Claim What's Rightfully Yours in Tax Back and Vouchers

Get your hands into Darling's pockets

• Claim back free money in tax refunds
• Make sure you're getting all the tax credits you should have
• Check if you're able to get childcare vouchers

According to HM Revenue and Customs an incredible one in three people are paying too much tax. That means that the tax office owe money to a third of us! The tax people also say that a further nine out of ten families with children are not claiming the tax credits they're entitled to.

However, you don't have to have children to qualify for tax credits. There are loads of different credits and it's worth a look to check if you qualify for some help.

What this all adds up to is that the government could owe you a lot of money. Read on to find out how to check if you are owed money and if so, how to get your hands on it!

Tax Refunds

Tax refunds are given to you if you have paid too much tax. The Inland Revenue has millions of unclaimed tax refunds from people paying too much tax because they had the wrong PAYE (Pay As You Earn) code or because of mistakes in their self-assessment forms. Now, you would think that the Revenue would get in touch with you as soon as they found out the mistake and send you a nice, fat cheque for what you are owed. No. That rarely happens.

You need to claim that money back yourself. But don't be put off. It's actually pretty straightforward to do and you could be eligible for a bigger refund than you think. Claims can be made for as far back as six tax years and all you need to do is go online where you fill out a few details and your return can be calculated within 24 hours, with immediate estimates.

Where do you go to get started?

Get online at HM Revenue and Customs and you can start claiming refunds from up to six tax years ago - that's six lots of '6 April to 5 April'.  Use their free online tax calculator to find out how much you can start claiming back. If you find you are due a refund it should take between four to eight weeks for your delicious cheque to arrive.

You are almost guaranteed to get a tax refund if:

• You have not worked the full tax year   
• You are leaving the UK or have left before the end of the tax year
• You have worked during the tax year without a permanent NI number
• You are a student who worked during your holidays or anybody who has paid emergency tax  (i.e. you have been put on the 'emergency tax code' while the tax office worked out what tax code you should really be on)
• Your earnings during the tax year were below the tax-free allowance
• You have been on the wrong tax code
• You are working on a CIS25 basis in the construction industry
• You are a higher rate income tax payer who has made Gift Aid donations

What are tax credits?

A tax credit is money that HM Revenue and Customs (HMRC) pays directly into your bank account in order to improve your income. The original idea was to stop the craziness of people staying unemployed and on benefits because it wasn't financially worth their while to go out and get a job. The tax credits are designed to encourage people on relatively low incomes to stay in work rather than go on benefits.

However, as many families have found, the tax credit system, though well-intentioned, doesn't always work as it should. They're supposed to help, but because they were badly administered in the last few years, some people were paid too much in credits and are now struggling to pay them back. If you are in this situation, tell us about it on the messageboards.

When the system works, though, it represents some very helpful extra cash each week or each month.

How do they work?

Tax credit payments are based on each individual circumstance and income - the lower your income the greater your credits will be. The amount of credit you receive will also depend on the following criteria:

• How many children you have living with you
• Whether you work - and how many hours you work
• If you pay for childcare
• If you or any child living with you has a disability
• If you're aged 50 plus and are coming off benefits

When are they paid?

When you make a claim for tax credits your payments will usually be paid from the date of your claim to the end of the tax year. So if you made a claim on 1 September 2008, your payments would be worked out from then until 5 April 2009.

Since payments are directly based on your annual income you will have to renew your claim annually and specify any changes to your income or situation. To make sure they are paying you the correct amount the Revenue send out a questionnaire every year during April, May and June asking you to:

• Verify that your personal information is still correct
• Confirm your income for the tax year that has just ended
• Renew your claim 

Single claims or claiming as a couple?

If you are living with a partner or married, you must apply jointly with your partner and you must both qualify for Working Tax Credit before payments can be made. If you are single and living alone you can apply to make single claims.

If you are going to be making claims for Child Tax Credit with your partner, only one of you will be paid the credits. You must therefore decide who will be applying as the ‘main carer’ and it will be their account that is credited.

Figure out how much money you could earn in tax credits with the HRMC online calculator.

What are the different tax credit categories?

There are loads of tax credit categories. Visit the HM Revenue and Customs for information on who qualifies and how to apply. The different tax credits that you could apply for are:

Additional childcare tax credits – These credits help you with various costs of raising children from childcare and living expenses to taking care of a disabled child.

Work tax credits – These are credits that you receive on your working pay.

Disabled tax credits – This is for you if you have a disability and you work an average of 16 hours or more a week.

Claiming tax credits if you live outside the UK – If you must work out of the UK either because you are a Crown Servant or a civil servant employed by the UK Government or a member of the armed forces working abroad you may be able to get tax credits. 

Going abroad temporarily and claiming tax credits – When you are away for up to 12 weeks for medical treatment or a family death you are still eligible for tax credits. You are also eligible for tax credits if you are out of the country for up to eight weeks.

New Arrivals to the UK Credits – Even though there are some strict rules in this category you can still apply for tax credits when you first settle in the UK.

Over 50s Returning to Work Credits – If you are over 50 and returning to work for at least 16 hours a week after being on state benefits, you may be able to get extra tax credits.

What do you need to do next?

If you go directly online and apply through HM Revenue and Customs (HMRC) then there are no associated costs. You are doing all the work and claiming yourself so you don’t need to pay anyone. These credits are rightfully yours to claim. There is an entire section on the site that details exactly how to claim back all your money. You can find out within 24 hours how much you are entitled to and process your claim online while enjoying a cup of tea in your pyjamas. 

How much can you expect to get back?

This usually depends on how much you’ve earned in a year and how much tax you’ve paid. There is a set amount of income earned which is tax free, this is called your tax free allowance. This year your personal allowance is £5,435.

