Tax Credits are a form of means tested benefit that provide additional money to those who are either responsible for children and/or are on a low income. There are two types of tax credits…
- Working tax credits (WTC) – designed for people on low incomes regardless of whether they have children or not
- Child tax credits (CTC) – designed for people who are responsible for children, including those who are not in work
You can potentially claim one or both of these credits, depending on your individual circumstances.
Tax credits are tax free, and you do not have to be making NI contributions in order to claim. All claims for both working and child tax credits are administered by HMRC, as opposed to other state benefits which are handled by the Department for Work & Pensions.
How are Tax Credits paid?
Unlike other means tested benefits, tax credits are calculated on an annual amount and then paid weekly or monthly throughout the tax year (which runs from 6th April to 5th April each year.) Assuming your claim is successful, tax credits will be paid directly into your bank account or building society every four weeks.
How much will I get?
Both working tax credits and child tax credits are means tested against your total household income. Assuming you meet the qualifying criteria to receive either WTC and/or CTC the amount you get will depend upon the following..
- Which elements or WTC/CTC you are eligible for
- You (and your partner’s if you have one) total household income for the current or previous tax year
- Any overpayments your have been obligated to repay
Tax Credit elements
There are a number of different elements which make up your maximum tax credit award, which are listed in the table below…HMRC will calculate which of the above elements you qualify for and then give you the maximum tax credit – which is the total amount of tax credits you are entitled to.
What counts as income?
The calculation will be based upon your household income, which can include any of the following…
- Salary from paid employment (or self-employment)
- Certain social security income
- Pension income
- Investment income
- Trading Income
- Student Income
- Property income
- Any other miscellaneous income
However you are able to deduct from this certain costs including…
- Banking conversion costs
- Gift aid
- Pension contributions
The majority of people who pay tax via PAYE will be able to find their total annual gross income on their P60 form issued by HMRC each year. If you are self employed you will need to find the annual profits declared on your Self Assessment form.
How do I make a claim?
There are a number of different ways to make a claim for tax credits. However, it should be noted there are some postcodes with restrictions on applications due to the introduction and piloting of Universal Credit (UC). This online tool will help you find out whether your postcode is affected by the introduction of Universal Credit.
You can call HMRC’s tax credit helpline on 0345 300 3900 and ask for an application pack to be sent out to you.
Online (pack request)
You can also request a claim form via the HMRC’s own website. Just fill out the form and a pack will be sent out to you in the post.
Online (apply online)
This service was due start from April 2017 but has yet to be launched. You are able to manage an existing claim online however.
Face to face
If you claim certain other benefits such as Income Support, JSA or ESA then Jobcentre Plus will be able to assist you with the claim.
What documents do I need when making a claim?
In order to make a claim you will need a birth certificate or driving licence, your National Insurance number, plus proof of earnings, e.g P60. You will also need this for your partner if they live with you. You do not need to submit a new claim form each year but you do have to notify HMRC of any changes that may impact your entitlement. If you claim working tax credit and want to apply for child tax credit then you do not need a new claims form – this will be dealt with under your existing details held by HMRC
What are initial, amended and final awards?
In the first instance HMRC will make what is called an initial decision, which is based upon the information you submitted on the claims form. However if your circumstances change throughout the tax year this decision can be altered or amended, for example if your household income were to increase/decrease or a partner moves in or out of the household. Some changes must be reported within certain timeframes, whilst others can either be reported at the time they occured or at the end of the year as part of the renewals process.
At the end of the tax year HMRC will send you a renewals pack which also acts as the claims form for the year ahead. HMRC may ask you to confirm your income in order to ensure you are receiving the correct amount. They will also send you a final decision on your claim based on your income for the previous tax year.
What happens once I post off the form?
Assuming you have sent off all the information requested to make a claim, HMRC will make a calculation and then inform you whether you have been successful or not (including the amount you have been awarded). They may ask for additional information before making a decision, including proof of income.
