How do I calculate tax credits?
It can be very complicated to work out how much money you’ll get from tax credits. Both working tax credits and child tax credits have many different elements to them, and many different factors that can reduce or increase how much money you'll get.
You may be able to use this information as a guide, but HMRC can give you the exact amount of tax credits you're eligible for when it processes your claim.
HMRC adds up all of the elements that you qualify for to work out your ‘maximum credit award’ – this is the most you can be paid.
So, the first step is to work out which elements you qualify for.
Working tax credit elements
If you have a job (this includes being self-employed), and you're on a low income, you could qualify for working tax credit.
You'll receive the basic tax credit element up to £1,960 a year, and then any additional elements that you qualify for on top of this.
|Basic payment||£1,960 a year|
|A couple applying together||Up to £2,010 a year|
|A single parent||Up to £2,010 a year|
|Work at least 30 hours a week||Up to £810 a year|
|Disability||Up to £3,090 a year|
|Severe disability||Up to £1,300 a year (usually in |
addition to disability payment)
|Approved childcare||Up to £122.50 a week for one |
child, £210 a week for two or
Below we explain each element and how you're likely to qualify:
- Working tax credit basic element. This is always included if you’re considered to be on a low income and qualify for working tax credit.
- Working tax credit couple/second adult element. This is if you’re a couple making a joint claim.
- Working tax credit 30-hour element. If you work at least 30 hours a week you’ll be paid extra. Couples with children can combine their working hours to meet the 30-hour threshold, as long as one partner works at least 16 hours a week. Only one element will be paid, even if both partners work more than 30 hours a week.
- Working tax credit childcare element. This helps with childcare costs. You have to use an approved childcare provider, and not all costs are covered.
- Working tax credit disability element. You’ll be eligible for this if you work at least 16 hours a week and have a disability that puts you at a disadvantage for getting a job, and receive a qualifying benefit. If you’re in a couple and both of you qualify, you’ll receive two disability elements.
- Working tax credit severe disability element. This is for those who receive the highest rate of disability living allowance, armed forces independence payment, the enhanced rate daily living component of personal independence payment or higher rate attendance allowance. You do not need to be working to receive the severe disability element.
Find out more: Working tax credit
Child tax credit elements
If you're responsible for a child, you may qualify for child tax credits. It's possible to qualify for working tax credits and child tax credits at the same time, depending on your circumstances.
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.
You'll also receive extra tax credits if you have two children, rather than one. But if one or more of your children were born after 6 April 2017, you won't get any further credits if you have more than two children.
This is referred to as the 'two child limit'. There are some exceptions to this, such as in the case of multiple births or if a child you're looking after has a child.
You may get the family element of child tax credits if at least one of your children was born before 6 April 2017.
If all of your children were born before 6 April 2017, you'll get the child element of child tax credit for all of your children, and you'll also get the 'family element' basic amount.
|Family element||Up to £545|
|Child element||Up to £2,780|
|Disability element||Up to £3,275|
|Severe disability element||Up to £4,600|
Below we explain each element:
- Child tax credit child element. This is included for each child born before 6 April 2017. For those born afterwards, a child element is only included for two children or less, with a few exceptions for multiple births, or if your child is caring for a child.
- Child tax credit child disability element. There is a rate for a disabled child, as well as a severely disabled child rate. Which one you get depends on the circumstances of the child in your care.
- Child tax credit family element. Each family will be given one family element if there is a child or children born before 6 April 2017. This is not included if the child or children are all born after this date.
Once you add up all of the elements that you qualify for, you'll reach your 'maximum credit amount'.
Find out more: child tax credit
Reasons why your tax credits might be reduced
You might receive the maximum amount of all the elements you qualify for, but there are a number of reasons why it might be reduced.
1. You're making a claim part-way through the tax year
You'll need to take the time of year into account.
Tax credits are calculated by tax year, which runs from 6 April to 5 April the following year.
If you’re applying for tax credits in January, for example, you’ll be paid for the remaining days up until 5 April.
So, once you’ve worked out your maximum payment, and taken away the ‘reduction due to income’, you should divide that number by 365 – this will give your daily rate.
Then you should multiply your daily rate by the number of days left in the tax year. If your claim starts on 1 January, for example, there are only 95 days until the end of the tax year, so you’d need to multiply your daily rate by 95.
This will give the amount of money you might receive in tax credits until the end of the tax year.
Once the new tax year begins, you’ll probably be asked to renew your tax credits, when they’ll be recalculated for a full year.
2. Money will be reduced due to your salary
There are different income limits for each type of tax credit. If you earn over a certain amount, you'll be paid less in tax credits; this is called 'reduction due to salary'.
If you claim working tax credit, you can earn up to £6,420 a year – either from being employed or self-employed – and you can receive your maximum payment.
If you earn more than this amount, you'll lose 41p of the maximum amount for every extra £100 you earn.
So, if you earn £7,420 a year, you'll earn £1,000 extra, which is 41p x 10. This means you'll lost £4.10 from your maximum payment.
For child tax credits, the maximum salary is £16,105. If you earn more than that, the amount of child tax credit you'll receive is reduced by 41p for every £1 you earn over this limit.
So, if you earn £20,000, you'll earn £3,895 over the threshold (£3,895 x 41p is £1,596.95), which is how much child tax credit you'd lose per year.
If you receive both working tax credit and child tax credit, and these deductions apply to you, 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.
|Household income||One child||Two children||Three children |
Only applicable if all children are born before 6 April 2017
You should 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
The results from the HMRC calculator will be based on what you'll be paid for the rest of the current tax year, and not a full year.
This will be recalculated in each tax year. To do this, HMRC sends out renewal packs, where you'll usually have to fill out your latest details and return them.
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 2019 if you first claimed tax credits after 6 April 2018.
Find out more: renew your tax credits
What if I receive universal credit?
Universal credit is the new government benefits model that’s being gradually rolled out across the UK. This will replace working tax credits and child tax credits, along with a number of other means-tested benefits.
If it has already been introduced in your area, you will not be able to claim tax credits, as your universal credit payment will include money for them, along with any other benefits you’re eligible for, all in one payment.
If you’re not on universal credit yet, you can apply and continue to claim tax credits as normal.