How does it work?

Updated on 15 November 2017

Tax credits are an annual benefit. They are based on a tax year which runs from 6 April to 5 April the following year. HM Revenue & Customs (HMRC) administer the tax credits system through their Tax Credit Office. 

Each award of tax credits can only last for a maximum of one tax year, so claimants must renew their claim each year. Awards are initially based on your previous year income, and it is only after the tax year ends that HMRC finalise the award for the tax year just ended. You can find out more about this cycle in our Tax credits and benefit section

Working tax credit (WTC) and child tax credit (CTC) are made up of different elements. You qualify for the different elements based on your household circumstances. All of the elements you qualify for are added together to find a maximum amount which is then reduced (unless you receive certain social security benefits) if your income is above a certain amount.

Included in WTC is a childcare element. If you meet the qualifying conditions and have relevant childcare costs, you can include your childcare costs in your claim. This element is worth up to 70% of your childcare costs, up to a limit of £122.50 a week (70% of childcare costs up to £175) for 1 child and £210 a week (70% of childcare costs up to £300) for 2 or more children. However, you should bear in mind that your overall tax credit award depends on your household circumstances and income and can change as your circumstances or income changes.

HMRC will then make you payments every four weeks (or weekly if you request). Normally WTC payments are made to the person working and CTC plus the childcare element of WTC is paid to the person with main responsibility for the child/children.

You can read more about tax credits in our Tax credits and benefits section of the website.

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