⚠️ 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 have made a number of changes to tax credits due to the coronavirus pandemic. In summary, these are:
- Changes to the working hours rules to ensure that anyone who has a temporary change to working hours due to coronavirus is treated as continuing to work the same number of hours as before the coronavirus pandemic for tax credit purposes. This applies while the Job Retention Scheme remains in place (currently scheduled until 30 September 2021).
- A change to the 30 hour-element rules which means that you cannot use any hours you are not working, but treated as working, under the new coronavirus related rule changes, 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 Job Retentions Scheme ends, 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 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 your 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.
From 14 January 2021, HMRC also introduced various working tax credit run-ons for people who have temporary changes as a result of coronavirus. We are working through the detail of these changes and clarifying aspects with HMRC and will provide further information shortly.
My work has reduced due to coronavirus – how does that affect my tax credits?
HMRC have introduced temporary rules to ensure that anyone who has their hours reduced or is temporarily unable to work due to coronavirus will continue to be treated as working the same hours as they were before they reduced. These temporary measures will apply until the Job Retention Scheme closes – currently scheduled for 30 September 2021.
The following table explains how you will be treated if you have a temporary reduction in hours (including to Nil) due to coronavirus and that reduction takes you below the number of hours you need to qualify for working tax credit.
⚠️ The rules outlined apply until the end of the Job Retention Scheme (currently scheduled for 30 September 2021). You do not need to be receiving support via your employer from the Job Retention Scheme to benefit from these special rules as long as the change to your working hours is temporary and as a result of coronavirus:
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. Your employer might be claiming part of your wages through the Job Retention Scheme.
HMRC will treat you as continuing to work your normal hours (those before the reduction) until the Job Retention Scheme closes. There will be no change to your working tax credit entitlement during that period.
You do not need to tell HMRC about any temporary reduction because of the coronavirus until the Job Retention Scheme closes.
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.
Temporarily laid-off/Furloughed: This means your employer does not have enough work for you but intends to recall you when work becomes available again. Your employer may be claiming part of your wages through the Job Retention Scheme.
This includes people who are ‘furloughed’ where you agree with your employer to vary your contract, so you are placed on unpaid leave. Your employer may be claiming part of your wages through the Job Retention Scheme.
Due to the current Coronavirus crisis, HMRC will treat you as continuing to work your normal hours (those before the temporary lay-off) until the Job Retention Scheme closes.
You do not need to tell HMRC about any temporary lay-off because of coronavirus until the Job Retention Scheme closes.
⚠️ 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.
Unpaid leave: This is where you are still employed but have agreed with your employer that you will take leave that is unpaid. There will not usually be any variation to your contract.
This might apply in cases where you cannot work because you have childcare responsibilities due to coronavirus.
Due to the current coronavirus crisis, HMRC will treat you as continuing to work your normal hours (those before the furlough) until the Job Support Scheme closes.
You do not need to tell HMRC that you are on unpaid leave temporarily because of the coronavirus until the Job Support Scheme closes.
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 the coronavirus situation) until the Job Retention Scheme closes.
You do not need to tell HMRC about a temporary change in your hours because of the coronavirus until the Job Retention Scheme closes.
⚠️ 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 the 4 week run-on period, assuming your new job meets the hours requirements for WTC, you should remain entitled to WTC despite the gap.
What happens if my reduced hours are made permanent?
If at any point, your hours change on a permanent basis, you must inform HMRC. If they reduce below the level which you need to qualify for working tax credit, then your working tax credit entitlement will end. You will usually continue to get working tax credit for a further 4 weeks. If your hours increase again (to the level required) within that 4 week period, then your working tax credit entitlement should continue.
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 you make a claim for universal credit, your tax credits (working tax credit and child tax credit) will end. You should also be aware that if you currently receive any of the other benefits that universal credit replaces (housing benefit; income support; income-based jobseekers allowance; income-related employment support allowance), they will also end when you make a claim for universal credit.
If you make a claim for universal credit during the working tax credit four week run-on period, your tax credits (that is, working tax credit and child tax credit) will end but will be paid until the day before your universal credit claim starts.
If your income falls and you need financial support see below.
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 am temporarily laid off from my main job but have started a second job – how does that affect my tax credits?
You may need to provide HMRC with an updated estimated income figure if taking a second job will impact your annual income.
Some people are entitled to receive an additional element in tax credits called the 30 hour element. We explain how it works in the main tax credit section of our website.
If you received the 30 hour element before your hours reduced or you were temporarily laid off due to coronavirus, that will continue because HMRC will continue to treat you as working the same hours as immediately before the reduction.
