What are tax credits?
Tax credits are government payouts that give extra money to people who need it – including those who need help to care for children, those who are disabled workers, and people on low incomes.
Working tax credit are for people who are in work, either for an employer or self-employed, but earn a low income. Child tax credit are for those who are responsible for children; they're paid in addition to child benefit, and you don’t need to be in work to claim.
Whether you qualify and how much you get depends on your household income and circumstances. HMRC deals with claims and payments for tax credits.
Tax credits are usually considered to be a benefit because they’re based on how much you earn and your circumstances.
But they’re different from benefits such as income support and housing benefit. For one thing, they’re managed by HMRC, rather than the Department for Work and Pensions (DWP). What’s more, you have to renew your tax credit claims each year, which you don’t have to do with other benefits.
Will tax credits affect other benefits?
Tax credits won’t affect how much child benefit you get paid, but they could change how much you receive in other benefits.
Signing up for tax credits may decrease your payments from:
- Housing Benefit
- Income Support
- income-based Jobseeker’s Allowance
- income-related Employment Support Allowance
- Pension Credit.
You also will not be able to claim tax credits if you are signed up to receive Tax-free Childcare. This is the government initiative giving those responsible for children £500 every three months for each child to help with the cost of approved childcare.
However, claiming tax credits may mean you are eligible to receive more money for other government support. For example, claiming tax credits could mean you can get help for the following:
- prescriptions and other health-related costs
- vitamins, milk and food if you’re pregnant or have a child under 4
- maternity costs – you may get a £500 payment (called a ‘Sure Start Maternity Grant’)
- school costs, including school meals, uniforms, transport and trips
- funeral costs
- court fees, legal costs and prison visits
- home repairs from your council
- heating and energy costs.
To find out how tax credits might affect your benefit payments, you should contact Jobcentre Plus on 0800 055 6688.
Am I eligible?
You might be able to claim both working tax credit and child tax credit at the same time if you’re eligible.
You won’t know for certain what you’ll be able to claim until you’ve filled out a claim form with HMRC, but generally speaking the following things will need to apply to your circumstances.
To get working tax credit you must:
- be aged 25 or over, with or without children
- be aged 16-24 and be responsible for a child, or have a qualifying disability.
- work a certain number of hours a week
- get paid for the work you do, or expect to be paid for it
- earn less than a certain amount.
To get child tax credit you must:
- Be responsible for at least one child who is either under 16, or under 20 and in full-time education or training.
If you're not sure whether you qualify, you can use HMRC's online tool to predict whether your claim is likely to be accepted.
How to claim tax credits
You have to apply for both working tax credit and child tax credit through HMRC. You can apply through the online tool or by calling the tax credit office on 0345 300 3900. If you have a partner you can apply as a couple, or you can apply individually.
Before you ring or try to fill out the tool, have all the information you'll need to hand.
You'll be asked for your National Insurance number, how much you earned during the last tax year, which benefits you currently receive (including childcare payments), the number of hours you work each week and how much money you earn.
If the tool or phone call determines you are eligible, you’ll be able to request a claim form. This will be sent to you in the post and could take up to two weeks to arrive.
The form will include guidance notes to help you fill it out properly. If you have any problems while filling it out, you can call the tax benefit helpline, your local benefits office or you can also call Citizens Advice on 03444 111444 if you’re in England, or 03444 772020 if you’re in Wales.
Tax credits can also be backdated up to 31 days from the start of your claim.
Make sure you renew
You’ll need to renew each year to continue receiving payments, and HMRC will send a renewal pack. Sometimes you’ll just need to check whether the information is correct, but sometimes you’ll need to fill out the forms and send them back.
If you don’t do this in time, it could mean you’ll lose your tax credits payments for the next year.
Find out more: renew your tax credits
How much money will I get?
How much money you get is depends on your circumstances and how much you earn.
The amount you’ll receive for child tax credit depends on your income, how many children live with you and how much money you spend on childcare. You may be entitled to more child tax credit if you’re responsible for a disabled child. You don't need to be working to claim child tax credit.
The basic amount of working tax credit is £2,995 a year in 2020-21 (including the extra £1,000 as part of the government's coronavirus measures), but you might get more or less than this.
Your payments are determined by your income and how many hours you work. If you do have children, you may get more money as you’ll qualify for the childcare element of working tax credit.
If you're a disabled worker, you may qualify for the disability element working tax credit.
You can find a more detailed breakdown in our guide on how to calculate tax credits.
When do tax credits get paid?
You can choose whether you want your tax credits to be paid once a week or every four weeks.
If you’ve made a new claim, it can take up to five weeks for it to be processed. While you’re waiting, you’ll be sent an ‘award notice’ letter through the post to let you know the date your first payment will come through.
You’ll usually be paid early when there’s a bank holiday.
If you want to check when your next payment is, and how much it’s for, you can login to manage your tax credits on the HMRC website.
If your payment is late, contact the tax credit helpline.
What if I'm overpaid by HMRC?
Sometimes, people receiving tax credit payments are paid too much by HMRC.
This might sound like good news, but HMRC will demand you pay back the extra money, which can cause problems.
If you think you’ve been overpaid, you should let HMRC know as soon as possible to avoid getting into debt.
Overpayments might happen if you don’t give HMRC the correct information, or you’re late telling HMRC about a change in your circumstances that would reduce your payments – for instance, if your child moves out but you still receive money for their upkeep.
You might also get overpaid if HMRC makes a mistake, or doesn’t act on the information you’ve given them.
If you think HMRC has made a mistake, you can challenge having to pay back the extra money. To dispute a tax credit overpayment, you can fill out this form on the HMRC website.
Find out more: tax credit overpayments
How to claim for someone else
There are three instances where you may be able to deal with tax credits for someone else:
- when you’re an authorised intermediary contacting the tax credit office about someone else’s claim
- when you take full responsibility for someone else’s claim when they can't manage their own affairs, in this case you’re an appointee
- when you claim tax credits for your child who is under 16 and their baby, if they are both living with you. In this case, all tax credits will be paid to you.
To become an authorised intermediary, you must send a TC689 form to HMRC. Authorisation lasts for 12 months, and it’ll usually take two days for HMRC to process the form. The authorisation can be cancelled by writing to the tax credit office.
Appointees are usually used on behalf of people who are severely disabled or mentally incapable of dealing with their own tax credits. You can apply to become an appointee through the tax credit claim form, where you have to explain why the person can't complete and sign the form themselves.
Are tax credits being replaced?
Universal Credit is gradually being rolled out across the UK, which will act as a replacement for working tax credit, child tax credit, income-based jobseeker’s allowance, housing benefit, income support and income-based employment and support allowance.
Depending on where you live, you may have already been enrolled in universal credit. If this is the case, you are not allowed to claim tax credits at the same time, as Universal Credit should cover the money you’d be given as tax credits.
The only exception to this is if you are responsible for three or more children, or you or your partner have reached pension credit qualifying age (this is the age you qualify to claim your state pension).
Find out more: what is Universal Credit?