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In the UK, people who work but have low incomes, receive working tax credit from the government. The purpose of this credit is to provide financial support to low-income households. Working tax credit also has an additional element for childcare costs. Under this element, you can claim a certain amount spent on childcare expenses such as nursery, play scheme, among others.
Government has categorized the population into two categories for providing working tax credit.
Based on the categories listed above, working tax credit has different elements under each category. The amount of working tax credit available to each household depends on the element. For example, a couple that applies for this credit together will get up to £1,990 per year. If you add the childcare element, you can get up to 70% of the costs incurred on childcare. The maximum limit for childcare is £122.50 every week for each child or £210 every week for two or more children.How does working tax credit affect the household budget?
Working tax credit increases the income of a household. The amount is credited either every week or every four weeks. This amount is paid straight into the bank account, building society account or credit union account. It can also be deposited into a post office card account.
Let us say if you and your partner have a combined annual household income of £35,000. If you are eligible for a combined working tax credit of £1,990 per year, this amount gets added to your income. So, your annual household income will now be £36,990.
Continuing with the above example, suppose you incur nursery fees for your child. In this case you can get an additional working tax credit of up to £5,880 each year (£122.5 x 4 x 12). So, instead of £35,000 you have £42,870 (35,000+1,990+5,880) for your various household expenses.
You can use our household budget calculator to learn more about how the working tax credit can affect your household finances.