How will the tax credit changes affect you?
How will the tax credit changes coming in this month affect you?
A raft of changes come in on 6th April. They will mean most parents who work at least 30 hours a week, have more than one child and earn over £26,000 will lose an average of £545 in child tax credit. However, some families will benefit with households with two full-time workers, two children, no childcare costs and less than £25,000 in earnings and families with two children, a household income of £40,000 and childcare costs of over £300 a week seeing their credits rise.
April will also see a change in the working tax credit rules around hours worked which will mean couples with children will have to work at least 24 hours to qualify, rather than 16 hours.
One person who got a letter from the HMRC last year alerting her to the changes who feared she would lose vital credits is Kim Kaze, who lives in Keynsham, Somerset.
She has a 15-month-old daughter. Her previous contract came to an end when she went on maternity leave, but she was head hunted a month and a half after the birth by Airbus, a former employer. “It was far too early for me, but they kept asking me and by three months after the birth I said yes because it worked out for us as a family,” she says.
She started part time on 20 hours a week in a flexible pattern, meaning she did a full day on Wednesday and Thursday and a half day on Friday. Her husband had been studying and was looking for work. That meant he could take on the childcare and the couple could save money on childcare costs. It seemed to make good sense for Kim to take the job offer.
Her role comes under the Official Secrets Act so she can only say that it involves data processing. She has a one-hour commute, which she does by car due to poor public transport links.
When she was told about the tax credit changes, she was very worried. “Tax credits are the difference between us making ends meet and really struggling,” she says. “Without them we could not afford to live in this area near our family and friends who can help with the baby. Like so many other people, I relied on those little top ups to get the basics in."
“I explained why and that come this April it would not be worth me coming to work as I would lose most of my tax credits,” she says. She was given the extra hours and in December got an extra 60 hours. She is now working 30 hours a week.
She realises she is very fortunate. “If I was in a sector where I was on more rigid shifts, I wouldn't be able to just add on hours. I would have to get an extra job or change work entirely. A lot of people will be stuck,” she says.
She reckons she would have lost around 70 per cent of her tax credits - £350 a month - if she had not got the additional hours.
Her husband is hoping to find a job, but Kim says they are trying to look at their situation in a positive light. "If he doesn't find a job at least we will have a parent at home with our daughter. If he does find work my mum will do the main part of the caring,” she says.
A survey last month by Working Families found two thirds of employers were unaware of the changes to Working Tax Credit coming in in April and less than a fifth were confident they could accommodate increases in working hours for staff.
Meanwhile, when the Universal Credit comes in next year everything will change again. Help with childcare costs will be extended to parents working below 16 hours a week on the same terms as presently offered to those working more than 16 hours. However, family campaigners say the Universal Credit will mean some families lose out.
A recent analysis by the Resolution Foundation for Gingerbread concludes: "The Government will spend approximately the same amount supporting childcare under Universal Credit as it did under the pre April 2011 system. It will put extra resources into enabling people to work short hours by helping them with their childcare costs, as well as making them eligible for other parts of Universal Credit. To pay for this, support for everyone has been reduced. This will particularly affect work incentives for people on modest but not very low wages, people working enough hours not to have any entitlement to Housing Benefit and second earners. Overall, it will mean that while Universal Credit helps some of the poorer families on benefits to become a bit better off, it will limit the potential for families on modest means to rise above a minimum living standard. For such families, it will put a lid on aspiration."