Last updated: 06/04/2023
No new claims can be made for tax credits. If you are getting tax credits at the moment you will continue to do so until your circumstances change or you are invited to claim Universal Credit instead.
Tax credits provide money to cover the day to day living expenses of single people and families where no-one works or where the income is low. They are administered and paid by HM Revenue & Customs.
How much you get will depend on your personal circumstances including:
- the number of children you have,
- the hours you work,
- your salary,
- childcare costs and
- whether you or your children have a disability.
Tax credits are normally calculated for up to one year at a time from 6th April to 5th April of the following year. If you make an initial claim for tax credits in the middle of the year, your award will run until the end of the tax year.
Tax credit payments are divided into Child Tax Credit and Working Tax Credit. You may receive only Child Tax Credit or both Child and Working Tax Credits depending on your circumstances.
Child Tax Credit
You may be getting Child Tax Credit if you are responsible for at least one child under the age of 16 or under 20 if s/he is in full-time non-advanced education or training. There are extra amounts, called elements, if your child has a disability.
Child Tax Credit is usually only given for two children in total. However, there are exceptions to this.
You get Child Tax Credit for each child born before 6 April 2017. Exceptions also apply where a third or subsequent child, born on or after 6 April 2017, has been adopted, there is a kinship care arrangement, or the child was conceived as a result of rape. If your third or subsequent child has a disability you will receive a disabled child element but not the child element.
If you have 2 or more children born before 6 April 2017 and have another baby, born after this date, you will not get Child Tax Credit for this child unless one of the exceptions apply.
If you already receive Child Tax Credit for more than two children, born on or after 6 April 2017, you will continue to get it, for all of them, when you move to Universal Credit.
Working Tax Credit
If you work 16 hours a week or more you may be getting Working Tax Credit. There are extra amounts, called elements, if you work 30 or more hours, have a disability or illness or use registered childcare. You can get the childcare element to help with the cost of registered childcare for all children up to the age of 15 years or 16 if your child has a disability.
How a change in your income affects tax credits
Tax credits are based on your previous year’s income and what you expect to earn in the current tax year. At the end of the tax year HM Revenue & Customs conducts an annual review and finalises your award. An increase of up to £2,500 in what you expect your current year’s income to be is ignored.
An increase of more than £2,500 in what you expected to earn means you will have an overpayment which will need to be paid back.
If your income drops by £2,500, or less, in the current tax year your tax credits won’t change. If your income drops by more than £2,500 in the current tax year you can ask for your tax credits to be adjusted.
Calculating tax credits
The amount you receive in tax credits depends on your income, the number of children you have, the number of hours you work and your childcare costs.
If you are not working you will receive only Child Tax Credit. You will receive the maximum amount of Child Tax Credit if any taxable income you have is below £18,725 p/a.
If you are working your maximum amount will be the total of Child Tax Credit, the basic element of Working Tax Credit and the lone parent element of Working Tax Credit. You may also get the 30 hour element and the childcare element. You will receive the maximum amount of tax credits if your taxable income is below £7,455 p/a. If your taxable income is over £7,455 p/a the amount of tax credits will be reduced.
Tax credit element rates:
Child Tax Credit elements
Child element (per child): £62.21 p/w or £3235 p/a
Disabled child element (for any child receiving Disability Living Allowance or Child Disability Payment. You will get this in addition to the child element): £75.09 p/w or £3905 p/a
Severely disabled child element (for any child receiving highest care component of Disability Living Allowance or Child Disability Payment. You will get this in addition to the child element and the disabled child element): £30.28 p/w or £1575 p/a
Note: There is also a family element of £10.50 p/w or £545 p/a which will only be added if at least one of your children was born before April 2017.
