⚠️ We are working hard to ensure this guidance is up to date. However, you should bear in mind that things may change as the government respond to the ongoing situation.
Tax credits and coronavirus
The coronavirus (COVID-19) outbreak is having far-reaching financial impacts on individuals and businesses across the UK, and indeed across the world. As a result, there have been some changes to the tax credits system to help claimants affected by the Coronavirus.
This page explains the changes based on the latest information we have available from HMRC.
Summary of tax credit changes due to coronavirus
HMRC made a number of changes to tax credits due to the coronavirus pandemic. We have listed the changes that were made below:
- Changes to the working hours rules to ensure that anyone who had a temporary change to working hours due to coronavirus was treated as continuing to work the same number of hours as before the coronavirus pandemic for tax credit purposes. This applied until 30 September 2021 (when the job retention scheme ended). A series of run-ons, between 4 weeks and 12 weeks, applied from 1 October 2021 for those whose hours had not returned to normal (those they were working before the temporary reduction). Normal tax credit rules now apply for any changes to working hours.
- A change to the 30 hour-element rules which meant that you could not use any hours you were not working, but treated as working, under the coronavirus related rule changes in place until 30 September 2021, towards qualification for the 30 hour element unless you already qualified for the 30 hour element beforehand.
- Changes to the income rules to confirm the treatment of the various coronavirus grants and payments.
- Until the 30 September 2021, allowing ‘critical workers’ three months to report changes of circumstances rather than the usual one month.
- Limited relaxation of the strict rules about providing actual 2019-2020 income figures by 31 January 2021 for those who renewed their tax credits using estimated income. A similar relaxation is also in place for providing actual 2020-2021 figures by 31 January 2022.
- A temporary easement in relation to childcare costs where claimants paid for childcare during the pandemic even though the child did not attend. This applied until 7 September 2020 only. Subsequently, HMRC have confirmed that claimants cannot claim help for childcare costs where the childcare does not take place for 4 weeks or more.
- From 14 January 2021, when calculating normal hours of work, any absence from work that is because you have been told by NHS Test and Trace (or the equivalent services in the devolved administrations) or because you have been instructed not to attend work as a direct consequent of legal coronavirus restrictions, is disregarded.
- A £20 a week temporary increase to the basic element of working tax credit for the 2020-21 tax year. This increase was removed from 6 April 2021 and replaced by a separate, one-off £500 tax-free payment for working households receiving tax credits.
My work has reduced due to coronavirus – how does that affect my tax credits?
⚠️ If your normal working hours reduce (including to Nil) on or after 1 October 2021 the usual tax credit rules apply. You must report any changes to your normal working hours. See our guidance for advisers which explains how temporary changes to hours are treated for working tax credit under normal rules and also explains in more detail the special coronavirus measures that were in place until 1 October 2021.
I have been made redundant – how does that affect my tax credits?
You must inform HMRC that you have been made redundant because this is a permanent change. If this means you no longer qualify for working tax credit, you will receive a 4-week run-on of working tax credit. If you find another job in the 4-week run-on period, then you should be able to continue getting working tax credit. However, if you make a claim for universal credit in that four-week period then the working tax credit (and any child tax credit) will only be paid up until the day before you claim UC.
If you qualify for child tax credit as well, that will continue as you do not need to work to claim child tax credit.
If your income falls and you need financial support see below.
I’ve received a coronavirus grant – does it affect my tax credits?
Since the coronavirus pandemic started, there have been hundreds of coronavirus related grants and payments paid out by UK government, devolved governments (in Scotland, Wales and Northern Ireland) and Local Authorities. Some of these payments count as income for tax credits, some are disregarded.
We have published detailed guidance on the tax and national insurance position of these payments.
⚠️ If you have received any coronavirus related payments you must check – for each different payment:
- Whether the payment counts as income for tax credit purposes or can be disregarded
- If it does count as income, how it should be declared for tax credit purposes on your form. Some of these payments may already be included in your P60 income figure so you must check carefully.
Although tax credit rules usually follow the tax rules, so if a payment is taxable then it is likely to be income for tax credit purposes, there are exceptions to this rule and so you should not assume that if it is taxable it counts as income for tax credit purposes.
Our current understanding is that the following grants count as income for tax credit purposes:
Self-employment Income Support Grant (SEISS)
We have published some detailed guidance on how to declare SEISS grants on your tax return. For self-employed individuals the first 3 SEISS grants are taxable in the 2020/21 tax year, no matter what accounting period you use. This means they will be counted as income for tax credits in the 2020/21 tax year. Grants 4 and 5 will be taxed in the tax year they are received, which should be 2021/22 tax year and therefore will count as income for tax credits in 2021/22 tax year.
There are special rules on how the grants are taxed and how to declare your SEISS grants on your tax return if you are an individual partner in a partnership – depending on whether the grant was paid into the partnership and treated as partnership income or whether you received it as an individual partner.
For tax credits, you need to be careful not to double count your SEISS grants. As explained in our article on where to put the grant on your tax return, it will be included in your taxable profit figure. Usually for tax credits, you will take the figure from a certain box on your tax return – depending on which return you fill in (although there are some different rules if you use averaging as a farmer or creative artist):
- If you are an individual and complete the self-employment (short) pages – you will usually declare the figure in box 28 + any figure in box 30 as your self-employed income for tax credits. If you have correctly declared your SEISS grant on your tax return, it will already be included in the box 28 figure.
- If you are an individual and complete the self-employment (full) pages – you will usually use the figure in box 73 plus any figure in box 75 for tax credit purposes. If you have correctly declared your SEISS grant on your tax return, it will already be included in the box 73 figure.
