Working Tax Credits Explained

Posted by on Aug 3, 2017 in Family Tax Credits

Don’t be fooled by the name: Working tax credits are little to do with tax. Unlike tax “reliefs”, people need not be paying any tax to receive tax “credits”. Tax credits are essentially a means of re-distributing income by paying money to working people on low incomes or families raising children and are operated by a specialist section of HMRC (The Tax Credit Office).

If you’re eligible, you can get it irrespective of your employment status and you will get a basic element plus extra elements, depending on your circumstances, such as having a disability, or paying for childcare. If however, you have already switched to Universal Credits, you cease to become eligible to receive Working Tax Credits.

Do I qualify for Working Tax Credits?

Depending on your circumstances, you might be eligible to claim Working Tax Credit if:

  • You’re aged between 16 and 24 and have a child, or a disability, or
  • You’re 25 or over and working a minimum number of hours

It must kept in minds that when you are;

  • Aged between 25 to 60 years; you must work a minimum, on average, of 30 hours a week
  • Aged 60 years or above; you must work a minimum of 16 hours of work
  • If you have a disability; you must work a minimum of 16 hours of work
  • If you are a single parent with one or more children; you must work a minimum of16 hours a week.
  • If you are a couple with one or more children; you must work at least 24 hours between you (with one of you working at least 16 hours) per week

Annual household income limits

When you apply, the Tax Credit Office will take into account your circumstances (and those of your partner or spouse) when deciding how much you’re entitled to.

If your annual household income is £6,420 or below, you’ll get the maximum amount for each Working Tax Credit element you qualify for. This is called the ‘income threshold’ – anything you earn above that will reduce the amount you can get. If you or your partner earns over a certain amount, you won’t be entitled to Working Tax Credit. This is called the annual household income limit.

The income limits for getting Working Tax Credit if you: are over 25, don’t have a disability and don’t have any children for 2017-18 is around £13,000 if you are a single person and £18,000 for a couple.

How much is Working Tax Credit?

When you are eligible to get the credit, basic amount you can get is £1,960 a year, which is called the basic element. You may also be eligible to get extra element over and above the basic elements depending upon your circumstances like;

  • The income you are receiving
  • Your working hours
  • If you are suffering from a disability
  • If you have children
  • If you have children and are paying for childcare

What are the rates for the 2017/2018 tax year?

Element Yearly amount
For a couple applying together or a single
parent (the ‘couples and lone parent element’)
Up to £2,010
If you work at least 30 hours a week
(the ‘30 hour element’)
Up to £810
If you work and are disabled
(the ‘disability element’)
Up to £3,000
If you’re severely disabled
(the ‘severe disability element’)
Up to £1,290
If you’re paying for registered or approved
childcare (the ‘childcare element’)
Up to 70% of your childcare costs

 

With the childcare element, you can get help with up to 70% of your childcare costs; in practice this means that in the 2017-18 tax year, If you pay up to: £175 a week for one child, you could get up to £122.50 a week and for 2 or more children If you pay up to £300 a week you could get £210.

Tax Credits and income thresholds

If you’re getting Child Tax Credit and your annual household income is £16,105 or below, you’ll get the maximum amount for each Child Tax Credit element you qualify for. This is called the income threshold.

Anything you earn above that will reduce the amount of tax credits you can get. They will be reduced by 41p for every £1 of income. If you’re getting Working Tax Credit and Child Tax Credit, your income threshold is lower. Your tax credits will start to reduce once you earn above £6,420.

Tax Credits and income changes

You should inform them if your circumstances change at any time during the year, for example, if your income changes, your child leaves home or you move house. Changes in your circumstances can affect the amount of money you should be getting. For example, if your income drops, you might get more support. Or if your income increases, you could have to pay back any money you’ve been overpaid at a later date if you don’t let the Tax Credits Office know.

The amount by which your income can change before you have to tell the Tax Credit Office falls is £2,500. This is called the income disregard. If your income goes up by £2,500 or more and you delay telling the Tax Credit Office or wait until the next time your claim is due to be re-assessed, you might find that you have been overpaid tax credits. You’ll be asked to pay this extra money back, either by reducing your future tax credits or by direct payments if your tax credits have stopped.

So to avoid this bill, it’s even more important to tell the Tax Credit Office within 30 days of when you get the extra money.

How do I contact The Tax Credit Office?

Not only do you have to apply for tax credits, you also need to renew your claim every year if you want to keep getting them.

If you haven’t received tax credits before you can apply online at https://www.gov.uk/claim-tax-credits and to manage and renew your tax credits online go to https://www.gov.uk/manage-your-tax-credits

Alternatively, to apply or renew you can call the Tax Credit Office on 0345 300 3900.

Image of David Jones Shrewsbury Accountant and Founder of Morgan Jones

If you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.

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