Say Hello to WFTC Wave Goodbye to FC and DWA
The Tax Credits Act 1999 received Royal Assent on 30 June 1999, the Inland Revenue
have now issued draft regulations that provide for the abolition of Family Credit (FC)
and Disability Working Allowance (DWA) from 5 October 1999, and the introduction in
their place of Working Families Tax Credit (WFTC) and Disabled Persons Tax Credit
We provide here an overview of the new system as it is currently intended to operate.
Should the provisions be further amended we will keep you informed through Review
and the RightsNet site.
Who will be entitled?
The conditions of entitlement to the tax credits will closely mirror the rules for FC/DWA.
Both have been designed as means tested payments aimed at low paid, full time
workers with either dependant children (WFTC), or a disability which results in the
person being at a disadvantage in getting a job (DPTC).
Working Families Tax Credit
Entitlement if –
the claimant or their partner normally work for 16 hours or more each week
they have one or more dependant children
residence conditions are satisfied – as for FC (NB – the Asylum and Immigration
Bill which is expected to receive Royal Assent in October 1999 proposes that
those “subject to immigration control” should be excluded from entitlement to FC
– we expect the same exclusion to apply to WFTC)
the means test is satisfied (upper capital limit = £8,000)
Disabled Persons Tax Credit
Entitlement if the claimant -
normally works for 16 hours or more each week
is at a disadvantage in getting a job because of disability (as for DWA)
is, or has recently been, in receipt of a qualifying benefit . Again the same rules
will apply as for DWA except that -
the condition will be satisfied providing the claimant had been entitled to a
qualifying benefit at any time in the previous 182 days (for DWA this had
been 56 days only)
from October 2000, there is to be an additional qualifying route for those
who are in employment when their health deteriorates providing they have
received Statutory Sick Pay for 20 weeks, their condition is likely to restrict
their ability to work for at least a further 6 months, and their earnings on
returning to work have been reduced by 20% or more.
satisfies residence conditions - as for DWA. (Again, we anticipate that the
Asylum and Immigration Bill will exclude those “subject to immigration control”
from entitlement to DPTC)
satisfies the means test (upper capital limit = £16,000)
The FC and DWA Units are to be transferred to the Inland Revenue (IR) and will be
known as “Inland Revenue Tax Credits Offices” based in Preston, Blackpool, Liverpool
and Belfast. Claim forms for the new credits will be widely available from a new tax
credits helpline, and from the Benefits Agency, jobcentres, Post Offices, CABx.
Tax credit applications submitted on or after 20 September 1999 will be treated as
made on 5 October 1999. In addition, applications for FC/DWA made on or after 7
September 1999 can be treated as tax credits claims providing there would have been
no FC/DWA entitlement.
NB:- Transitional Period FC/DWA awards in existence at 5 October 1999 will
continue until their expiry – the claimant will then be invited to apply for tax credits
instead. Given that the tax credit means test is more generous than that for FC/DWA,
and that awards are fixed for 26 weeks, it may be advisable for those whose FC/DWA
awards expire shortly before 5 October 1999 to consider delaying their renewal claim
until after this date.
More Help for Children
Child Support Advisers may be aware that FC/DWA claimants can be
required to co-operate with the Child Support Agency. Importantly, for the new tax
credits there is no such requirement. In addition maintenance received is disregarded in
full in the assessment of income for the purposes of the tax credit means test
Childcare Tax Credit Childcare costs will be taken into account in the tax
credit means test not via an earnings disregard, but by means of the inclusion of a
childcare credit as a constituent element in the calculation of the maximum tax credit.
This is expected to bring more low income families within the scope of entitlement to the
tax credits – previously those on the lowest incomes did not gain from the earnings
In addition, the scope of eligible childcare is to be widened and the upper age limit for
qualifying children is to be increased to the September after the childs 15th birthday (or
the September after the 16th birthday for disabled children)
Until April 2000 payment of tax credits will be made by the IR by means of automated
credit transfer, order book or girocheque. Awards will in most circumstances be fixed for
For WFTC, where the tax credit claimant is a member of a couple, there will be a choice
as to who receives the credit. In the event of a dispute, payment will be made to the
partner with primary responsibility for the child(ren). For DPTC, payment will always be
made to the disabled person.
From April 2000 the primary responsibility for payment will switch from the IR to the
employer with credits being paid at the same interval as pay. If the claimant has two
employers, the employer paying the most at the date of application will pay the tax
If however the tax credit recipient is either self employed or the non-working partner in a
couple, payment will continue to be made by the IR
NB:- Lone parents will not be given a choice as to the method of payment. In
consequence, lone parents in employment will always be will be paid via the employer
from April 2000.
The IR will offset credits paid by the employer against their PAYE/NI liability. If the
credits paid exceed the PAYE/NI liability, the employer can apply to the IR for funds to
pay the credits from.
