What are Tax Credits and Am I Eligible for Tax Credits? (2024)

Tax credits – sounds promising, doesn’t it?

The idea of getting money from the tax office (rather than paying it) is an attractive one.

But surprisingly, there are still a lot of people in the UK who aren’t claiming these benefits; and if you’re one of them, you could be missing out on thousands of pounds a year.

What are Tax Credits

They are benefits given to people with children, disabled workers, and workers on low incomes. There are two types: child tax credits and working tax credits. You might be eligible for just one, or both.

Both types are completely tax-free, and you don’t need to pay tax to qualify for them.

Are You Eligible for Tax Credits?

All benefits are means tested.

This means that certain factors are taken into consideration when deciding whether or not you’re eligible. Here’s a quick checklist, outlining these factors.

1. Income

The amount of working tax credits you can claim (if any at all) depend on how much you earn.

The more you earn, the less credits you’ll receive. If you don’t have kids, you’ll be eligible for full working tax credits if your take home less than £13,250 per year.

If you’re part of a couple, you’ll need to earn a combined sum of £18,023 or less to claim the full amount.

2. Children

The more children you have the more child tax credit you’re eligible for. Your child either needs to be under 16, or under 20 and in approved education or training.

To claim the full amount, your household income needs to be less than £26,200 a year before tax if you have one child or less than £33,000 if you have two or more kids.

However, if you pay for childcare, you may still be entitled for full tax credits, even if your income is higher than the stated amounts.

3. Disability

If you have a disability or health condition, you are likely to be eligible for further benefit payment.

What Can You Expect to Receive?

Exact amounts differ considerably, depending on circ*mstances. However, here’s a few examples of how it works.

Example 1 – Polly

Polly is unmarried and has a daughter, aged five.

She works full-time and uses a childminder, which costs £100 a week. She is set to earn £15,750 this year, and also receives maintenance payments from her daughter’s father – £1,200 per year.

She has £5,000 savings, which earn an annual interest of £150.

In light of these facts, taking into account that she works over the required working hours, has a child and pays for childcare, Polly is entitled to £156.68 a week.

Example 2 – Dave and Emma

Dave and Emma are married and have one child, aged six.

Dave works 16 hours a week, Emma works eight hours a week. Their combined earnings per year are £20,000 and they have no savings.

In the light of this information, Dave and Emma would be entitled to £31.87 per week.

Note: if Dave reduced his working hours, they would not be eligible for working tax credits – as at least one person in the relationship needs to work at least 16 hours a week.

How to Make a Claim or Renew Tax Credits

If you’re not currently claiming tax credits, you’ll need to find out whether or not you qualify. The easiest way to do this is to fill in the form on the Gov.UK website.

If you already receive them, you should be sent a renewal pack each year (normally in May or June).

This pack will contain details about your income, family and personal circ*mstances. It’s important to check these through carefully – and if your circ*mstances have changed, you’ll need to notify the tax office as soon as possible. You can find out how to do that here.

Be warned, there is a deadline for alerting the tax office about changes to your circ*mstances – which is normally 31^st July each year. If you don’t meet the deadline, your payments could be stopped.

Avoiding Overpayment

Whilst it may seem like a good idea to receive more tax credits than you’re entitled to, it’s actually highly inadvisable – as the tax office will make you pay the extra amount back!

However, in accordance with current legislation, if HRMC overpay you by mistake and not through fault of your own, you are entitled to keep the money.

The Future of Tax Credits

Although the future of tax credits is still unclear, it seems highly likely that the current system will change, and be replaced by Universal Credit.

The key difference is that the six main benefits payments will be combined. These include:

• Child tax credit
• Working tax credit
• Employment allowance
• Support allowance
• Housing benefit
• Income support

The payment will be made on a monthly basis, rather each week or fortnight. It is anticipated that the changes will positively impact lower earners, particularly those with children.

What Do You Think About Tax Credits?

Tax credits are designed to help people on lower incomes, and who have the extra expenditure of children. Do you currently claim tax credits, and if so, do you find that they make a difference? Do you think the current system is adequate, or do you believe it needs an overhaul?

We’d love to hear your thoughts!