Tax Credits were introduced in 2003 and are administered by HM Revenue and Customs (HMRC). A person may qualify for Working Tax Credit (WTC) or Child Tax Credit (CTC) or both depending on their circumstances.
This article will focus on WTC as it is paid to those who are working. In general WTC is paid to people who have relatively low incomes.
WTC is means-tested and therefore the amount of the award will depend on the person’s income. In order to qualify for WTC a person must be in qualifying remunerative work and:
meet the presence and residence requirements; and
work 16 hours or more a week, be aged 16 or over and be responsible for a child or qualifying young person; or
work 16 hours or more a week, be aged 16 or over and have a physical or mental disability for which they are receiving a qualifying benefit; or
work 16 hours or more a week, be aged 50 or over, have started work within the preceding three months, and for six months before starting work, have received one of a number of specified benefits;
work 30 hours or more a week and be aged 25 or over.
WTC is made up of a number of different elements which are awarded depending on a person’s circumstances. For example, a childcare element – a person may be eligible for this element if they are paying childcare costs to a registered childminder (a person may also be able to claim CTC if they are responsible for a child or young person).
Usually tax credits are awarded for a complete tax year. A claimant who is in receipt of tax credits at the end of a tax year will receive provisional payments of tax credits for the next tax year, until a decision about whether to make a new award for that year can be made. This gives the claimant time to provide the information HMRC needs to make a decision about entitlement in the new tax year and prevents a break in the claim. Every year claimants must renew their tax credit award by 31 July or their payments may stop.
At the end of the tax year HMRC will finalise the award of tax credits for the tax year just ending and assess the award of tax credits for the following tax year. In order to do this a claimant with an existing award of tax credits will be sent an Annual review and declaration. This will usually be sent to a claimant shortly after the end of the tax year to which the claim relates. The claimant is required to confirm that all the details on which their award of tax credits was based are correct, or if the details are not correct to inform HMRC. Examples include if the claim is for a single person or a couple, hours of work, child care costs if applicable and household income. If the claimant has confirmed the necessary details and returned the declaration notice by the date specified on the notice their award for the current tax year will be made effective. This can be done either by completing the declaration form and returning by post or the information can be given via the Tax Credits Helpline.
In some cases, for example, if a claimant is self-employed, it may not be possible to provide all income details by the date specified in their final notice. As long as an estimate for the previous year is provided by this date, a claimant's tax credits award will continue. However, they will have to provide a final income figure by 31 January of the following year.
A claimant should keep HMRC up to date with any changes which may affect their award.
Further information on tax credits and renewals is available from your local CAB, from the Tax Credit Helpline on 0845 300 3900 or from the HMRC website at www.hmrc.gov.uk .
Siobhan Harding is an Information & Policy Officer with Citizens Advice