HMRC may impose time limits of when this information must be received in order to process the claim.
What about overpayments?
If your circumstances change, for example your household income increases then you may have to make repayments for overpayments made in previous years. Your current payments will be adjusted to take account these overpayments
If your income for the current tax year is due to rise by more than £2,500 then you could be subject to reduced payments next year to compensate for the overpayments. That said, you have a choice whether you inform HMRC immediately of an increase income or you wait for the end of the year where the adjustment will be made based on your annual income. Equally if your income falls, you can either ask HMRC to make an estimate on your new annual income or alternatively you can wait for the annual review and then benefit from higher payments in the next tax year.
For more information on tax credit overpayments check out this excellent guide by advicenow.org.uk
What about underpayments?
Tax credits are paid on an estimated projection of your annual income until a final decision is made at the renewals process. This means that often claimants are being overpaid and underpaid based on what they will earn for any given tax year. If your income goes down you can choose tell the HMRC right away (in which case they will project your increase in entitlement for the rest of the year) or instead, you can wait until the renewals process in which case you should be paid the underpayment amount as a lump sum.
Disability and tax credits
Those with certain disabilities are able to claim the disability element of WTC, as long as they meet certain qualifying criteria. Below are the three conditions which must be met by the claimant. (If you make a joint claim, both claimants must meet these conditions and then two disability elements can be included in your award).
- 16 hours per week of paid employment – (For those couples where the person with the disability is the one working, they must work at least 16 hours a week. If it is the non-disabled person working, you cannot claim the disability element but you maybe entitled to the Severe Disability Element.)
- A disability that puts you at a disadvantage of getting a job such as a physical disability, hearing difficulties, visual impairments or long term illness/injury. See HMRC’s full T956 checklist for full details.
- Be in receipt (or have previously been in receipt) of a qualifying sickness or disability benefit including ESA, Housing benefit, Incapacity benefit, Income support, Income based JSA, Bereavement allowance, NI credits, Statutory Sick Pay, Occupation Sick Pay and many others.
What is the Severe Disability Element?
In order to claim this element of WTC you must meet any of the following criteria…
- Be in receipt of the highest rate of DLA
- Be in receipt of the highest rate personal independence payment (PIP)
- Be in receipt of the highest rate attendance allowance (AA)
- Be in receipt of the armed forces independence payment (AFIP)
Again couples in which both persons qualify for the above criteria will receive two elements.
How do I renew my claim?
You will not have to make a fresh claim for tax credits each year so long as you provide HMRC with the documentation they request. You will receive your ‘renewals’ papers at the end of each year and unless otherwise requested, HMRC will assume you wish to carry on claiming tax credits for the following year. If you wish to stop claiming or your circumstances change and you no longer qualify you need still to complete the relevant documentation as this information is used to finalise the claim for the previous tax year.
Which changes in circumstances do I need to report?
Specific changes to your circumstances must be reported within 30 days of them occurring (or you being aware of the change). If you fail to inform HMRC within the deadline of the current tax year you could face a fine of up to £3,000. Should you reconfirm your details at the renewals process and omit any changes that could impact your eligibility to claim you could face a potential fine of up to £3,000. In addition to this, you future payments will be lower as a consequence of overpayments building up.
Below are a list of changes of circumstance that could affect your entitlement…
- A lost of the right to reside in the UK
- You stop being classed as a couple or alternatively, you become part of couple – e.g your partner moves out or a new partner moves in
- Your childcare costs either halt or vary by more than £10 per week (for more than 4 weeks consecutively)
- You are no longer working the requisite hours to claim WTC
- You lose the 30 hour element as you (or you and your partner combined) now work less than 30 hours
- You are no longer looking after children / dependants
- The death of a young person / child who you were claiming CTC for
- A young person aged over 16 who you were claiming for is longer in non-advanced education or approved training
- You have a new baby or a dependent child/young person leaves the household
- If you (or the person you claim for) has changes made to the awards of other state benefits including DLA and PIP
- You start paying for childcare and want to apply for the childcare element of CTC
- You leave the UK for more than 8 weeks at a time (extended to 12 weeks for a family bereavement)
- You leave the UK permanently
- If you move house or change your bank details
How do I report a change in circumstances?
