[2] The WTC replaced the Working Families Tax Credit (WFTC), which operated from April 1999 until March 2003.
In this example, the award is then calculated as follows: WTC and CTC were designed to be a seamless allowance that steadily reduces as family income rises.
Recipient households of combined WTC/CTC awards thus fell into three categories WTC and CTC for the current tax year are considered to be an interim award because they are based on the previous tax year's gross household income.
By comparison with other means tested benefits, the income treatment of claimants of tax credits is especially generous; it permits deduction of the full gross amount (rather than 50% net) of any individual pension contributions and any Gift aid payments.
Since increases in income are subject to withdrawal at 39%(in the initial range), such reductions are effectively 'rebated' at the same rate through the tax credits received.
Other concessions with regard to assessment of income (in contrast to means testing used elsewhere) include: Around 7 million people in the UK were entitled to claim Working Tax Credit or the companion Child Tax Credit, although around 2 million people do not do so.
The levels of Tax Credit take-up in the UK have not risen in recent years, despite an increase of 100,000 children living in households classed as "below the poverty line" between 2004 and 2005.
[6] The introduction of the Working Tax Credit scheme was marred by implementation issues and large-scale overpayments.
Dawn Primarolo, who as Paymaster General was the minister responsible for the implementation of tax credits, had to apologise to parliament[8] and was asked whether she had "lost control" of her department.
[7] The Working Tax Credit scheme was subject to much criticism, particularly in the wake of the difficulties surrounding its implementation.
Criticism focused on the way that credits are calculated on an annual basis, leading to overpayment, followed by large demands for repayment, which those on low income may find difficult to meet.
In addition, the scheme was accused of being over-complicated and difficult for claimants to understand, and of underestimating the extent to which the incomes of low earners can fluctuate over a year, especially a problem for self-employed people whose income may fall below the minimum wage (at which point Working Tax Credit is disallowed).
Even with the previous definition, this government claimed that the existing tax credits system failed to "meet its statutory target to halve the problem by 2010 – despite the huge amount of taxpayers’ money spent on tackling it.