MICHAEL Proudfoot, a director at the Kendal office of Lonsdale & Partners Chartered Accountants, reports on the new child tax credit in his latest article for Business Gazette.

The new Child Tax Credit will start to be paid to parents and carers from this month as long as they have claimed it. Great news but what are the rules and how do you go about claiming? Here are 10 things you need to know about the Child Tax Credit.

1 Don't be fooled by its name: Child Tax Credit has nothing to do with tax. It is a benefit paid in cash, in much the same way as child benefit.

2 The amount of cash you receive depends on your total household income, the number of children you have, and the amount of child care costs you pay. Extra benefit is paid if you have a child who is less than one year old.

3 On top of the Child Tax Credit, you may also receive the Working Tax Credit. This is usually paid to families earning less than £14,900 where at least one parent is in paid work.

4 To take an example, let's say you are a couple, you both work full-time and your household income is £20,000 a year. You have two children and you pay £60 a week in child care costs. You will then receive £71.85 a week from the Inland Revenue.

5 If your income is, say, £30,000 a year, you will receive £10.48 a week. In fact, you can earn as much as £50,000 a year and still receive £10.48 a week. And if you have a new baby in the year, the amount you receive can be increased by a further £10.48 a week.

6 To qualify for Child Tax Credit, you must have a child of 16 or under in the year ending April 5, 2004, or a child of 18 or under who is in full-time education (but not in advanced education eg at university). The child need not be your own child, but you must be his or her main carer.

7 The Inland Revenue will pay towards child care costs if both partners are working (minimum of 16 hours a week) and the child is looked after by an approved child minder. They will also pay towards the cost of out-of-hours clubs run by a local authority.

8 To claim Child Tax Credit, you must complete a claim form. If you have not already received one by post, phone 0845-300-3900 to have one sent to you, or complete the online application form at http://www.inlandrevenue.gov.uk. The credit is available both to couples and to single parent families, but couples whether married or not must make the claim jointly.

9 The Child Tax Credit is paid direct into your bank account. You must therefore give details of your bank account on the claim form.

10 You need to claim NOW if you want payments to start in May. You will lose credits if you put it off too long, as you can only backdate claims up to three months. In other words, you must claim by July 5 to avoid losing this benefit.

The bad news is that if you want Child Tax Credit, you will have to complete a form every year, giving details to the Inland Revenue of your income and child care costs. This is on top of the income tax return that you may already have to submit. It is a fair bet that, in time, the Inland Revenue will compare your tax return with the child tax return form, but it will have its work cut out to administer this hideously complicated system.

April 24, 2003 11:00