Tax credits
As previously announced, the childcare element of working
tax credit will rise in 2006/07 to 80% of costs up to £175 a week
for a single child (ie a payment of up to £140 a week) and £300
a week for two or more children (ie a payment of up to £240 a week).
The level of childcare costs covered will remain unchanged, but the other
elements of working tax credit will rise in line with inflation. The
first income threshold for working tax credit will be frozen at £5,220.
The child element of child tax credit will increase by 4.4%
to £1,765 in 2006/07. However, the family element of child tax
credit and baby addition will remain unchanged at
£545 for a third year. For those claimants not entitled to working
tax credit, the first income threshold (at which child tax credits other
than the baby and family element start to be withdrawn) will rise to £14,155.
The second threshold (at which the baby and family elements start to
be withdrawn) is again unchanged at £50,000.
From 6 April 2006, virtually no families will suffer a tax
credit clawback in the first year in which their income increases. This
is because the disregard for increases in income between successive tax
years will rise from £2,500 to £25,000 in 2006/07. However,
from April 2007 the time allowed to report a change that reduces entitlement
to tax credits will be cut from three months to one month.
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