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HMRC internal manual

Tax Credits Technical Manual

Calculation of entitlement: Overview of steps in an award calculation

The Tax Credits (Income Thresholds and Determination of Rates) Regulation 2002

Sections 5 and 16, Tax Credits Act 2002

An award period runs from the effective date of the claim to the end of the tax year, or until an award is terminated.

Where tax credits is claimed for a tax year by making the claim before the tax year begins, then any award of tax credits is for the whole of the tax year.

Any award on any other claim is for the period on which the claim is made (or treated as made) until the end of the tax year.

The Tax Credits (Income Thresholds and Determination of Rates) Regulation 2002, Regs 7

WTC

When calculating a person’s entitlement to WTC the rate for each relevant period in the tax year must be determined. Where there is more than one relevant period, the rates for each relevant period are calculated and then added together. The rate is determined by following the 12 steps set out in legislation. For the purposes of WTC, ‘relevant period’ means:

  • a period during which the elements making up the tax credits (apart from the childcare elements) remain the same, and
  • during which there is no change in the childcare circumstances that the claimant uses (see TCTM02600), including that the average weekly child care charges do not change by £10 or more, or reduce to nil.

The Tax Credits (Income Thresholds and Determination of Rates) Regulation 2002, Regs 8

CTC

When calculating a person’s entitlement to CTC the rate for each relevant period in the tax year must be determined. Where there is more than one relevant period, the rates for each relevant period are calculated and then added together. The rate is determined by following the 8 steps set out in legislation. For the purposes of CTC, ‘relevant period’ means:

  • a period of award for CTC only, throughout which a person is entitled to the maximum rate for their circumstances which remain the same throughout, and
  • a period of award for both WTC and CTC, throughout which a person is entitled to the maximum rate for CTC for their circumstances, which remain the same throughout and the entitlement under WTC in the above section remains unchanged.

The 12 WTC steps and 8 CTC steps which determine the rate for tax credits can be broken down into 4 work steps for the purpose of this manual.

  • Step 1 - working out the award period and relevant period. (TCTM07020)
  • Step 2 - calculating the maximum tax credit entitlement for the relevant period. (TCTM07030)
  • Step 3 - calculating the relevant income for each relevant period and applying the taper rules to find the amount due for each relevant period. (TCTM07040)
  • Step 4 - calculating the actual tax credit entitlement for the relevant period. (TCTM07050)