1. What are Tax Credits?
Tax Credits are money that HM Revenue and Customs (HMRC) pays to people who have responsibility for children, working families or single people who are in low-paid work. Tax Credits come in two varieties, Working Tax Credit (WTC) and Child Tax Credit (CTC). To receive Tax Credits you have to claim them. One claim covers both types of Tax Credit.
2. Who can claim Tax Credits?
Working Tax Credit can be claimed by couples with children, lone parents and people with a disability who are over 16 and work for at least 16 hours per week. It can also be claimed by anyone over 25 who work at least 30 hours per week. There is a special 12-month entitlement to Working Tax Credit for people aged 50 or over who are returning to work after a period on benefits.
Child Tax Credit can be claimed by individuals or couples over 16 who are responsible for at least one child under 16, or for a young person aged 16 to 19 who is in full-time non-higher education or approved training. (See Looking after children and young people on the TaxAid website for details).
Other points to remember are:
- You must make a joint claim if you are a couple; you cannot make a single claim instead
- Claims can normally only be back-dated three months
- Claims need to be renewed by 31 July.
To check if you are entitled, try the HMRC website questionnaire at http://www.hmrc.gov.uk/taxcredits/do-you-qualify.htm
3. How do I claim?
You can claim by telephoning the Tax Credits helpline for a claim form:
In England, Wales and Scotland 0845 300 3900 (text phone 0845 300 3909)
In Northern Ireland and the European Economic Area 0845 603 2000 (text phone 0845 607 6078)
Lines are open from 8am to 8pm, 7 days a week.
Claims are made for an income tax year i.e. from 6 April in one year to 5 April in the next. If you claim late, the award can only be back-dated for three months.
4. How much do I get?
How tax credit entitlement is made up
Awards are made up of a number of elements. Adding together the elements gives the maximum entitlement. This is then reduced if your income exceeds certain thresholds.
The elements of Working Tax Credit for 2009/10 are the basic element (£1,890) with additional elements for disability (£2,530), severe disability (£1,075), second adult (£1,860), lone parent (£1,860), and for working 30 hours or more (£775). There are also elements for those over 50 returning to work after claiming benefits (50-plus elements, £1,300 (working 16-29 hours per week) and £1,935 (working 30 or more hours per week)).
Child Tax Credit has a family element (£545) and an additional element for each child (£2,235). The family element is increased to £1,090 (for a maximum of 12 months) where there is a child under one year old. There are additions for disabled children (£2,670) and a further addition for severely disabled children (£1,075).
Awards are means-tested
Tax Credit claimants who also get some means-tested benefit, such as income based Jobseekers’ Allowance receive the maximum tax credit entitlement. Other claimants will find their award is reduced if their income exceeds certain thresholds (see 5 below).
Awards are initially based on the income of the previous tax year, but are revised if income falls, or if it rises by more than £25,000.
To find out how much you might get, try the tax credit calculator on the HMRC website http://www.hmrc.gov.uk/taxcredits/calculator.htm
5. The impact of income
What happens if my income exceeds the limits?
Your tax credit award us reduced if your income exceeds certain thresholds. The most commonly used limit is that for working households. This is £6,420. If household income exceeds this figure, the tax credit award (apart from the family element) is reduced by 39p for every pound of extra income.
Non-working households are often on a means-tested social security benefit, in which case a full tax credit award is given – with no restriction for income. Non-working households not in receipt of such benefits will find their tax credit award reduced if income exceeds £16,040.
Special treatment of the family element of Child Tax Credit
For the family element of Child Tax Credit a different limit applies. The income limit is £50,000 (but can be higher in some circumstances). The family element is reduced by 6.67p for every pound of income above this level.
6. What counts as income for Tax Credits?
Income for Tax Credits is calculated in broadly the same way as it is for Income Tax purposes, but there are a number of differences. For example, the first £300 of savings and pension income is ignored.
If you are self-employed and your business makes a loss, the loss is treated differently for Tax Credits than it is for Income Tax or Class 4 National Insurance. For joint Tax Credit claims the loss can be set off first of all against the other income of the claimant who makes the loss and then against the income of the other party (or parties) to the claim. Any remaining loss can be carried forward.
Detailed guidance on income for Tax Credits is available on the TaxAid website, Calculating Income page.
7. Is there help with childcare costs?
Up to 80% of childcare costs can be met up to a maximum of £140 (80% of £175) per week for one child and up to £240 (80% of £300) per week for two or more children.
A single parent will qualify if they work at least 16 hours per week and a couple if they both work for at least 16 hours per week. These rules are relaxed if either or both of the couple are disabled.
Further information on childcare is available from the HMRC website at http://www.hmrc.gov.uk/taxcredits/children-childcare.htm and from Childcare link (http://www.childcarelink.gov.uk/).
8. What if my circumstances change?
There are some changes you have to report to HMRC within one month
A change in your status, such as a change in a relationship, which bring your entitlement to Tax Credits to an end
- A reduction in childcare charges of £10 a week or more for at least 4 weeks or a cessation of childcare charges. (This includes receiving employer childcare vouchers which mean the childcare costs you actually pay are reduced)
- You cease to be entitled to reside in the UK, or leave the UK for more than 8 weeks (12 weeks if as a result of illness or death of a relative, or your own illness)
- Your working hours fall below the 30- or 16-hour limits
- You cease to be responsible for a child or young person
If your claim ends because of a change in a relationship, you can make a new claim if you still qualify for Tax Credits in your new household.
If your circumstances change in other ways during the year then it is sensible to tell HMRC. This will help ensure that you are paid the correct amount and don’t lose any amounts you may be entitled to. Such changes would include changes in income or changes to the number of children you are responsible for.
For further details see http://www.hmrc.gov.uk/taxcredits/tell-us-changes.htm
9. What happens if I am paid too much or too little?
If you have been paid too little Tax Credit, any amount due will be paid to you in a lump sum, once you have renewed your claim.
If you have been overpaid, you will normally have to repay this, though there are special rules if you face hardship or the overpayment was the result of an error (including incorrect advice) by HMRC (or other Government agency).
There is a special form (TC846) which you can use to ask HMRC not to pursue collection of an overpayment where there has been an error. It can be accessed at http://www.hmrc.gov.uk/forms/tc846.pdf.
The HMRC policy on overpayments is set out in Code of Practice 26. This can be found on the HMRC website at http://www.hmrc.gov.uk/leaflets/cop26.pdf
There is fuller guidance on the options on the TaxAid website in the article ‘I have a tax credit overpayment. What can I do?’
10. Where can I find out more?
This article has been prepared by TaxAid as a general introduction to the subject. It is recommended that you take professional advice in your own specific circumstances.
TaxAid is a charity which offers free, confidential advice on tax to those on low income. For more information about