How do work changes affect tax credits?

Published on 31 March 2020

Working tax credit entitlement is based on meeting certain working hour thresholds (16, 24 or 30 depending on your circumstances). The number of hours you work is generally based on your ‘normal’ working hours.

tax credits calulcator finances
(c) Shutterstock / Vitalii Vodolazskyi

With the current situation, you may have had your normal hours reduced, have been laid-off temporarily, been ‘furloughed’ or made redundant. You only need to report a change to HMRC when your normal working hours change – temporary changes may not need to be reported. Use the table below to help you understand if you need to report a change in your working hours to HMRC.

⚠️ WARNING: This is based on the latest information we have received from HMRC – the coronavirus (COVID-19) situation has developed quickly and rules are subject to change/updating – please ensure you check back at regular intervals on this website and GOV.UK.

Change What does it mean for working tax credit? When do I need to report a change to HMRC?

Temporary reduction in hours: For example, you normally work 32 hours a week but have been reduced to 12 hours a week due to the coronavirus crisis.

HMRC will treat you as continuing to work your normal hours (those before the reduction) for at least 8 weeks. There will be no change to your working tax credit entitlement during that period.

You do not need to tell HMRC about the temporary reduction initially. Check GOV.UK after 8 weeks to see whether the period has been extended or whether you need to report the change at that point.

Permanent reduction in hours: For example, you usually work 35 hours a week but your employer reduces your hours to 20 permanently. 

Your normal hours will change for working tax credit. Depending on how your hours change you may get less working tax credit or you may no longer qualify for working tax credit. If you no longer qualify, you may get a four week run-on of working tax credit.

You need to tell HMRC as soon as the change to your hours becomes permanent. You can do this via the online service or via the tax credits helpline

Temporarily laid-off: This means your employer does not have enough work for you but intends to recall you when work becomes available again.

Due to the current Coronavirus crisis, HMRC will treat you as continuing to work your normal hours (those before the temporary lay-off) for at least 8 weeks. There will be no change to your working tax credit entitlement during that period. We are awaiting further guidance as to what will happen after 8 weeks. 

You do not need to tell HMRC when you are laid off if it is temporary. If it is still ongoing after 8 weeks you should check GOV.UK to see whether the period has been extended or whether you need to report the change at that point.

Note: if the lay-off is made permanent at any point or you are made redundant you must report this change straight away to HMRC. 

Furloughed workers: This is where you agree with your employer to vary your contract to become ‘furloughed’ – this usually means you will be placed on unpaid leave. 

If you are furloughed in the current situation your employer may be entitled to a grant to cover 80% of your salary (up to a maximum amount) via the coronavirus job retention scheme.

Due to the current Coronavirus crisis, HMRC will treat you as continuing to work your normal hours (those before the furlough) for at least 8 weeks. There will be no change to your working tax credit entitlement during that period. We are awaiting further guidance as to what happens after 8 weeks.

You do not need to tell HMRC when you are furloughed temporarily. If it is still ongoing after 8 weeks you should check GOV.UK to see whether the period has been extended or whether you need to report the change at that point.

Self-employed: If your hours reduce or your self-employed work temporarily ceases.

As long as you are still trading (i.e. you haven’t completely closed down your business) HMRC will treat you as continuing to work your normal hours (those before the reduction due to coronavirus situation) for at least 8 weeks. There will be no change to your working tax credit entitlement during that period. We are awaiting further guidance as to what happens after 8 weeks.

You do not need to tell HMRC about a temporary change in your hours. If it is still ongoing after 8 weeks you should check GOV.UK to see whether the period has been extended or whether you need to report the change at that point.

Note: If you cease self-employment completely and don’t intend to continue trading then you will need to report that as a change of circumstances to HMRC when your self-employment ceases.

Redundancy: You lose your job.

If you no longer qualify for working tax credit, you may qualify for a four-week run-on of tax credits.

You need to tell HMRC about this change as soon as possible.

Note: If you lose your job and get another job within 7 days, assuming your new job meets the hours requirements for WTC, you will remain entitled to WTC despite the gap but you should give HMRC your new employer’s details.

Sickness/illness

Many people will continue to be treated as ‘in work’ during periods of sickness or illness for working tax credit purposes.

See our guidance here which explains the rules in full.

If you continue to be treated as in qualifying remunerative work for your period of sickness or illness under existing rules then you will only need to notify HMRC of a change at the point you are no longer treated as in work.

 

Childcare

Childcare support via WTC is linked to your working hours – as long as your are treated as working your normal hours, you will continue to qualify for childcare support if you need it.

See above for the changes you need to report and when if your work changes. For information about how the coronavirus affects childcare support and benefits for children see our guidance.

 

Income changes

Tax credits are based on annual household income. As we are currently in the 2019/20 tax year (which ends on 5 April 2020), your award will either be based on an estimated 2019/20 income or your actual 2018/19 income. You can find out which year is used in our tax credit guidance.

If your income falls, you can usually give a new estimated income to HMRC. Whether this leads to an increase in your award depends on whether your household income falls by more than £2,500 compared to your previous year income. If the reduction in your income is less than £2,500, then there will be no change to your current year award. However, when the new tax year starts on 6 April, you should be sure to give HMRC an updated estimated income for 2020/21 so they can see if your award can be adjusted. You must be careful not to over-estimate any fall in income as if you do there may be an overpayment at the end of the year.

⚠️ Warning: If you are already in receipt of tax credits and find yourself needing extra financial support, for example you need to claim help with paying your rent, you may need to claim universal credit (UC). If you do this, your tax credit claim will end, and it is unlikely you will be able to go back to tax credits at a later date. If you, or you and your partner if you have one, have reached state pension credit age, then you cannot claim UC – but may be able to claim pension credit instead.

UC is gradually replacing six other benefits: working tax credit, child tax credit, housing benefit, income support, income-related employment and support allowance and income-based jobseeker’s allowance. The majority of people can no longer make claims to these other benefits, although there are two exceptions. Instead, if you need financial support you will need to claim UC.

You should also be aware of the following:

If you or your partner get, or have recently received, a severe disability premium in certain benefits or are classed as a ‘frontier worker’ you may be able to make a claim for one of the benefits that UCt is replacing, such as housing benefit, alongside your existing tax credits. See our information in the main part of our website. This is complex and you should seek advice BEFORE making any UC claim if you think this might apply to you.

If you are currently receiving any of the benefits UC is replacing, they will end when you make a UC claim.

UC takes into account savings and your partner’s circumstances and income. If their income is too high, you may not qualify for any help.

The benefits system is complicated. If any of the points above apply or you are unsure, you should seek specialist welfare rights advice before making any UC claim.

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(31-03-20)

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