⚠️ 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.
£500 payment for working households on tax credits
This page explains more about the £500 one-off payment for certain working households receiving tax credits announced in the March 2021 Budget. This payment is part of the Government’s coronavirus response measures.
HMRC expect to make all payments to those who qualify by 23 April 2021.
What is the £500 payment?
In March 2020, as part of the response to the coronavirus pandemic, the Government announced that they would increase the basic element of Working Tax Credit (WTC) for the 2020-21 tax year by an additional £20 a week. The basic element of WTC was originally intended to be £1,995 for the 2020-21 tax year but was increased to £3,040.
A similar £20 per week temporary increase was made to universal credit (UC). The increase to WTC (and UC) ended on 5 April 2021.
In the March 2021 Budget, the Government confirmed that they would extend the UC temporary increase of £20 a week until the end of September 2021 – a 6- month extension. However, WTC is not a weekly or monthly benefit like UC, so it is not possible to pay an increase (equivalent to £20 a week in UC) for only 6 months of the tax year for WTC. Instead, the Government announced this one-off payment of £500 which is intended to provide support (equivalent to £20 a week for 6 months) covering the period from 6 April 2021 to 30 September 2021.
Is this new payment part of tax credits?
No. It is an entirely independent, separate one-off payment. Although qualification is based on qualifying for working tax credit and having an award of tax credits higher than nil, it is not a payment of tax credits. The payment will not be shown in your online personal tax account.
Do I qualify for the payment?
You will qualify for the payment if, on 2 March 2021 you had:
- A Current award of working tax credit at an amount higher than Nil; OR
- A current award of working tax credit of NIL but you received CTC at an amount higher than Nil
Although there must have been an award of tax credits in place on 2 March that meets one of the bullet points above, you do not need to have actually received a payment of tax credits on that date.
The main thing is that you must have had the working tax credit element(s) included in your award calculation on 2 March and you must have been awarded some WTC or CTC. If your income was high enough to reduce your WTC to nil (if you qualify only for WTC) or WTC and CTC to nil (if you qualify for both) then you will not qualify for the £500 payment.
If you had working tax credit elements included in your award and you were awarded some WTC or CTC but those payments were reduced to zero in order to recover an overpayment or to avoid overpaying you for the year, then you will still qualify for the payment.
The following examples show how these rules work:
Sarah is a single parent with two children aged 12 and 9. She works 12 hours a week and receives CTC. She does not work enough hours to qualify for any elements of working tax credit. Sarah does not qualify for the payment because on 2 March 2021 her award did not include any working tax credit elements.
Arjun is single and works 30 hours a week at national minimum wage. He qualifies for the disability element of WTC. Arjun qualifies for the £500 payment because on 2 March 2021 he had working tax credit elements included in his award and the amount was higher than nil.
Amaya is single and works 30 hours a week at national minimum wage. She qualifies for the disability element of WTC. She received payments of WTC in 2019/2020. At the start of the 2020/2021 tax year, she received WTC payments but in July 2020 she told HMRC that she had been promoted and her income for 2020/2021 would be much higher than the previous year. As a result, her WTC award for 2020/2021 was reduced to Nil. Amaya is not entitled to the £500 payment. Although the award in place on 2 March 2021 included working tax credit elements, her income was high enough to reduce the amount of her WTC award to nil.
Note that changes to income are not required to be reported to HMRC when they happen (although it is often best to do so to avoid or reduce any overpayments). If Amaya had waited until renewal time in 2021 (or any time after 3 March) to tell HMRC about her higher income – she would be entitled to the payment. She would also have a tax credit overpayment.
Also, if Amaya had a rise in income that reduced her award, but not to nil, she would still qualify for the payment.
Daniel & Maya
Daniel and Maya have two children. They both work full time and pay £200 per week in childcare costs. On 2 March, their award included working tax credit elements (including the childcare element) but due to the level of their income, their WTC payments were reduced to Nil. However, they did receive payments of CTC. They qualify for one £500 payment – which will be paid to Maya as she receives the CTC.
Although the payment seems straightforward, there are some complexities. Our website for advisers has more detail about qualification for the payment for those who would like more detail.
Do I need to make a claim for the payment?
No. HMRC will make the payments automatically to those who qualify.
When will I receive the payment?
HMRC say all payments will be made by 23 April 2021. HMRC sent letters and text messages to people who they thought would qualify for the payment from 19 April.
How will I know I have received the payment?
The payment will show in your bank account with the reference ‘HMRC C19 Support’. The £500 payment will not show in the tax credits part of the personal tax account or the HMRC tax credits app. It is not a payment of tax credits.
I haven’t received a payment but think I should – what do I do?
If you think you should have received a payment, or if HMRC have told you that you will receive a payment by text or letter and you have not received it by the end of April, you should contact HMRC via the tax credits helpline or the HMRC web chat.
⚠️ HMRC advise not to contact them before the end of April until all payments have been made.
I claim tax credits with my partner – will we both receive a payment?
No. Only one payment will be made for a joint claim. The payment will be made into the same account as WTC (if it is a WTC only claim) or the same account as CTC payments (if it is a WTC and CTC claim)
What if my circumstances or income change on or after 2 March?
If you report a change of circumstances or change of income on or after 2 March, it may affect the award in place on 2 March.
However, this will not affect entitlement to the £500 payment. Changes of circumstances or income reported on or after 2 March do not affect entitlement to the £500 payment. This also means that you cannot qualify for the payment based on a change of circumstances or income reported on or after 2 March 2021.
Luke is a single parent. He claims WTC (he works 25 hours a week) and CTC (for his two children). On 10 March, Luke moves in with his new partner. He phones HMRC to tell them and his tax credits are stopped.
Luke is entitled to the £500 payment as he had a relevant award in place on 2 March.
If Luke had moved in with his partner on 20 February, and informed HMRC on 10 March, his tax credit award would be terminated from 20 February. However, this will not affect his entitlement to the payment.
What if my circumstances or income changed before 2 March?
If you reported a change to HMRC before 2 March, it may affect your qualification for the payment because it is based on the award in place on 2 March 2021.
I am not getting any tax credits now, why have I received a £500 payment?
It is possible that if you received tax credits earlier in the 2020/2021 tax year, and then reported an income rise or other change, HMRC may have stopped your payments for the remainder of the year to avoid overpaying you. However, if your income rise still means you had an award of tax credits higher than nil even though your payments have reduced to nil part way through the year, you may still qualify for the payment. If you are unsure, you should contact HMRC to confirm your eligibility.
Do I need to pay tax and national insurance on the payment?
No. The payment is not taxable or subject to national insurance.
Do I need to declare the payment as income for tax credits and other benefits?
The payment will not be taken into account as income for tax credits or other benefits.
I have been overpaid tax credits – can HMRC take the payment to repay that debt?
No, as the £500 payment is not a payment of tax credits.
Will I have to pay this money back at a later date?
HMRC can only ask for the money back in very limited circumstances. If you qualified for the payment based on your tax credit award but HMRC later find your tax credit award or your entitlement to the payment was fraudulent then you will have to pay a tax charge equivalent to the payment (£500).
If HMRC make a payment to you in error and you are not entitled to it, it is possible a tax charge may apply. We are seeking confirmation of this and will publish an update once we receive further confirmation.
Where can I find more information?
There is information about the payment from HMRC on GOV.UK.
We have also published a more detailed FAQ about the payment on our website for advisers Revenuebenefits.