Reversal of most of the tax credit proposals
A number of changes to tax credits and Universal Credit were announced in the July Budget but the Chancellor has scrapped some of the changes following a defeat of the proposals by the House of Lords. The government has confirmed that:
- The rate at which a tax credit claimant’s award is reduced as each pound of their income exceeds the income threshold (known as the taper rate) will remain at 41% of gross income from April 2016.
- The level of income at which a claimant’s tax credit award begins to be tapered away (known as the income threshold), will remain at £6,420 per year from April 2016. Claimants earning below this amount will retain their maximum award.
- The income rise disregard in tax credits will reduce from £5,000 to £2,500. This is the amount by which a claimant’s income can increase in-year compared to their previous year’s income before their award is adjusted.
Changes to the prospective Tax-Free Childcare scheme
Under the scheme, which is expected to launch in 2017, the relief will be 20% of the costs of childcare up to a total of childcare costs of £10,000 per child per year. The scheme will therefore be worth a maximum of £2,000 per child (£4,000 for a disabled child).
The government has announced changes to the conditions to qualify for Tax-Free Childcare. All parents in the household must:
- meet a minimum income level based on the equivalent of working 16 hours a week at the National Living Wage (increased from eight hours at the National Minimum Wage)
- each earn less than £100,000 a year (reduced from £150,000), and
- not already be receiving support through tax credits or Universal Credit.
The Chancellor of the Exchequer, George Osborne, has announced that the government will publish its next Budget on Wednesday 16 March 2016.