At the commencement of the tax credit award or on a person starting a new job, the IR
will give the employer notice to commence payment, within 14 days if the employee is
paid weekly, or within 42 days if there is a longer pay period
The notification to the employer will detail the date of commencement of payments and
of the daily rate. To preserve the employees confidentiality, no mention will be made of
the type of tax credit to be paid nor of the elements of the award. Tax credits will be
detailed by the employer separately on the wage slip, and on the P60. Claimants will
also receive a separate notification direct from the IR.
Should the tax credit claimant leave their job, the employer will issue a Certificate of
Payment detailing the tax credits that have been paid. The claimant should send the
Certificate to the IR who will then take over payment of the tax credits until the person
commences new employment or the award expires.
Issues relating to, for example, whether a tax credit overpayment has arisen and/or
whether such an overpayment is recoverable, will be determined in accordance with
benefit regulations. However, any recovery will be carried out by the IR as if the
overpayment were underpaid tax.
The IR have a range of financial penalties at their disposal that can be imposed on
employers or the tax credit recipient for fraudulently or negligently making false
statements, failing to provide information etc. These sanctions are based in tax law and
can attract interest.
Disputes, Reviews and Appeals
If a claimant is in dispute with their employer they are encouraged in the first instance to
attempt to resolve the matter with them. There will be provision however to also ask that
the IR become involved should the dispute not be resolved satisfactorily. Importantly,
employees are to have protection from unfair dismissal in connection with a tax credit
issue regardless of how long they have been in employment
Claimants will have a right of review of a decision relating to whether they should be
entitled to tax credits and/or the amount of payment. The review will be carried out by
the IR. Claimants will also have a right of appeal to the Unified Appeal Tribunals that
have been established under the Social Security Act 1998.
Whilst employer appeals against the imposition of a penalty will be heard by the tax
commissioners, Unified Appeal Tribunals will hear claimant appeals.
Passported Benefits In consequence of the fact that the tax credits are to be more
generous than FC/DWA there is reluctance to extend full passporting to all tax credit
Instead it is proposed that broadly the same groups that would currently be entitled to
passported benefits as a result of entitlement to FC/DWA, will also be able to access
the same range of benefits in consequence of entitlement to WFTC/DPTC. It is
proposed therefore that those tax credits recipients with net incomes above £11,250 per
annum will not enjoy automatic passporting.
All tax credit recipients will have access to Maternity Expenses Payments and Funeral
Expenses Payments from the Regulated Social Fund.
Housing Benefit/Council Tax Benefit In the majority* of cases tax credits will
be taken into account in full as income in the assessment of HB/CTB – in consequence,
for many claimants, the extra income generated by the more generous tax credit means
test will be offset by reductions in HB/CTB entitlement.
However some changes are to be made to the HB/CTB means test to bring the
calculation of these benefits in line with the new tax credits.
Whilst childcare costs are to remain an earnings disregard, the disregard is to be
increased to £70 for one child, and to £105 for 2 or more children (this equals the
maximum childcare tax credit in WFTC/DPTC once the 55% taper is applied)
In addition the age limit for qualifying child in relation to eligible childcare is to be aligned
with the increases to be introduced with the tax credits
Finally there is to be a new earnings disregard which will apply in the majority* of cases
where hours of work are 30 or more each week. The disregard will equal the 30+ hours
credit in the tax credit means test.
*to complicate matters, there will be a tax credit disregard (up to the level of the
30+hours credit) in those cases where earnings are less than the sum of the earnings
disregard, 30+hours credit and any childcare cost disregard.
Whilst the tax credit means test is based on the FC/DWA calculation, it is more
generous as a result of -
a higher Applicable Amount
a taper of 55% as income rises above the Applicable Amount
increased credits for adults and younger children
a childcare tax credit payable instead of a childcare costs earnings disregard
Step#1 Calculate income
– as for FC/DWA except no childcare costs earnings disregard, and
maintenance received is fully disregarded
Step#2 Work out the claimants Maximum Tax Credit
– ie the sum of…
adult credit single person 52.30 54.30
couple/lone parent 52.30 83.55
credit for employment of 11.05 11.05
30 hours/week or more
to Sept after 11th birthday 19.85 19.85
to Sept after 16th birthday 20.90 20.90
to day before 19 birthday 25.95 25.95
disabled child credit from Oct 2000 21.90
childcare credit 70% of eligible costs up to max.
weekly costs of £100 for one
child, £150 for 2 or more children.
Step#3 Compare Income with the Applicable Amount
Applicable Amount = WFTC DPTC
Single person 90.00 70.00
Couple/lone parent 90.00 90.00
If the claimants income is below their Applicable Amount, the maximum
tax credit is paid
If the claimants income exceeds their Applicable Amount the maximum tax
credit is reduced by 55% of the excess.