This table shows what your personal tax allowance would be from 2002/2003 to 2008/2009.

For someone who earned less than £5,225 during 2007/2008 they would be refunded the entire amount of tax paid during the year.

You will need to have your P60/P45 from your employers for the tax years that you would like to make claims for. You can also make a claim with a Statement of Earnings however this will slow down the process as the Revenue will double check all the information before they will process your claim.

Just in case there is some confusion about what forms you are asking for a P45 is the statement of income and tax that you receive from your employer when you no longer work there. You need to keep this form for tax purposes, but you should also give your new employer a copy of your P45 so that they will put you in the correct tax code.

The P60 is your statement of income and tax up to the end of the tax year. Employers tend to hand these out in April/May.

If your employer is not sure of what tax code you should be in they put you on the emergency tax code. In this code you are paying tax at a rate of 20% (formerly 22%) without a tax free allowance. This is usually the code you are placed in when you first start a new job or are working without your full NI number yet. In most cases you should be able to claim any extra tax that you may have paid.

Childcare vouchers

Essentially you and your employer split the cost of childcare. A certain amount is taken out of your salary and in turn you get vouchers that go towards covering the cost of your childcare. You will not have to pay any tax or NI contributions on the first £55 per week or £243 per month. If your vouchers exceed these set amounts you will pay tax and NI contributions on the remainder. 

Getting vouchers from your employer is better than them covering the cost directly by giving money to either you or your childcare provider. This is because you will pay tax and NI contributions on any cash given to you for childcare. Stick to the vouchers, you’ll save yourself money.

Both you and your partner are able to claim the £55 weekly vouchers at the same time which means you can double the saving. You can also save up your vouchers and use them when you need them the most. During school holidays your childcare costs increase, and this could be a good time to make use of your vouchers.

Also, make sure that your childcare provider accepts vouchers. You do have an option of using paper or electronic vouchers, so ask them which they would prefer. The government advice also says that to speed the process along, ensure that your childcarer knows:

• Your name (obvious but, hey, you never know!)
• Your child’s name (even more obvious but stranger things have happened)
• The name of the employer providing vouchers

Make sure both you and your employer are clear about whether the childcare vouchers are being offered in addition to your salary or as a part of your salary. Let’s say you were up for a raise, employers may sometimes offer vouchers instead of a pay increase. They call this salary sacrifice. The really generous ones will offer you both! Just tell them which is the best option for you..

Accepting a decrease in pay can affect the amount of tax credits and statutory benefits you get such as Statutory Sick Pay (SSP) and Statutory Maternity Pay (SMP). So make sure your employer does all these calculations done for you. Hop on the HMRC site for all the information about salary sacrifice.

Remember that if you take a pay cut you will be entitled to fewer childcare related Working Tax Credit. To find out if you’d be better off with tax credits or childcare vouchers, HM Revenue & Customs has an online calculator. Get on it and find out what is the best option for you.

Everyone’s circumstances are different. For some getting tax credits works out better than vouchers. For others a cash increase is better. The HMRC site has great comparisons on the various options.

Childcare vouchers checklist

Before you decide whether you would like to accept your employer’s vouchers, use directly-contracted childcare or a workplace nursery scheme, HMRC recommends the following:

• Carefully read the terms of your employer’s scheme. Make sure you are clear what you are being offered before signing up.
• Remember to ask if the benefit is in addition to your salary or if you’re expected to give up salary or forego a pay rise in return for it?
• Ask your employer how accepting their benefits may affect your tax credits.
• Ask how your pension, overtime rates, statutory benefits and pay rises will be affected if you are accepting childcare benefits for a reduced salary.

A few more points on childcare vouchers

Childcare vouchers can not be backdated you can only start using them towards the cost of childcare from the time you actually receive them. 

Also it takes time some time for your application to be processed when you are first joining a new childcare voucher scheme. If you have already received a reduction in your pay and you believe there is an excessive delay in receiving your vouchers contact your voucher provider immediately.

There are some conditions for being tax and NI exempt on childcare vouchers:

• Your child must be a qualifying child
• You must have parental responsibility for the child
• The childcare must be registered or approved

For your child to qualify they must not be over the age of 15, or 16 if they are disabled. In order to qualify for a voucher scheme the child must also be your child, stepchild or a child for whom you have parental responsibility.

Parental responsibility means legally you have the rights, duties, powers, responsibilities and authority as a parent for a child. Unlike entitlement to the childcare element of Working Tax Credit, the child doesn’t have to live with you in order to qualify for voucher coverage.

Approved or registered childcare means they have been approved under a Ministry of Defence accreditation scheme. For a list of approved childcare providers visit Direct Gov.

A list of approved and registered childcare providers is also available at:

England

OFSTED (Office for Standards in Education)

Phone 0845 640 4040

Wales

Care and Social Services Inspectorate for Wales

Phone 0144 384 8450

Welsh Childcare Approval Scheme

Phone 0844 736 0260

Scotland

The Care Commission

Phone 0845 603 0890

Northern Ireland

Contact the Children’s centre in your local Health and Social Services Trust

Nestor Primecare Services Ltd

Phone 0845 767 8111

Useful links

• All About Tax
• Tax Credits and Qualifications
• Booklet WTC5 is a good guide about tax credits and childcare costs
• Childcare credits and vouchers
• Student Repayment Information
• Phone the Tax Credit Helpline on 0845 300 3900 (textphone 0845 300 3909). Open 8.00am to 8.00pm seven days a week for information and applying for your credits.
• Tax and NICs on employer-supported childcare information
• Child care link
• Tax return refunds
• Make sure you are in the correct tax code

Now go to...

• How To Pay Less Tax
• Benefits for the Over 60s
• Top Tips for Avoiding Tax
• Tax Return - How to File Yours