If tax credits are your salvation, what about the families they've damned?

The 10p tax is going, so can a derided system take the strain for low earners?

Tax credits are rarely out of the spotlight, and few are the occasions when that light is kind to them.

Launched in April 2003 as one of the Chancellor's flagship policies to help low-income families, this means-tested allowance has driven many people further into poverty rather than lifting them out of it.

As many charities will testify, the scheme is not only complicated but has been plagued by administrative errors and computer glitches. Together, these elements have inflicted distress and frustration on thousands of families as incorrect sums of money have been both paid into - and then pulled out of - their accounts.

The struggles with tax credits are well documented and Gordon Brown's Budget last month only added fuel to the fire. His abolition of the "starter rate" 10 per cent tax band was criticised for hitting the less-well-off, who will, from next year, have to pay tax at the new basic rate of 20p on any income over their personal allowance.

The Treasury defended this move by announcing extra cash via both child tax credits (CTCs) and working tax credits (WTCs). But many question whether the revalued benefits will offset the tax changes.

"It is now seemingly a necessity for those with incomes between £5,255 and £18,605 to get to grips with the tax credit system and claim in order to negate their losses through other tax measures," says Francesca Lagerberg of accoun- tants Grant Thornton.

She stresses that while the Chancellor continually pledges support for low-income families, this seems a complex way of providing that support. "Tax credits may in some cases claw back lost income but they are often difficult to claim - and some lower earners may not be eligible."

Katie Lane, a social policy officer at Citizens Advice, says that the effort involved in taking up the credits puts many lower earners at a disadvantage.

"Claimants need to keep their financial details up to date and inform [the taxman] of any change in circumstances," she says.

"But those who are going to depend on these credits the most may not have the time or resources to do this."

Some people who benefited from the 10p starter tax will lose out under the changes because they will no longer be eligible for credits, she adds.

"Whereas the tax system is based on individual income, the tax credit system is based on household income. This could disqualify you from claiming if the joint income is too high."

John Whiting of accountants Pricewaterhouse-Coopers defends the concept of tax credits: "The CTC targets households with children, which is a good thing, while the WTC tries to make it easier for people to take lower-paid jobs and get back into work. The credits also aim to be responsive, altering in line with changes in circumstance, and are targeted - rather than just spraying money all over the place."

But the problem, adds Mr Whiting, is that these same elements have put people off claiming. "In a sense, the whole system was built to cause complexity," he explains. "When you claim, your award is based on your income from the previous year, and very often this needs to be adjusted."

For example, a common cause of overpayment into people's accounts is claim- ants forgetting or failing to tell the taxman promptly about a change in income.

In the 2005-06 financial year, Citizens Advice dealt with more than 150,000 problems relating to WTC and CTC. Its figures suggest one in three claimants have been overpaid - leaving many in dire straits as Revenue & Customs tries to claw back the money.

"Families are finding themselves struggling to repay large amounts without receiving proper explanations of how the liability has arisen - and without being given notice before [the debt] recovery starts," says Ms Lane. "Thou- sands of families are also being threatened with court action for the recovery of overpayments - sometimes without even knowing the amount due."

Some people who have encountered problems are now reluctant to claim what they are entitled to, she says - adding to the problem of low take-up that has long plagued the scheme.

While there are now signs that things are improving, figures from Citizens Advice suggest a quarter of eligible claimants are still not asking for the money.

There are several reasons for this, says Mr Whiting. "Some people don't know they are entitled to claim, some don't understand the system, and some are put off by the stories they hear."

There are also concerns that the claim forms are too long and complex and that people do not always get the help they need.

However, Mr Whiting believes that the system has become easier. "You can now do more online and the helplines have got better. And we must not lose sight of the fact that tax credits have handed out a lot of money, and most of that has gone to those who need it."

'This is money I didn't expect to lose'

April Martin from Bognor Regis has spent two years trying to rectify the problems she encountered while claiming tax credits for her three children - Georgia, nine, Emily, six, and Ben, three.

April, a part-time teacher, contacted Revenue & Customs when her husband left the family home - to inform the taxman of a change of circumstances, and to put in a claim as a single person.

It was when her husband returned four months later that her problems began.

