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Tax credits

How to calculate tax credits

By Joe Elvin

Article 4 of 9

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How to calculate tax credits

Our calculations should help you work out how much tax credit you might be entitled to in the current tax year.

To find out how much tax credit your entitled, there's a few sums you need to do. It depends on your circumstances, and when in the tax year you're making a claim.

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.

These daily rates are then multiplied by the number of days in the relevant period and added together to show you the maximum amount you could receive. Your income will then be taken into account to calculate your actual figure.

NOTE: Tax Credits are due to be replaced by Universal Credit. It's not possible to get both. Find out more about Universal Credit on gov.uk. 

Calculate tax credits: A case study

If you were claiming for the full tax year from 6 April 2017 to 5 April 2018, you would be entitled to an award which is 365 multiplied by your daily rate (as there are 365 days during this tax year). 

However, if you started claiming tax credits from, say, 31 July 2017, 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.

How to calculate child tax credit

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, depending on the amount of children you have and whether any of them have a disability. 

However, if you are not receiving these benefits, you will only be entitled to the full amount of child tax credit if your annual income is £16,105 or less.

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 £1,596.95 (£20,000 - £16,105 x 41p).

Find out more about child tax credit.

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How to calculate working tax credit

Working tax credit is made up of a basic amount of up to £1,960 a year and then extra elements on top of this.

The extra elements are:

Element Amount
You're a couple applying together Up to £2,010 a year
You're a single parent Up to £2,010 a year
You work at least 30 hours a week Up to £810 a year
You have a disability Up to £3,000 a year
You have a severe disability Up to £1,290 a year (usually on top of the disability payment)
You pay for approved childcare Up to £122.50 (1 child) or £210 (2 or more children) a week

Source: Gov.uk

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, 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.

Tax credit deductions

If you receive both working tax credit and child tax credit, the maximum amount of each element you receive will be reduced in the following order:

  • working tax credit, excluding any childcare element
  • the childcare element of working tax credit
  •  the child elements of child tax credit
  • the family element of child tax credit

Tax credits calculator

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

If you are eligible for both working tax credit and child tax credit you might find our table useful. However, although this gives an illustration of what you might be able to get, you'll need to contact HMRC for your personalised calculation. 

Working Tax Credit and Child Tax Credit - for people with children (2017-18)
Household Income One Child Two Children Three Childrena
£6,420 £8,105 £10,885 £13,665
£10,000 £6,645 £9,425 £12,205
£15,000 £4,595 £7,375 £10,155
£20,000 £2,545 £5,325 £8,105
£25,000 £495 £3,275 £6,055
£30,000 £0 £1,225 £4,005
£35,000 £0 £0 £1,955
aAssumes your first born child is born after 6 April 2017

Also take a look at 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. 

If it looks like you qualify, you'll be able to order a tax credits claim form.

Renewing tax credits 

Don't forget the results from the HMRC calculator are based on the part of the year remaining from when you submit the form and not a full year.

You'll be sent a renewal pack for each new tax year. The packs are sent out between April and June every year, and the deadline for submitting your renewal is 31 July. 

You won't get your first renewal pack until April 2018 if you first claimed tax credits after 6 April 2017.

  • Last updated: June 2017
  • Updated by: Joe Elvin
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