Forget the working families' tax credit and the children's tax credit. These were tax credits introduced by Gordon Brown and subsequently abolished by him. Forget the chancellor's big idea to pay tax credit money through employers. That is also being discarded after business complained about the administrative burden of the tax credits.
Since April 2003, the new tax credits have been the working tax credit and the child tax credit.
As their names suggest, the working tax credit goes to lower-income people in work whether they have children or not. And the child tax credit benefits families with offspring whether the parents work or not.
There are, however, complications to these credits such as the childcare element of the working tax credit and the child element of the child tax credit.
The main determinants of the size of credits are the number of children in families and the number of hours worked. They then add up the various elements for which they are eligible in order to receive their tax credits.
If a family's income is less than ?5,220, it is entitled to the maximum tax credit, which is often about ?3,000-?5000 a year. For every pound of income above the ?5,220 threshold, they lose 37p of their tax credits.
The only wrinkle to this system is the family element of the child tax credit, worth ?545. This does not get withdrawn until family income exceeds ?50,000 and it is taken away at a rate of 6.67p in the pound.