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HMRC internal manual

Tax Credits Technical Manual

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

Income is greater than income threshold

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

The difference between the income amount and the “income threshold” is used to reduce the value of the award due.

If the award is made up of several entitlements each of the entitlements must be reduced in a set order as follows

  • WTC Work Elements entitlement at the taper rate of 41%
  • WTC child care element at the taper rate of 41%
  • CTC child elements at the taper rate of 41%
  • CTC family element at the taper rate of 41%

The first entitlement to be considered will be the one that appears highest in the order.

A taper amount is calculated by deducting the “income threshold” applicable to the entitlement from the income and multiplying the result by the taper rate for the entitlement, rounding down fractions of a penny.

See worked example (TCTM07APPX2)