Working tax credits and child tax credits explained

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How do tax credits work and how much could you get if you’re eligible for child tax credits? Find out whether you qualify for these tax credits.

Working tax credits and child tax credits explained

You may be able to claim both working tax credit and child tax credit. HM Revenue and Customs and not the Department for Work and Pensions deals with tax credit claims.

Here are the basic rules:

Working tax credit: If you are working, whether you are employed or self employed, you may be able to claim working tax credits. You must work a minimum of between 16 and 30 hours a week, depending on your age, situation and the tax credit you’re applying for.

Child tax credit: If you have children, whether or not you are working, you may be able to claim child tax credits. Child tax credit can be claimed until your child is aged 16. Although you may be able to claim child tax credit until your child’s 20th birthday if they are in approved education or training. There are details about child tax credits when your child reaches 16 on the Gov.uk website. The tax credit must be claimed by the person who has ‘main responsibility’ for the child/children.

SAVVY TIP: If you are divorced or have split up with your partner and your children split their time between both of you, you should decide between you who has main responsibility for your children. If you can’t decide, HM Revenue and Customs can decide for you.

You must be aged 16 or over to claim tax credits and you must be in the UK. The rules are slightly stricter in terms of the residence tests for child tax credits than for working tax credits.

SAVVY TIP: If you’re applying for tax credits on or after 1st July 2014, then in broad terms you must have been in the UK for three months in a row immediately before you made the claim. There are some exceptions, which you can read about in a booklet explaining the three month residency rule on the Gov.uk website.

If you are married or living with your partner, you must make a joint tax credit claim.

SAVVY TIP: If you are separated or single (or not living with your partner) you can make a claim for tax credits for yourself alone.

If you are disabled you may be entitled to the disability element or severe disability element of working tax credit. You have to work at least 16 hours a week, you must have a disability that puts you at a disadvantage in getting a job and you must be in receipt of (or have received in the past) one of a number of disability benefits. The rules are slightly different for the severe disability element of working tax credit.

SAVVY TIP: There’s information on how to qualify for the disability element of working tax credit on the Gov.uk website.

When you get tax credits

The amount of tax credits you may be entitled to depends on a range of circumstances.

Income threshold: currently, you will get the full amount of working tax credits if you earn up to £6,420 a year (in tax year 2017 – 18). You can earn up to around £13,253 a year if you’re single with no children or over £18,000 a year if you’re in a couple and still receive some help from working tax credits.

SAVVY TIP: For child tax credit only claims, the income threshold is £16,105 (in tax year 2017 – 18).

Withdrawal or taper rate: this is the rate at which tax credits are reduced and it is currently 41%. So for every extra £ you earn over the lower threshold, you multiply that by 41%.

Tax credit income disregard: At the moment, if your income goes up by up to £2,500 within a tax year, that’s ignored and you can continue to get the same level of tax credits until the start of the next tax year. This doesn’t necessarily mean that you’ve had a pay rise of £2,500. Because tax credit income is assessed on a household basis (not individual), your household income could increase by more than £2,500 if your partner moves in with you, if your partner gets a job or has his or her hours increased significantly.

Family element of tax credit: The family element is worth up to £545 per child, although higher rates are paid for children who are disabled. However, for anyone starting a family after April 6th 2017, they won’t get the family element of tax credit.

Child tax credit: Currently, you can receive child tax credit for each child you have. However,  from April 2017, if a family has a third child born on or after April 6th, 2017, they will not be able to claim child tax credit for them. The government says that if you have twins or triplets, you will be protected. It also says it will ‘develop protections for women who have a third child as a result of rape’.

SAVVY TIP: If you’ve been in receipt of tax credit or universal credit and have had less than six months off this benefit, you will still be able to get child tax credit for a third child born on or after 6th April 2017.

Universal credit

Universal credit is being gradually rolled out and will replace a number of benefits, including tax credits. The plan is that during 2016, all new benefit claimants will claim universal credit instead of the benefit it replaces. During 2016 and 2017, existing claimants will be moved onto universal credit, from their current benefits.  However, the governments previous targets for the universal credit roll out weren’t met, and there’s no guarantee this one will be either.

Universal credit changes: The income limits (called ‘work allowance’) at which you start to lose universal credit will reduce. The rate at which you will lose universal credit is 63%. This means that for every £1 you earn above the limits, you lose 63p. Those who currently claim tax credits but who move to universal credit will have some transitional protection.

Useful links

The government has a tax credits calculator, which you can use to work out how much tax credit you may be entitled to.

Contact the tax credit helpline if you have a question about claiming tax credits.

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