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A guide to tax credits

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Disability Rights UK Factsheet F9

1. What are tax credits?

Tax credits give you financial help if you (or your partner if you have one)

  • have dependent children and your income is low; and/or
  • are in low-paid work of at least 16 hours a week.

You must be aged 16 or over. There is no upper age limit. You must satisfy the presence and residence tests (see 11 below) and not be subject to immigration control.

The help for children is called ‘child tax credit’ and the help for people in low-paid work is called ‘working tax credit’. Tax credits are administered by HM Revenue and Customs (HMRC).

‘Partner’ means the person you are married to, or in a civil partnership with, or who you live with as if you were married.

2. Who can get child tax credit?

You can get child tax credit if you or your partner are responsible for a dependent child or qualifying young person and your income is low enough. You do not have to be working to get child tax credit.

A child is someone aged under 16. Your son or daughter is a ‘qualifying young person’ until 31 August following their 16th birthday. After that, they can remain as a qualifying young person until they reach the age of 20 if they continue in full-time non-advanced education or approved, unwaged training. ‘Non-advanced’ means up to and including A-levels or equivalent.

Young people no longer count as part of your family for tax credit purposes once they start paid work of at least 24 hours a week, take part in training provided under a contract of employment or claim income support, income-based jobseeker’s allowance, income-related employment and support allowance or universal credit in their own right.

3. Who can get working tax credit?

To get working tax credit, you must work for a certain number of hours.

Either you or your partner must be working for 16 or more hours a week, provided that one of the following applies:

  • you are a single parent;
  • you are a couple with a child or qualifying young person, one of you works at least 16 hours a week and you work at least 24 hours a week between you;
  • you are a couple with a child or qualifying young person and one of you works at least 16 hours a week and the other is in hospital or prison, entitled to carer’s allowance or getting certain disability benefits (eg disability living allowance or personal independence payment);
  • you are aged 60 or over; or
  • you or your partner qualify for the working tax credit ‘disabled worker element’, see our Factsheet F10 - Tax credits - extra money due to disability.

Otherwise, you can only qualify for working tax credit if you are aged 25 or over and work at least 30 hours a week.

Students

If you are a student, you can claim working tax credit if you work the relevant number of hours (16+, 24+ or 30+ hours a week, depending on your circumstances).

4. How are tax credits worked out?

Tax credits consist of one or more ‘elements’. All the elements you are eligible for are added together. The total is compared to your income (see 6 below) and any reduction due to this income is calculated. The resulting amount will be your tax credit award. Tax Credit awards are worked out on an annual basis, so the figures below are all yearly amounts.

Child tax credit elements

These are:

  • family element (£545) - paid only if you have a child or young person born before 6 April 2017
  • child element, of £2,780. You will get one child element for each child or qualifying young person born before 6 April 2017. A two-child limit was introduced on 6 April 2017; if your child is born on or after that date, you will normally only get the child element for them if they are an only child or you are claiming for just one other child. However, exceptions apply (see our Disability Rights Handbook).  
  • disabled child element - which has two rates (you can only get one):
  1. disabled child rate (£4,465) - paid if a child/young person receives the highest rate care component of disability living allowance (DLA), the enhanced rate daily living component of personal independence payment (PIP) or armed forces independence payment
  2. disabled child rate (£3175) - paid if a child/young person receives any other rate of DLA or PIP or is certified by a consultant opthalmologist as severely sight impaired or blind

Working tax credit elements

  • basic element (£1960);
  • couple element (£2010) - if you have a partner;
  • lone parent element (£2010);
  • childcare element - 70% of maximum eligible childcare costs (see 5 below) of up to £175 a week for one child or up to £300 a week for more than one child (therefore the maximum weekly childcare element you can get is £122.50 for one child, or £210 for two or more children);
  • 30 hour element (£810) - if you or your partner work at least 30 hours a week. If you have a partner and one of you is responsible for a child or qualifying young person, you can get this element if you work at least 30 hours between you providing one of you works at least 16 hours a week;
  • disabled worker element (£3000) - see our Factsheet F10 - Tax credits - extra money due to disability
  • severe disability element (£1290) - see our Factsheet F10 - Tax credits - extra money due to disability

5. What childcare costs count?

You must use registered or approved childcare, for example a registered childminder or an after-school club. For exactly what childcare counts, see HMRC leaflet WTC5 - Help with the costs of childcare

If you are part of a couple, you must both be working at least 16 hours a week or one of you must be working at least 16 hours a week and the other is in hospital or prison, entitled to carer’s allowance or getting certain disability benefits (eg disability living allowance or personal independence payment).

Students cannot receive both student childcare grant and working tax credit childcare costs at the same time.

6. Income and savings

What counts as income for tax credit purposes is based on income tax rules. So taxable income is taken into account and other income is ignored, although there are some exceptions. Benefits that are ignored include: income support, personal independence payment, disability living allowance, attendance allowance and industrial injuries disablement benefit.

