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HMRC internal manual

Tax Credits Technical Manual

Calculation of awards: Step 3 - Determining whether income needs to be taken into account and applying income tapers

Income thresholds and taper rates

The Tax Credit (Income Thresholds and Determination of Rates) Regulations 2002, Regs 3, 7, Steps 3-5 and 8, Steps 3-5

The amount of an award will be reduced when the household income exceeds the income limits, this is known as “tapering”.

To calculate the award due identify the

  • “income threshold”, which is the level of income above which a particular award or tax credit entitlement will start to be reduced by income


  • “taper rate”, which is the rate at which the excess of income over the threshold, reduces the maximum entitlement. The rate is expressed as a percentage.

There are two initial “income thresholds”

  • £16,105.00 (per annum) where the award is for CTC
  • £6,420.00 (per annum) where the award includes WTC
  • Where entitlement exists for both CTC and WTC that amount, or, if greater, the lowest amount of income for the relevant period (found under step 3) which, (disregarding a nil to £26.00 pa award) would result in determining the reduction of the elements of the tax credit to nil for that period.

Each relevant period in the award period will be considered separately.

The annual income and “income threshold” amounts will be converted to amounts for each individual relevant period by dividing the number of days in the tax year of the award and multiplying by the number of days in the relevant period.

Note: Fractions of a penny are rounded down for the annual income figure and rounded up for the “income threshold”.

See worked example (TCTM07APPX2)