Working Tax Credit elements
Basic (one per family): £43.85 p/w or £2280 p/a
Lone parent (one per family): £45.00 p/w or £2340 p/a
30-hour element (one per family if you work 30 hours or more a week): £18.27 p/w or £950 p/a
Disability element (if you have a disability that puts you at a disadvantage of getting a job; if you are receiving a sickness or disability-related benefit): £70.86 p/w or £3685 p/a
Severe disability element (if you receive the highest rate of the care component of Disability Living Allowance, higher rate of Attendance Allowance or enhanced daily living component of Personal Independence Payment or enhanced daily living component of Adult Disability Payment): £30.67 p/w or £1595 p/a
Note: If you are entitled to the severe disability element, you will get the disability element paid as well.
Childcare element of Working Tax Credit
One child (70% of up to £175.00 p/w of registered childcare costs): up to £122.50 p/w
Two or more children (70% of up to £300.00 p/w of registered childcare costs): up to £210.00 p/w
Note: If you earn above £7,455 per year, your working tax credit, including the childcare element, will be reduced so you may not receive the full 70% of your childcare costs.
Sophie is a single parent with twins aged three years. She is not working. Her maximum tax credit award is £124.42 p/w (2 x child elements). She only gets Child Tax Credit because she is not working.
If Sophie was working 16 or more hours per week she would also have Working Tax Credit elements added to her maximum amount. The maximum amount of tax credits would be reduced if she earned over £7,455 p/a.
Reporting a change of circumstance
If your circumstances change during the course of the year you should report this to HM Revenue & Customs within one month to avoid an overpayment, underpayment or a fine. Changes that should be reported include:
- Becoming a single parent
- Becoming a couple
- Starting or stopping work
- A change in your work hours
- A change of employer
- Changes in your income
- The birth of a new baby
- A child going into care or going to live with the other parent
- A child ceasing full-time non-advanced education
- A disability of either adult or child in the family
- Changes in your childcare provider
- Your childcare costs going down by more than £10 per week for four weeks
Note that some of these changes may trigger a move from legacy benefits to Universal Credit.
When reporting a change of circumstance to HM Revenue & Customs by telephone, always keep a note of the date and time of the call, who you spoke to and what was discussed. Calls are recorded and if there is a dispute, you will be able to request a recording of the call as proof. If in doubt, always ring the tax credit helpline to report a change.
If you make a claim for Disability Living Allowance, Child Disability Payment or Personal Independence Payment inform HM Revenue & Customs. If successful, your tax credits can be backdated to the date of the claim.
Annual review and declaration
At the end of the tax year, you will receive an annual review pack between mid-April and the end of June. There are different types of annual review packs and you will need to take different steps, depending on which pack you receive.
Reply is required: This pack contains an annual review and an annual declaration form. These are generally cases where tax credits are still in payment and you will be asked to confirm your income and your circumstances for the previous year. You can manage your tax credits by phone or online.
Automatic renewals: This pack contains an annual review form only. A reply is not normally required because you only receive the family element of child tax credit or you get Income Support, income-based Jobseeker’s Allowance or income-related Employment and Support Allowance.
However, if you have a change of circumstance that might affect your award, you should report this.
Ceased cases: This pack will contain an annual review form only and will be automatically finalised.
Withdrawn cases: This pack will contain an annual review and you will be asked to check the form and report any changes.
Failure to respond means that your award for 2021/22 will not be finalised and there will be no award for 2022/23.
What happens if I have an overpayment?
Overpayments can happen for a variety of reasons including:
- a change of circumstance that hasn’t been reported,
- incorrect information,
- delays and errors caused by HM Revenue & Customs,
- not responding to an end of year review and income rises.
HM Revenue & Customs has a right to recover any overpayment. Where you are not at fault you can ask that the overpayment is not recovered. You need to do this if you do so within three months of being informed about the overpayment.
There is no right of appeal against recovery, therefore it is very important that you carefully check:
- Your award notice when you receive it
- Your payments into your bank account match your award notice
- Your annual review and declaration.
Report any errors that you find immediately.