As mentioned, you should report a change in circumstances as soon as possible, particularly any changes to your income. There are several ways to contact HMRC with regards to tax credits.
You call the Tax Credits Helpline on 0345 300 3900 or by textphone 0345 300 3909. If calling from overseas you can ring +44 2890 538 192.
Take a note of who you spoke to and the time and date you reported the change.
You can write to HMRC at the address below – you may want to send via recorded delivery and also keep a copy of all letters you send
Change of circumstances
HMRC – Tax Credit Office
HMRC now have a tax credits digital portal which allows you to report changes online. The vast majority of the changes outlined above can be submitted using this service, but you must first verify your identity using the government gateway service. You can also (if you have a new partner) end a single claim but you will need to submit a fresh application for a joint claim outside of the portal as this functionality is not available as yet. Any changes made online will be confirmed electronically to the claimant.
It is important that any changes are reported and that you check the changes have been reflected in the amount you are able to claim. Mistakes could result in a fine or lesser payments in the following year to adjust for the wrong amount being claimed previously.
Appealing a Decision
If you wish to make an appeal you have the right to challenge a decision made by the Tax Office. Your appeal will be heard by an independent tribunal, but it is worth noting that not all decisions made by the Tax Office can be appealed.
Things you CAN appeal against
- How your tax credits award has been calculated and the amount you have been offered
- Any interest being charged on an overpayment
- Penalties and fines
- An enquiry (you can halt the process at any point)
Things you CANNOT appeal against
- Overpayments, where the overpayment is correct and you have been paid too much
- The method of how to money is paid to you
- The frequency and amount at which overpayments are collected
- Incomplete applications
How to make a complaint
If you are unhappy about a particular part of your tax credit claim, you have the option to lodge a formal complaint. This might be because you were unhappy about the way a claim has been handled or there have been alleged mistakes made by HMRC staff in relation to your claim. You may just be unhappy about the amount of time it has taken to process your claim and that you have as a result experienced financial difficulty in the interim period.
If your complaint relates to the amount you are set to receive (or have to repay in the case of overpayments) then your first port of call should be to lodge an appeal or dispute, rather than a formal complaint.
How to launch a complaint
If you do wish to proceed with a complaint there are several stages of escalation outlined below
- Tier 1 – A caseworker will respond within 15 days
- Tier 2 – If you are still not happy a senior officer at HMRC will review your complaint
- Tier 3 – If after Tier 2 you are still not happy you can appeal to the adjudicator’s office, which is independent from HMRC
Tax Credit calculator
If you want to calculate how much you could be entitled to from Tax Credits then you can use HMRC’s Tax Credit Calculator.
How does Universal Credit affect Tax Credits?
Universal Credit (UC) was introduced in certain areas of the UK from April 2013. It impacts on a number of means tested benefits including working and child tax credits and will eventually replace them as one unified benefit amount. It is slowly being rolled out across the UK and is expected to replace tax credits by the end of 2022.
There are two systems in place from HMRC for the roll out of UC – a ‘live’ service that can only process very basic (uncomplicated) claims and in addition there is what is called the ‘full service’ – which will handle all UC data once the system is fully rolled out. In postcodes that are using the ‘full’ service you cannot make a new claim for tax credits as they have migrated over to UC. Those who already claim tax credits in these areas will not be affected unless they report a change of circumstance that would end their claim, they chose UC over tax credits when the roll out began or they need to access UC in order to claim other state benefits.
Useful contact numbers
Tax Credit Helpline
0345 300 3900
HMRC Adjudicator’s office
0300 057 1111
Citizens Advice Bureau
03444 111 444 (England)
03444 77 20 20 (Wales)
Below is a list of the most frequently asked questions with regard to claiming tax credits.