In England, as in many other parts of the world, the tax code can be, not only hard to decipher, but time-intensive to navigate as well. It pays to know the ins and outs of the British tax code so you can find hidden benefits and credits. Many of these benefits are for low income families as well.
Take, for example the working tax credit offered by the British government. Many people may not even be aware that it exists. This tax credit is designed to help working-class families earning low incomes. This tax credits was first introduced in 2003 as part of the refundable tax credit system. This benefit also extends to the child tax credit for those who have children. This benefit can be claimed by workers, couples without children and working families with dependent children.
The History of the Working Family Tax Credit —
The Working Family Tax Credit (WFTC) is one part of an evolution of benefits put forth by the British government in 1999. These benefits were designed to provide help and support to working individuals who didn’t earn over a specific income. The eligibility for the benefit was assessed by an annual income report and this credit replaced many other tax breaks, such as the disabled person’s tax credit.
How the Working Family Tax Credit Works-
The first step for individuals who feel they qualify for the working family tax credit is to submit an application to the office of HM Revenue and Customs. The office then calculates a provisional credit for the applicant based on their previous year’s earnings and the credit is then awarded. The applicant receives their award bi-weekly or monthly for the remainder of the tax year. Applicants for this tax benefit may request their award be calculated based on the current years earnings, however, this method may incur some penalties.
When the tax year has elapsed, the office of HM Revenue and Customs then sends renewal forms to the claimant requesting they declare their income from the previous year. Those who cannot provide exact figures may indeed submit an estimate to the office but this figure will then need to be verified within a certain time-frame. The office will then make a final calculation and decide the award. This amount may be more or less than the initial provisional amount offered by the office of HM Revenue and Customs.
Calculation of Working Family Tax Credit- Using Various Elements —
The actual award is calculated with a simple formula: Working Family Tax Credit Award = Elements – Withdrawal. These elements are based on certain factors, such as hours worked per week, number of dependents in a household, number of parents in a household and so on and so forth. All the elements that apply to a claimant’s situation are factored in and the award figure is generated.
Overall the WFTC is part of an ever-evolving tax code. In fact, this particular benefit will actually give way to the Universal Credit, which will be implemented in 2016. Of course there are many critics of this particular benefit. Some say the methods used in calculating payments can lead to overpayment of benefits. These over-payments may then carry with them strict demands for repayment, which many who are struggling financially may find difficult to repay. Overall many agree the system is effective at combating poverty in Britain. Time will tell if the tax benefit system can truly thrive.
At YourFamilyFinances.com we are not registered investment advisers and do not provide any individualized advice. Check with your personal adviser before proceeding.
