Working parents will have noticed that an adjustment has appeared in their notice of coding for 2000/2001 for the new Children's Tax Credit.

This comes into effect on April 6 and replaces the married couple's allowance which, for most couples, was abolished last year.

The tax credit is calculated by reference to an available amount which, for 2001/2002 is set at £4,420. This is reduced for a claimant who is a higher rate taxpayer by 2 for every 3 of that claimant's income which is taxable at 40 per cent (or 32.5 per cent for dividend income). The reduction in income tax is ten per cent of the available amount or the claimant's total income tax liability. A basic rate taxpayer should see a reduction in tax liability for the year of £442.

The credit is available in respect of a qualifying child. This is defined as a person under 16 who is a child, or stepchild, of the claimant or who is maintained by, and at the expense of, the claimant.

In the case of married and unmarried couples, the tax credit is claimed by the partner with the higher income. If one partner pays tax at the higher rate, or upper rate, he or she must make the claim. If both partners pay tax at the basic rate, it is possible for the tax credit to be split equally between them if the lower earning partner so claims.

If a child lives with, and is maintained by, more than one adult during the year, the credit is split between them by agreement. If claimants cannot agree, the Inland Revenue will decide, usually on the basis of time spent with each adult. This is similar to the treatment of the former additional personal allowance for single parents, where the child would spend time with both parents during the year.

Claim forms for the children's tax credit were issued last year and need to be completed and returned before the credit is given.

For the self-employed and unemployed, the credit will be given in calculating the taxpayer's overall liability. Claims should be made each year on the self-assessment form. Julie Pickford is a partner at chartered accountant Mazars Neville Russell. Write to her for free advice at Mail Money, Mazars Neville Russell, St Thomas House, 6 Becket Street, Oxford OX1 1PP. Advice is for guidance only. Registered to carry on audit work and authorised to carry on investment business by the Institute of Chartered Accountants in England and Wales.