However, HMRC say that you cannot add together hours that you are treated as working under the special coronavirus rules with any hours that you start to work in another job in order to newly qualify for the 30 hour element.
Sarah is a lone parent and usually works 16 hours a week. She is temporarily laid off from her job. Her employer allows her to take up other work and she starts working 16 hours a week at a local supermarket. Sarah is not entitled to the 30 hour element because the rules state you cannot add hours from a job where you are temporarily laid off to hours you work in order to meet the threshold.
If Sarah was to work 30 hours a week at the supermarket, then she would qualify for the 30 hour element.
Shaun and Amber each work 16 hours a week and have two children. They receive the 30 hour element in their tax credits. Shaun is temporarily laid-off from his job and Amber continues to work 16 hours a week. The couple continue to receive the 30 hour element because they qualified for it before they were impacted by coronavirus.
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 are still working through the various payments and trying to clarify the position for tax, national insurance, tax credits and universal credit, so please do check back on this page.
⚠️ 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 grant is taxed and how to declare your SEISS grant 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.
- Any payment made under the Covid Winter Grant Scheme (England) or any other 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.
My circumstances have changed – do I need to inform HMRC?
You do not need to inform HMRC about temporary changes to your working hours due to coronavirus. The table above explains this in more detail. 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).
All other changes should be reported to HMRC within the usual one month time limit.
From 23 May 2020 until the end of the Job Retention Scheme if you are a ‘critical worker’ you have three months (instead of the usual one month) to notify HMRC of changes that reduce or increase the amount of your tax credits.
The time limits for telling HMRC about changes in relation to the disability elements are also extended for critical workers. This means that you have up to three months (instead of one month) to tell HMRC that you have been awarded a qualifying disability benefit.
For these purposes, a critical worker means:
- in England in the version of the document entitled “Guidance for schools, childcare providers, colleagues, local authorities in England on maintaining educational provision” published by the Cabinet Office and the Department for Education on 14 May 2020;
- in Scotland in the document entitled “Coronavirus (COVID-19): school and early learning closures – guidance about key workers and vulnerable children” published on 31 March 2020;
- in Wales in the version of the document entitled “Coronavirus key (critical) workers” published on 18 May 2020; and
- in Northern Ireland in the document entitled “General Guidance on COVID-1i9 for schools”.
My childcare has changed – will this affect my tax credits?
As long as you continue to qualify for working tax credit and meet the usual hours requirements for the childcare element (or are treated as meeting them under the special coronavirus rules explained in the table above), then you will continue to be able to claim for registered or approved relevant childcare costs.
However, some childcare providers may be closed due to coronavirus-related restrictions and, in other cases children may be unable to attend their childcare setting. According to HMRC, parents and carers claiming help with their childcare through tax credits need to notify HMRC as soon as possible if their child stops going to childcare for four weeks or more, to avoid overpayment. According to HMRC, the four week period is calculated from the last day the child attended the provider.
This also applies where the childcare is still available, but the parent or carer does not send their child.
HMRC say that if childcare is not being provided, but parents and carers are being asked to keep paying their provider in full or in part, these costs cannot be covered by tax credits. Where childcare stops being provided, HMRC say they will continue to pay the childcare element of Working Tax Credit for four weeks.
We now have a page on our website which explains childcare support and benefits for children during COVID-19 pandemic. You can find more detail about tax credits on that page.
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.
When will I be moved to universal credit?
Before the coronavirus pandemic, DWP and HMRC planned to move all tax credit claimants to UC by September 2024. Tax credit claimants who have reached state pension credit age will be moved to pension credit (this includes couples where both claimants have reached state pension credit age).
The move to UC for working age tax credit claimants was supposed to follow from a pilot which started in 2019. However, the pilot was suspended due to the coronavirus pandemic and currently the move to UC formal exercise for existing tax credit claimants is on hold. Those who are moved to UC by DWP and HMRC can receive something called ‘transitional protection’ – which ensures that people should not be worse off initially following the move across to UC.
If you are currently receiving tax credits, the only way you will move to UC outside the formal migration exercise is if:
- You choose to claim UC – some people are better off on UC compared to tax credits, others are worse off. It is important to seek advice from a welfare rights specialist before making a claim for UC – once you claim UC, your tax credits will end and you are unlikely to be able to reclaim them even if you are not entitled to UC.
- You need to claim another benefit that UC has replaced – for example if your income has fallen and you need help with your rent. In that case, most people will need to claim UC which will end your tax credits.
- You have a change of circumstances which ends your tax credit claim and none of the exceptions apply that would allow you to make a new claim for tax credits. This might happen if you separate from your partner or you move in with a partner or you claim working tax credit only and are made redundant.