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Tax Benefits for Families with Children in UK

5 min read
Tax Benefits for Families

The family package consists of an increase of the child tax credit and the child alimony tax credit, the introduction of a new child tax-free amount, the tax deductibility of child care costs and the option of a tax-free and social security-free subsidy by the employer.

Increased child tax credit

The child tax credit which is paid in combination with the family allowance is raised from $ 50.90/child/month to $ 58.40/child/month as from 1 January 2009.

The child tax credit is determined irrespective of the amount of income.

Precondition: Entitlement to family allowance.

How to receive the increased family allowance?

The increased amount is automatically paid together with the family allowance. For the first months of the year 2009 the increased amount is paid subsequently together with the family allowance (at the respective paying date).

Tax Benefits for Families

Increased child alimony tax credit

The child alimony tax credit to which e.g. a parent is entitled who pays alimony is raised from $ 25.50 to $ 29.20/month for the first child, from $ 38.20 to $ 43.80/month for the second child and from $ 50.90 to 58,40/month for any further child as from 1 January 2009.

How to receive the increased amount?

You receive the increased amount within the course of the tax assessment procedure for 2009 – therefore in 2010 for the first time.

New child tax-free amount

In order to offer an incentive to go back to work a new child tax-free amount has been introduced, whose extent is subject to several conditions. In principle, a tax-free amount of $ 220 per child may be claimed annually. If both parents claim the tax-free amount, both income earners are entitled to 60 % of the tax-free amount, which makes $ 132 for each annually. By allowing deducting 60 % of $ 220 per parent and thus resulting in a 20 % increase, a total of $ 44, when calculating the family’s income, the Tax Reform Law 2009 provides an incentive to go back to work.

Taxpayers with at least one child may claim a child tax-free amount as from 1 January 2009.

Precondition: A person (or his or her partner) is entitled to a child tax credit for that child for more than six months in the calendar year.

Extent: The child tax-free amount is $ 220/child/year (reduction of the taxable base). For the same child no other person may, however, claim the tax-free amount.

If a second person claims the child tax-free amount for that child (the partner of the person receiving the child tax credit or somebody receiving the child alimony tax credit for the same child), both persons may each claim $ 132/child.

How to profit from the relief?

If you claim the child tax-free amount you have to indicate your child’s (your children’s) social security number/s in your tax return.

Deductibility of child care costs

Costs for the care of children are deductible as extraordinary expenses as of 1 January 2009 up to a maximum amount of $ 2,300/child/year. Child care costs incurred since 1 January 2009 are deductible. Children up to the age of 10 years benefit there from.

Child care costs must be costs actual paid. Consequently, if child care costs are taken over by the employer in form of a subsidy, only the exceeding costs actually paid by the taxable person are deductible. Child care has to take place in private or public child care institutions (e.g. kindergarten, crèche, part-time boarding school, full-time boarding school) or has to be done by a pedagogically qualified person.

Which child qualifies for the benefit?

A child who has not finished his/her 10th year of life before the beginning of the calendar year and for whom one of the parents is entitled to claim a child tax credit for a period of more than six months during a calendar year or a child who has not finished his/her 10th year of life before the beginning of the calendar year and for whom the parent who is obliged to pay alimony is entitled to claim a child alimony tax credit for more than six months during a calendar year, under the condition that the child does not permanently reside outside the European Union, the EEA or Switzerland.

Who has to care for the child?

A public or private child care institution (e.g. kindergarten, boarding school, child care centre) or a pedagogically qualified person (e.g. childminder). A detailed list of qualified institutions and persons will be published in a decree.

How to profit from this relief?

In your tax return you have to indicate the actual child care costs together with your child’s social security number.

What does the payment of actual costs mean?

If a parent is granted a subsidy for child care costs by his/her employer the parent cannot claim a deduction of extraordinary expenses for the costs covered by the subsidy.

But subsidies by the employer do not diminish the maximum amount deductible as extraordinary expenses. This is of importance if costs are incurred which are as high as or higher than $ 2,300 including the subsidy.

Tax-free subsidy for child care

If the employer grants a subsidy for child care to all or certain groups of employees as of 2009 such subsidies are exempt from wage tax up to $ 500/child/year. An exemption from social security already applies without any limitation.

Which child qualifies for the benefit?

A child for whom one of the parents is entitled to a child tax credit for a period of more than six months during the calendar year and a child who has not finished his/her 10th year of life before the beginning of the calendar year.

Who has to care for the child?

A public or private child care institution (e.g. kindergarten, boarding school, child care centre) or a pedagogically qualified person (e.g. childminder). A detailed list of qualified institutions and persons will be published in a decree.

In which form must the subsidy be granted?

Either in form of direct payments from the employer to the qualified person or the child care institution or in form of vouchers, which may only be redeemed at child care institutions.

How to profit from this relief?

The employee has to declare to the employer that the requirements for the subsidy are fulfilled (e.g. entitlement to the child tax credit) and that in case of a further employment no second subsidy is granted for the same child. The declaration has to contain the child’s social security number.

West Midlands Accountants provide you complete detail about tax benefits for families with children in UK. Contact us today for latest tax benefits.