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HMRC internal manual

Tax Credits Technical Manual

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HM Revenue & Customs
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Calculation of entitlement: Step 2 - Calculating the maximum tax credits for each entitlement period

The Tax Credits (Income Thresholds and Determination of Rates) Regulation 2002, Regs 7(3) Steps 1 and 2, and 8(3) Steps 1 and 2

The maximum entitlement to each element (other than child care) for each relevant period is found by converting the current annual rates of each (see TCTM07APPX1) to amounts for the number of days in the period. This is done by dividing the annual rate by the number of days in the award year, rounding up to the nearest penny and then multiplying by the number of days in the relevant period.

See the worked example (TCTM07APPX2)

Child care element

The Tax Credits (Income Thresholds and Determination of Rates) Regulation 2002, Regs 7(2) Steps 7 to 12

The maximum value of the child care element due for each entitlement period is found by:

  • converting the weekly rate of claimant’s child care costs (all children and providers) to an annual rate by multiplying by 52
  • converting this annual amount to an amount for each entitlement period by dividing by the number of days in the award year and multiplying by the number of days in the relevant period.
  • converting the weekly limits (the maximum amount of child care costs which can be included in the calculation of the child care element) to an amount for each entitlement period, by dividing by 7, rounding up to the nearest penny and then multiplying by the number of days in the entitlement period.
  • where the actual amount of child care costs for the entitlement period does not exceed the limit amount, the actual costs are multiplied by 70% (see TCTM07APPX2) and rounded up to the nearest penny to find the childcare element maximum amount.
  • where the actual amount of child care costs for the entitlement period exceeds the limit amount, the limit amount for the entitlement period is multiplied by 70% (see TCTM07APPX2) and rounded up to the nearest penny to find the child care element maximum amount.

The amounts of each element of the tax credits for the relevant period are then added together.

See worked example (TCTM07APPX2)