"I was given bad advice by staff on the helpline - which meant that when I made my claim, the calculations were not done correctly. And now, Revenue & Customs is demanding money back from me," says April. "What is so frustrating is that I have to explain the whole story all over again each time I contact the helpline. And despite writing dozens of letters, I never get the same person dealing with my claim. It's completely inconsistent."

With Revenue & Customs trying to claw back overpayments, it is hard for April to budget. "For a few months I had been receiving around £140 a month in tax credits, but in February and March this dropped to £6. I have now been informed this will go back up to £120 in April. "This is money I didn't expect to lose. I am now trying to challenge the taxman over what has happened."

Who's eligible for the credits and how much will they get?

The CTC is for people either in or out or work who are responsible for at least one child under 16, or under 19 if they are still in full-time education.

How much you receive depends on two elements - the number of children you have and whether you're part of a couple or are a single parent - as well as your household income: The cut-off point for qualifying for the CTC is £58,000.

WTC rewards those in low-paid employment. You must work a certain number of hours each week and your income mustn't breach a certain level. All sorts of personal circumstances apply. For example, you may get the WTC if you're over 50, work 16 hours a week and were getting certain benefits when you took your job.

The value of the "child" element of the CTC will rise by around £150 in April 2008 to some £2,080 a year; the "family" element remains the same, according to trade body IFA Promotion.

The threshold to qualify for the maximum WTC entitle- ment will rise by £1,200 to £6,420 a year in April 2008. The basic element of the WTC will go up by £65 this month to £1,730 a year.

The calculations are complex, so contact a body such as Citizens Advice for help checking your entitlement.

To apply for the CTC or WTC, contact the tax credit helpline on 0845 300 3900 for an application form.

This form requires a lot of information - including your income from the previous tax year. So keep as much evidence as you can of your personal circumstances - such as P60s, statements on benefits, and records of any savings you have.

For more information go to www.adviceguide.org.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Life and Style
tech
News
The 67P/CG comet as seen from the Philae lander
scienceThe most important scientific breakthroughs of 2014
Arts and Entertainment
Ian McKellen as Gandalf in The Hobbit: The Battle Of The Five Armies
film
Arts and Entertainment
Sarah Koenig, creator of popular podcast Serial, which is to be broadcast by the BBC
tvReview: The secret to the programme's success is that it allows its audience to play detective
News
Ruby Wax has previously written about her mental health problems in her book Sane New World
people
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Marketing Services Manager - (communications, testing, DM)

    £32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

    Guru Careers: Finance Account Manager

    £Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

    Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

    £40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

    Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

    £45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

    Day In a Page

    Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

    Homeless Veterans appeal

    In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
    Could cannabis oil reverse the effects of cancer?

    Could cannabis oil reverse effects of cancer?

    As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
    The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

    The Interview movie review

    You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
    Serial mania has propelled podcasts into the cultural mainstream

    How podcasts became mainstream

    People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
    Jesus Christ has become an unlikely pin-up for hipster marketing companies

    Jesus Christ has become an unlikely pin-up

    Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
    Rosetta space mission voted most important scientific breakthrough of 2014

    A memorable year for science – if not for mice

    The most important scientific breakthroughs of 2014
    Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

    Christmas cocktails to make you merry

    Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
    5 best activity trackers

    Fitness technology: 5 best activity trackers

    Up the ante in your regimen and change the habits of a lifetime with this wearable tech
    Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

    Paul Scholes column

    It's a little-known fact, but I have played one of the seven dwarves
    Fifa's travelling circus once again steals limelight from real stars

    Fifa's travelling circus once again steals limelight from real stars

    Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
    Frank Warren column: 2014 – boxing is back and winning new fans

    Frank Warren: Boxing is back and winning new fans

    2014 proves it's now one of sport's biggest hitters again
    Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

    Jeb Bush vs Hillary Clinton

    Karen Tumulty explores the power dynamics of the two first families
    Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

    Stockholm is rivalling Silicon Valley

    The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
    Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

    Crucified Santa: Urban myth refuses to die

    The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
    Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

    The Boy in the Dress: On set with the stars

    Walliams' story about a boy who goes to school in a dress will be shown this Christmas