Universal Credit (UC) is gradually replacing tax credits, and some other social security benefits. Universal credit is now available across the UK and HMRC state that it is no longer possible for anyone to make a brand-new claim for tax credits. The only exception is for certain people who are granted refugee status. Instead, people are expected to claim UC or pension credit depending on their circumstances.  Currently, existing tax credit claimants can continue to renew their tax credits and/or add extra elements to their claim. See our existing tax credit claimants page for more information. Our understanding is that the majority of existing tax credit claimants will move to either universal credit or pension credit by the end of the 2024/25 tax year. You can find out more about this in our universal credit section. 

Updated on 6 April 2024

Ending tax credits

Universal credit is gradually replacing working tax credit and child tax credit as well as some other means-tested benefits. If you have been claiming tax credits and start to claim universal credit in the same tax year, your tax credit award will stop. Your tax credits will also stop if you have been sent a migration notice asking you to claim universal credit by a deadline date and you do not do so.

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Introduction

Tax credits are ending. Our understanding is that existing tax credit claimants will move to either universal credit or pension credit. For most tax credit claimants, the move to universal credit is expected to be complete by the end of the 2024-2025 tax year.

You cannot claim tax credits and universal credit at the same time. If you are an existing tax credit claimant and you make a claim for universal credit, whether under the formal managed migration exercise or because choose to or need to, your tax credit award will stop and HMRC will finalise your tax credit entitlement for the period between 6 April and the date your tax credits end. This is called in-year finalisation.

Even though DWP should notify HMRC of your universal credit claim (once they are satisfied of your identity and that you meet the basic conditions for claiming universal credit), you still have an obligation to notify HMRC of any change in circumstances that affects your tax credits award.

Finalisation of tax credit claims

HMRC have introduced a different way of finalising tax credit claims linked to the introduction of universal credit. This is called in-year finalisation and it is different to the usual end of year finalisation processes that most tax credit claimants will be familiar with.  In-year finalisation will be used where:

  • You make a claim for universal credit in the same tax year as your tax credit claim ended; or
  • From 6 April 2024, you received a migration notice inviting you to claim universal credit but you did not make the claim before the deadline date on the notice. 

End of year finalisation process

Normally for tax credit awards, after the tax year ends HMRC send claimants a pack as part of the renewals process. This process does two things – it acts as a claim for the new tax year and it finalises the award for the tax year just ended. Not everyone needs (or wants) to renew their claim but they must still finalise their award for the year that has just ended.

Sometimes, tax credit claims end in the middle of a tax year. This might happen where someone claiming working tax credit only stops working, or a couple claiming tax credits separates. In these cases, nothing happens at the time the award ends. But after the tax year ends, HMRC will send you ‘renewal’ papers but instead of renewing the claim, they are just used to finalise the tax credit claim for the year that has just ended. 

Example – end of year finalisation process, no universal credit claim

Tina and John claim tax credits for the 2023/24 tax year. They separate in October 2023. HMRC will end their joint tax credit award in October 2023 and payments will stop. However, after April 2024, Tina and John will each receive a pack asking them to confirm their income for the whole 2023/24 tax year in order to finalise their award for the period April 2023 to October 2023. Once they have each sent this back, HMRC will send out a finalised award notice for 2023/24. This may happen anytime from May 2024 to August 2024 (or later if the case is checked more closely by HMRC).

In-year finalisation process

For some people, as explained above, HMRC have a separate process called ‘in-year finalisation’. It is slightly different to the usual end of year process because it calculates tax credit entitlement for a part-year and uses part-year income figures. You can read more about how income is calculated on our in-year finalisation page.

As soon as HMRC are notified by DWP that you have claimed universal credit, they will begin the in-year finalisation process by sending you out a review pack. HMRC will also use in-year finalisation where you are sent a migration notice asking you to make a universal credit claim by the deadline date and you do not make the claim. HMRC will terminate your tax credits once the deadline day passes and start the in-year finalisation process. This means HMRC will gather the information and finalise your tax credits award straight away, rather than waiting until after the tax year ends as they do under the usual tax credit processes.

  HMRC will use the in-year finalisation process in all cases where universal credit is claimed in the same tax year as a tax credit claim is ended. So even if there is a gap between your tax credits ending and making a UC claim, if it is in the same tax year then HMRC are likely to use the in-year finalisation process.

Example - universal credit claim made, in-year finalisation rules apply

Martina is a single parent claiming tax credits. On 1 February 2024 she moves in with her new partner Patrick who is already claiming universal credit, so she makes a joint universal credit claim with him. Martina tells HMRC on the day she moves in with Patrick. Her tax credit single claim is stopped on 31 January 2024. On 28 February 2024, HMRC send out a review pack to Martina asking her to complete her income information for the period 6 April 2023 to 31 January 2024. Martina returns the form and in March 2024, HMRC issue a final award notice showing Martina’s entitlement for the period 6 April 2023 to 31 January 2024. Under the normal end of year finalisation process, Martina would not receive that notice until Summer 2024 at the earliest.

The in-year review pack

HMRC will send out letters and information packs to claimants who need to finalise in-year. The pack will include a ‘review’ notice setting out the award details that HMRC have on their records which need to be checked. If your award is being auto-finalised, the notice will explain that you don’t need to contact HMRC unless the information is incorrect or out of date. If your award is not being auto-finalised, you will need to complete the declaration to confirm your household circumstances and provide your in-year income figure. If you are self-employed, you may need to estimate your part-year profits.

It is important you complete the declaration by the date given on the pack.

You can read more about how income is calculated on our in-year finalisation page.

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