What are tax credits?

Tax credits & benefits

What are tax credits?

By Joe Elvin

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What are tax credits?

Find out what tax credits are and how much you're likely to get, depending on your circumstances. 

Tax credits are state benefits that provide extra money to people responsible for children, disabled workers and other workers on lower incomes.

There are two types of tax credits – child tax credits and working tax credits. You can find out more about each type of tax credit on the relevant page of this guide. You might be eligible for one or both of them, depending on your circumstances.

Tax credits are tax-free and you don't have to be paying National Insurance or tax to qualify, but they are means-tested. So, whether you qualify and how much you get depends on your household's income and circumstances.

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

Tax credits: How much will I get?

How much tax credit you get is initially based on your current circumstances and your income during the previous tax year. 

So, people applying in 2016-17 for the first time will use their current family circumstances, but based on the income they received between 6 April 2015 and 5 April 2016.

If your income has fallen since last year, you can ask Her Majesty's Revenue and Customs (HMRC) to revise your award based on your estimated current-year income. 

However, be careful not to overestimate the fall in your income, otherwise you may be overpaid tax credits which you'll have to pay back at the end of the year.

Tax credits if you have children

If you have one child, you may be eligible for some tax credits, as long as your household income for tax credit purposes is less than £26,200 a year before tax. If you have two or more children, this figure is £32,900. Childcare expenditure may entitle you to tax credit if your income is higher than this.  

Tax credits if you don't have children

If you don't have children, you may be eligible for tax credits, as long as your income is around £13,250 or less before tax, and you are single and work at least 30 hours a week. If you are part of a couple and work at least 30 hours a week, the income threshold for both people is £18,023 a year before tax.

If you're a disabled worker

If you're a disabled worker, you might still qualify for working tax credit even if you earn more than the threshold.

  • Last updated: April 2016
  • Updated by: Joe Elvin