3.This Act provides for the introduction of:
Working Families’ Tax Credit (replacing Family Credit); and
Disabled Person’s Tax Credit (replacing Disability Working Allowance).
3.These new tax credits were announced by the Chancellor of the Exchequer in his Budget Statement on 17 March 1998.
4.Both the tax credits will be introduced from 5 October 1999. Initially they will be paid by the Inland Revenue direct to recipients. In the case of employees, however, from 6 April 2000 the credits will, where appropriate, be paid by employers in wage packets. The Act includes the necessary provision for this. The self-employed will continue to receive their tax credits direct from the Inland Revenue.
5.The level of the tax credits will be set by statutory instrument.
6.The Working Families’ Tax Credit will go to around 1½ million families at a cost of around £4.9 billion.
7.The award of Working Families’ Tax Credit (WFTC) will be based on circumstances at the date of the claim and will run for 26 weeks. The main qualifications for entitlement will be that claimants must be working at least 16 hours a week and be responsible for children. It is available to both lone parents and those with a partner.
8.The WFTC will consist of:
an adult tax credit;
child tax credits for each child in the family (varying depending on the age of the child);
a 30 hour tax credit (if more than 30 hours a week are worked);
a childcare tax credit, providing help towards childcare costs.
9.The childcare tax credit is new (replacing the childcare disregard currently within Family Credit). It will provide 70% of eligible childcare costs up to a maximum spent of £100 a week for one child, and £150 for two or more children.
10.The total amount of the tax credit award will be withdrawn at the rate of 55 pence for each additional £1 of net earnings over a threshhold - income net of income tax and NIC, of £90 per week.
11.Disabled Person’s Tax Credit (DPTC) is similar to WFTC but eligibility will be based on disability affecting the applicant’s ability to work rather than responsibility for children - other eligibility rules will be the same. As with WFTC an award will be based on circumstances at the date of claim and run for 26 weeks. In addition to the tax credits making up the WFTC (including the new childcare tax credit) the DPTC will have:
a couples tax credit, and
a disabled child's tax credit
12.The total of these is the maximum award but, where earnings calculated under the rules exceed a threshold, DPTC - like WFTC - will be withdrawn at 55 pence for every additional pound of net earnings. Unlike WFTC, the DPTC will have separate thresholds for single people on the one hand and couples and lone parents on the other.
13.Like WFTC, the legislation establishes that it will be introduced in October 1999 and from April 2000 it will be paid, where appropriate, by employers through the wage packet.
14.The Act:
replaces Family Credit (FC), and Disability Working Allowance (DWA), benefits currently administered by the DSS with Working Families’ Tax Credit (WFTC) and Disabled Person’s Tax Credit (DPTC);
provides for the administration of the tax credits from October 1999 by the Inland Revenue;
provides that from April 2000 payment of the tax credits will be through the wage packet - the Act includes powers to make regulations requiring employers to administer payments of WFTC and DPTC;
provides for the protection of employees’ rights not to suffer unfair dismissal or other detriment;
provides for appeals on WFTC and DPTC claims to be heard by the new unified appeal tribunals established under the Social Security Act 1998, as they have the necessary experience to deal with the cases which come before them;.
provides for necessary exchanges of information between Inland Revenue and Department of Social Security for the purposes of the new tax credits and the remaining social security benefits to enable the business to be carried on;
ensures the security of WFTC and DPTC and combats fraud, using compliance provisions drawn from both the current social security legislation and the wider tax system; and
provides for WFTC and DPTC to be excepted matters for Northern Ireland, and outside the legislative competence of the Northern Ireland Assembly. This is because the tax credits will be administered by the Inland Revenue as part of the tax system.
15.The greater part of the Act consists of amendments to existing legislation: principally the Social Security Contributions and Benefits Act 1992 and the Social Security Administration Act 1992 (and the corresponding Northern Ireland legislation) and the Taxes Management Act 1970.
16.The Act will come into force on 5 October 1999, except for the transitional provisions in section 17(1) (which come into force at Royal Assent), the provisions relating to the requirement for employers to pay the tax credits (which come into force on 6 April 2000), and the provisions relating to the fast-track gateway to DPTC (which come into force on 1 October 2000).
1.These explanatory notes relate to the Tax Credits Act 1999. They have been prepared by the Inland Revenue in order to assist the reader of the Act and to help inform debate on it. They do not form part of the Act and have not been endorsed by Parliament.
2.The notes need to be read in conjunction with the Act. They are not, and are not meant to be, a comprehensive description of the Act. So where a section or part of a section does not seem to require any explanation or comment, none is given.