Tax credits How to calculate tax credits

Person using calculator

Your income will affect the tax credits you receive

How to calculate tax credits

The amount of tax credits you receive is calculated by dividing each of the elements of child tax credit and working tax credit you are entitled to by the number of days in the tax year. 

This figure is then rounded up to the nearest penny to give a daily rate. (Note: the tables show rates that have been calculated using annual amount and so will not exactly match awards.)

These daily rates are then multiplied by the number of days in the relevant period and added together to give your family's maximum award.  

NOTE: Tax Credits are due to be replaced by Universal Credit. Transitional arrangements will apply from 2014 onwards. Full details have yet to be announced.

Calculate tax credits: A case study

If you were claiming for the full tax year from 6 April 2013 to 5 April 2014, you would be entitled to an award which is 365 mulitplied your daily rate (as there are 365 days during this tax year). 

However, if you started claiming tax credits from, say, 31 July 2013, the number of days left until the end of the tax year would be 249. 

Your award is then reduced depending on whether your income is over certain levels.

Calculate tax credits: For child tax credit only

If your family is receiving Income Support or income-based Jobseeker's Allowance you will automatically receive the full amount of child tax credit that you qualify for.

However, if you are not receiving these social security benefits, then you will be entitled to the full amount of child tax credit until your annual income reaches £16,010 (2014-15).

Above the limit

If your income is above this, your child tax credit award will be reduced by 41p for every £1 of income over the threshold. 

For example, if you earned £20,000 your child tax credit award would be reduced by £1,635.90 (£20,000 - £16,010 x 41p).

Calculate tax credits: For working tax credit

If you receive working tax credit, whether on its own or in addition to child tax credit, and your annual household income is below £6,420 (2014-15), you will receive the maximum amount of all the elements you qualify for.

Above the limit

If your income is more than this the maximum amount is reduced by 41p for every pound of income over the threshold.

If you have income over £6,420, the maximum amount you receive will be reduced in the following order:

  • Working tax credit, apart from any childcare element
  • then the childcare element of working tax credit
  • then the child elements of child tax credit, and finally
  • the family element of child tax credit

All too complicated?

You would be forgiven for having a headache at this point. The truth is it's virtually impossible for people claiming tax credits to work out how much they are entitled to.

One way of working out how much tax credits you might be entitled to is to go onto HMRC's tax credits calculator.

The calculator doesn't tell you how the award is worked out, but does give you a total amount based on your income and family circumstances, if you were to make a claim on the day you complete the calculator. 

However, the results from the calculator are based on the part of the year remaining and not a full year, so may be different to your award notice.

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