A guide to UK Tax Credits

There are two types of tax credit in the UK: working tax credits and child tax credits. The latter is restricted to those with children under the age of 16 while the former is available for anyone on a low income regardless of whether they have children. It is also possible to receive both working tax credits and child tax credits. These payments are made directly to your bank account on either a weekly or monthly basis.

The amount of money you could receive depends on several factors. These include your income, the number of children you have, your working hours, if you have a disability or if you are single.

Child tax credits

You may have seen in the news recently that as part of the austerity drive the income limit for child tax credits has been reduced. Prior to April 2012 you were pretty much guaranteed some level of support as long as your income was below £41,300. This threshold has now been lowered for most people. It now varies according to the individual’s circumstances but as a general rule of thumb HM Revenue and Customs state that you may not be eligible for child tax credits if: your annual income is more than £26,000 (one child) or £32,000 (2 children).

The new system is much more tailored to the individual and the limit does vary so if it is definitely worth enquiring with the tax office even if you are currently earning more than the amounts stated above. For example you may still quality for Child Tax Credits if you earn over the general threshold but your child has a disability or if you pay for approved childcare.

Working tax credits

The purpose of working tax credits is to supplement the income of those on lower income in order to give them more of an incentive to stay in work and avoid a situation where they are better off on benefits. Working tax credits operate on the basis that the more you earn the less you receive.

Keep the tax office up to date

You can claim for tax credits anytime during the year, and claims can be backdated for up to a month. However, it is vital that you keep the tax office up to date with your current circumstances. There are certain changes in your circumstances that need to be reported within a month. These include:

– A change of status, i.e. moving in with a partner, getting married or leaving the UK for more than eight weeks

– A drop in working hours

– A change in childcare, your child leaving home or if you start receiving childcare vouchers.

There are other changes that do not need to be reported until renewal.

That said, it is usually beneficial to tell them straight away to avoid any underpayment or overpayment. These circumstances include:

– A change in jobs

– A new child

– Child care costs, i.e. if you start paying for childcare or if costs increase

– A change in address.

Overpayments

Although overpayments may sound like a good thing, at some point the tax office will ask for the overpaid money back- whether you’ve spent it or not. Overpayments can happen if you haven’t told the tax office about changes or if they haven’t met their criteria. If it is your fault, you must repay the money. However, if you can prove you immediately notified the tax office of any changes then they are at fault and you will not have to repay the money.

Renewal packs are sent out in April or May and are due to be sent back by the 31^st July. These packs look at how much you earned in the previous financial year, which runs from April to April, and then calculates the amount you will receive in the coming year. Occasionally, a letter is also sent out which requires more information before they send details on your claim for the coming year. Even if you are not renewing, it is important to read through the renewal pack to ensure you were paid correctly for the previous year.

Every effort has been made to ensure that all the information in this article is accurate however ELHQ does not accept liability for any inaccuracies. If you are unsure about anything then you should contact HM Revenue & Customs.