Tax credits

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What are tax credits?

There are two types of tax credit payments:

  • Working Tax Credit (WTC) – a means-tested payment for working people on low incomes.
  • Child Tax Credit (CTC) – a means-tested payment for people with children.

The government is in the process of replacing tax credits with the new Universal Credit.

It is no longer possible to make a new claim for tax credits as most new claimants are expected to claim Universal Credit instead.

Existing tax credits claimants can stay on this benefit for the time being. If you are already on Child Tax Credit and you or a partner start to work, you can also have Working Tax Credit payments added onto your existing child tax credit award. This is seen as a review of an existing tax credit claim rather than a new claim which would trigger a Universal credit claim.

However at some point in the future all existing tax credit claimants will be moved onto Universal Credit

Child Tax Credit

Child Tax Credit is paid to families who have at least one dependent child. This means a child aged under 16 or a 16-19 year old who is in certain types of education or training.

The amount that you get depends on your family circumstances and your annual income. You get extra Child Tax Credit payments if you have a child with a disability who gets Disability Living Allowance (DLA), Personal Independence Payment (PIP) or who is registered blind.

Make sure that you tell the Tax Credits Office as soon as you can if you are awarded DLA or PIP at any rate for your child, or if you have an existing award that is increased to the highest rate of the DLA care component or the enhanced rate of the daily living component of PIP. If you wait more than a month before telling them about this you are likely to miss out on getting these extra tax credit payments backdated. 

During the current pandemic, special rules allow critical workers three months, rather than one month, within which to notify changes of circumstances – including the award of DLA or PIP to a child. 

Working Tax Credit

Eligibility for Working Tax Credit depends partly on income but also on the number of hours you work.

If you have children, you qualify if your income is low enough and:

  • You are a lone parent and work at least 16 hours per week.
  • You are part of a couple in which one partner works at least 16 hours per week and you work at least 24 hours per week between you.

However, a couple with children need only work 16 hours per week between them if:

  • One partner works at least 16 hours per week and the other partner is entitled to Carer’s Allowance.
  • One partner is disabled or over 60 and works at least 16 hours per week.

If you don’t have children, you qualify if your income is low enough and you work 30 hours a week (16 hours if you are disabled or over 60).

Tax credits and childcare

Working Tax Credit can include help towards certain registered childcare costs. You could get up to £122.50 a week for one child and £210 a week for two or more children although the amount that you receive towards your childcare costs will vary depending on your income.  

Childcare costs can be included only for:

  • Lone parents who are working at least 16 hours a week.
  • Couples who are both working 16 hours.
  • Couples where one partner works 16 hours and the other is entitled to Carer’s Allowance or either incapacitated or in hospital/prison.

How much tax credits will I receive?

The amount of tax credits you get is usually based on your annual taxable income and your family size. If you have a partner, your joint income is taken into account. Unlike most other means-tested benefits there is no limit on how much capital or savings you can have.

Who pays tax credits

Both tax credits are paid by HM Revenue. To speak to them about your tax credits award call 0345 300 3900.

Tax credits overpayments

Sometimes people are overpaid tax credits, for example if there’s a change in their circumstances or the Tax Credits Office makes a mistake – see the government’s website for more information.

If you don’t agree that you were overpaid tax credits or you think the amount of the overpayment is wrong, you can ask for a mandatory reconsideration and subsequently appeal that decision in the normal way. See our page on revisions and appeals.

However, if you accept that you were overpaid tax credits, and that the overpayment has been correctly calculated, you cannot ask for a mandatory reconsideration nor appeal HMRC’s decision to recover that money.

Instead, if you are unhappy with a decision to recover a tax credit overpayment, for instance because you think it was an official error, you can dispute the decision to recover using form TC846. You need to do this within three months of the decision although a late dispute may be accepted in exceptional circumstances.

Make sure that you explain why you think the overpayment was caused by HMRC and any steps you took to contact HMRC.

Unfortunately, HMRC will continue to recover the overpayment while it is looking at your dispute. However, if your dispute is successful any amount already recovered should be refunded to you.

You can also ask HMRC not to recover some or all of the overpayment if this would cause you hardship.

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