- If you are in a partnership and you received the grant as an individual partner then you will usually use the figure in box 16 of the partnership supplementary pages (both short and full) + any figure in box 19 as your self-employed income for tax credits. If you have correctly declared your SEISS grant on your tax return, it will already be included in the box 16 figure.
- If you are in a partnership and the SEISS grant was paid to the partnership and distributed to partners based on the partnership agreement, then the SEISS grant will be declared as part of the partnership’s turnover on the partnership return. This will mean your share of it will be taken across to your own partnership tax return supplementary pages as taxable income. You will usually use the figure in box 16 of the partnership return (both short and full) + any figure in box 19 as your self-employed income for tax credits. If you have correctly declared your SEISS grant on your tax return, it will already be included in the box 16 figure.
If you want to use the trading allowance, it cannot be used against SEISS grant income for tax purposes (or tax credit purposes) – see our guidance for more information.
Small business grants and hospitality and leisure grants
These grants were paid by local authorities.
If you are self-employed, then the payments will form part of your taxable trading income on your tax return following normal accounting rules. If you have reported the grants correctly on your tax return (usually box 10 on the self-employment (short) pages and box 16 on the self-employment (full) pages), then you should use the boxes detailed above for SEISS, as that will ensure the grants flow through as income into the correct year for tax credits.
Coronavirus job retention scheme
If you are self-employed and received payments from the job retention scheme to help with your employee’s wages, then these payments will form part of your taxable trading income on your tax return following normal accounting rules. If you have reported the grants correctly on your tax return, (usually box 10 on the self-employment (short) pages and box 16 on the self-employment (full) pages) then you should use the boxes detailed above for SEISS, as that will ensure the grants flow through as income into the correct year for tax credits.
⚠️ NOTE: If you are an employee who was furloughed under the job retention scheme, you need to declare your employed income from your P60 in the usual way. Payments under the job retention scheme were made to employers, for them to use those payments for wages/salary expenditure for their employees. So, employees did not directly receive job retention scheme payments themselves but instead they received partial or full wage/salary payments from their employer. The fact that your employer might have received payments under the job retention scheme doesn't affect your tax position as an employee and doesn't affect your income for tax credits.
Also, if you are an individual who received a JRS grant to pay an employee – for example a nanny then you do not need to declare this grant for tax credits as it is not taxable.
Bonus payment to health and social care staff
The following payments were made to certain health and social care staff:
- Scottish £500 payment for health and social care staff
- Wales – £735 payment for social care workers and an earlier £500 payment for care home and domiciliary workers
- Northern Ireland – HSC staff recognition payment £735
Our understanding is that these payments were made through the payroll and are therefore subject to tax and NI. They also count as income for tax credits. However, you must be careful not to double-count them. They will already be included in your P60 figure and if HMRC have used data from the tax system to show your income on your renewal notice, the bonus should already be included.
Enhanced statutory sick pay scheme – Wales only
This scheme is only available in Wales. Our understanding is the enhanced sick pay payments were/are made through the payroll and are therefore subject to tax and NI because they are treated as any other earnings. They also count as income for tax credits. However, you must be careful not to double-count them. They will already be included in your P60 figure and if HMRC have used data from the tax system to show your income on your renewal notice, the bonus should already be included.
Other coronavirus support payments
We have listed below the coronavirus payments that are disregarded as income for tax credit purposes in the legislation.
However, there are likely hundreds of different coronavirus related payments. If not specifically excluded, the payments may count as miscellaneous income for tax credit purposes unless they were received as part of your self-employed trade in which case they may count trading income. You should carefully check any other payments with HMRC.
The following coronavirus related payments are not counted as income for tax credit purposes:
- Payments, in cash or vouchers, in lieu of free school meals.
- Payments in connection with emergency volunteering leave under the Coronavirus Act 2020.
- Any payment made under the NHS Test and Trace Self-Isolation Payment Scheme established on 1 September 2020, or the Test and Trace Support Payment Scheme established on 28th September 2020 in England. Payments from schemes in other parts of the UK for the purpose of providing financial support to people who are required to self-isolate due to coronavirus and cannot work from home are also disregarded as income. However, these payments are taxable, but not subject to national insurance. If you are self-employed, you may need to deduct the amount of any test and trace payments from your taxable profit figure before declaring it for tax credit purposes. This is because test and trace payments are taxed as income of your business but they are not counted as income for tax credit purposes.
- Any payment made under the Covid Winter Grant Scheme (England) or the COVID local support grant (in respect of England) or any other corresponding scheme in Northern Ireland, Scotland or Wales for the purpose of providing financial support to families and vulnerable individuals to assist with the cost of food and utilities over the same period. The Covid Winter Grant scheme should not be confused with some winter business grants that were paid by some local authorities.
- The £500 payment made to certain working households in receipt of tax credits.
- Payments made under the NHS and Social Care Coronavirus Life Assurance Scheme are not counted as income, instead they are capital (and so only any interest will potentially count as income for tax credits).
HMRC have published some information on the GOV.UK website. Please note, however, this information appears to only list some payments that should be taken into account but it does not explain how to take the payments into account. If you are unsure about where to include a payment in your income figure for tax credits, we recommend you contact HMRC directly to check with them.
You must tell HMRC if your hours change permanently, you are made redundant or your give up your self-employment (you cease completely and don’t intend to continue trading in the future).
My income has fallen. Can I claim universal credit and tax credits together?
No! You cannot claim tax credits and universal credit together. If you are getting tax credits and you make a claim for universal credit – your tax credit claim (both working tax credit and child tax credit) will end. We have explained above what happens to your tax credits if your income falls.
⚠️ 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 exceptions. Instead, if you need financial support you will need to claim UC (or pension credit).
You should also be aware of the following:
- If you or your partner are classed as a ‘frontier worker’ you may be able to make a claim for one of the benefits that UC 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.