done' and confirm the child s age as 0. From the tax credits menu select 'Go to Tax Credit Income Worksheet (Applicant)'. Go to the tax credits income worksheet (Tax Credits Go To Tax Credit Income Work Sheet (Applicant)) and enter her income from employment for 2006/7 as and her income from employment for 2007/8 as [Remember that the figures on this worksheet are used for all relevant periods in the calculation - except where the claimant receives IS/IBJSA or SPC]. Click on 'Done'. From the tax credits menu select 'Add Relevant Period '. The details dialog box for the first relevant period appears. The start date will default to the start of the tax year; you will need to change the end date to 4/5/2007. Change the 'relevant period ends because of..' box to "Starts work"; alternatively, you can leave this box blank. Ensure that the 'On IS/IBJSA/SPC for this Relevant Period' tick box is set to 'Yes'. Click on OK. Details for the first relevant period are now complete. From the tax credits menu select 'Add Relevant Period ' The details dialog box for the second relevant period appears. The start date will default to the day after the end of the first relevant period so you should not need to change the date. If necessary, change the 'relevant period starts because of..' box to "Starts work". You will need to change the relevant period end date to 21/10/2007. Change the 'relevant period ends because of..' box to "Child's first birthday"; alternatively, you can leave this box blank. Ensure that the 'On 22

23 IS/IBJSA/SPC for this Relevant Period' tick box is set to 'No'. Click on OK. Go to the claimant's work screen and enter her work details : 30 hours/week for 240 gross with child care costs of 100 per week. The calculator will offer to show the income worksheet as weekly earnings have changed, however, the worksheet details are already complete so click on 'No, don't go to the tax credits worksheet' because the correct income figures have already been entered. Details for the second relevant period are now complete. From the tax credits menu select 'Add Relevant Period ' The details dialog box for the third relevant period appears. The start date will default to the day after the end of the second relevant period so you should not need to change the date. If necessary, set the 'relevant period start because of..' box to "Child's first birthday". The end date and end of relevant period reason should default to the end of the tax year and so will not need to the changed. Ensure that the 'On IS/IBJSA/SPC for this Relevant Period' tick box is set to 'No'. Click on OK. Go to the children's details screen and change the child's age to 1. Click on 'Done'. Details for the third relevant period are now complete. To view the calculation select 'View Multiple Relevant Period Calculation ' from the tax credits menu. Alternatively, you can view and edit the calculation by selecting 'Manage Multiple Relevant Period' calculation from the tax credits menu. The claimant's overall entitlement for tax credits for 2007/8 was ( 2, CTC plus 5, WTC). 23

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