Although tax credits are means-tested, they have no capital limit. This means there is no amount of savings that will automatically stop you being able to claim tax credits. Income from savings can however be taken into account so as to reduce the amount of your award; the first £300 a year of such income is ignored.

Student grants and loans are ignored apart from grants for adult dependants and lone parents.

7. How do I claim tax credits?

Claims for child tax credit and working tax credit are made on the same form: TC600, which you can get from HMRC (0345 300 3900 or textphone 0345 300 3909). If you have a partner, you must make a joint claim.

If you meet the qualifying conditions, tax credits can normally only be backdated for up to 31 days. Working tax credit claims may be backdated for longer than this if you have been waiting for a ‘qualifying benefit’ to be awarded. See section 5 in our Factsheet F10 - Tax credits - extra money due to disability for details.

Renewal claims and reports of changes of circumstances can also be done online at www.gov.uk/manage-your-tax-credits

8. How will I be paid?

Your tax credits will be paid into your bank or building society account either weekly or four-weekly by HMRC. If you or your partner get child tax credit or the childcare element of working tax credit, these amounts will be paid into the main carer's account.

9. Changes of circumstances

When you first claim (or at the start of the tax year, if you are renewing your claim), your tax credits award is calculated using an estimate of your income, based on your income from the previous tax year. HMRC then makes a final decision at the end of the tax year after comparing your award to your actual income that year. Up to £2,500 of an income rise or fall can be disregarded in the final calculation. For details, see the Disability Rights Handbook.

You do not have to tell HMRC if your income changes during the tax year but if you don’t there is a risk that you will be underpaid or overpaid. If you have been underpaid, HMRC will repay you a lump sum. If you have been overpaid, you will normally have to pay the money back in instalments.

The changes that you must report within one month (or risk paying a penalty) are if:

  • you separate from your partner;
  • you start to live with a new partner;
  • you stop paying for childcare or the costs go down by £10 a week or more;
  • you stop being responsible for a child or qualifying young person (or the one you are responsible for dies);
  • your work hours change so that you no longer meet a 16+ or 24+ or 30+ hours a week qualifying rule;
  • you cease to be entitled to the 30-hour element; or
  • you cease to meet the residence conditions (eg you move abroad).

You can report any changes to your circumstances online at: www.gov.uk/manage-your-tax-credits

10. What if I disagree with my tax credits decision?

If you disagree with a decision, you can write or phone to ask HMRC to look at it again: this is called a ‘mandatory reconsideration’. You must do this within 30 days of the decision you disagree with.

Once HMRC has looked at the decision again, they will send you a ‘mandatory reconsideration notice’, which will explain whether or not they have been able to change the decision. If you disagree with this, you can appeal. You have 30 days from the date of the notice to appeal. You must do so in writing direct to HM Courts and Tribunals Service (use their appeal form SSCS1).

11. Presence and residence tests

To qualify for tax credits, you (and your partner, if you claim jointly) must be present and ordinarily resident in the UK. For child tax credit, you (and your partner, if you are claiming jointly) must also have the right to reside in the UK and have been living in the UK for the three months before your claim (with limited exceptions).

'Present' means physically present in the UK. There are rules that may allow you to be treated as present during a temporary absence. The term ‘right to reside’ is not defined but is dependent on your immigration status and nationality. You might have a right to reside under United Kingdom rules, European Union law or because you are a British citizen.

For more information, see the Disability Rights Handbook.

12. Where can I get more help and information?

There are several ways to get help from HMRC about tax credits.

HMRC helpline

0345 300 3900 (textphone 0345 300 3909): calls are not free but costs should be reduced for callers, especially from mobile phones. Calls are generally charged at the local rate, and may be included in some free weekend or evening call packages.

The Tax Credits Office notes called Getting your tax credits claim form right (TC600 notes) is at www.gov.uk/government/publications/tax-credits-getting-your-claim-form-right-tc600-notes.

Tax credits ‘Where’s my reply?’ service

This is a simple way to find out when to expect a response without the inconvenience and cost of phoning the HMRC helpline. You can go to www.hmrc.gov.uk/tools/progress-tool/tax-credits.htm and check on the progress of your tax credits enquiry or new claim.

HMRC additional needs

If you have additional needs (eg you are deaf, hearing impaired or have a speech impairment), HMRC provides a number of different ways that their service can be offered to you. To find out more, see www.gov.uk/dealing-hmrc-additional-needs

More information from Disability Rights UK

This factsheet is a basic overview of tax credits. You can find out more detailed information in our Disability Rights Handbook. This and all our other publications are available from our shop at https://www.disabilityrightsuk.org/shop. You can also place orders by contacting Disability Rights UK.

You might also find Factsheet F10 - tax credits - extra money due to disability useful.

You can get help and information at your local advice centre, such as a Citizens Advice Bureau. You can get more information about where to get personal advice from our Factsheet F15 - Getting advice. All our factsheets are free to download on our website at disabilityrightsuk.org.

Ian Greaves
9 June 2017