What are tax credits?
Tax credits and benefits
On this page we explain what working tax credits and child tax credits are, how they compare to benefits and how tax credits work.
⚠️ Universal Credit (UC) is a new benefit which will eventually replace tax credits, and some other social security benefits. Universal credit is now available across the UK and most people are no longer able to make a brand new claim for tax credits and are expected to claim UC (or pension credit) instead. Existing tax credit claimants are expected to be moved across to universal credit between November 2020 and September 2024. This follows a pilot involving no more than 10,000 people who will be moved between July 2019 and July 2020, although this may change due to the impacts of the coronavirus outbreak in the UK. You can find out more about this in our universal credit section.
What is working tax credit and child tax credit?
There are two tax credits – child tax credit and working tax credit. You can claim one or both of them, depending on your household circumstances. HM Revenue & Customs (HMRC) deals with claims for tax credits.
- Working tax credit (or WTC) is paid to people who work and are on a low income – it does not matter whether you are an employee or self-employed. You do not need to have children to get WTC.
- Child tax credit (or CTC) is paid to people who have children. It is paid in addition to child benefit and you do not have to be working to get it.
Are tax credits the same as benefits?
Tax credits are generally considered to be a benefit, but unlike other social security benefits, they are calculated as an annual amount and paid in weekly or monthly instalments during the tax year (6 April in one year until 5 April the next year). Also, they are dealt with by HMRC whereas most other benefits, including universal credit, are dealt with by the Department for Work and Pensions (DWP).
How do tax credits work?
The amount of tax credits you get depends on a number of factors including the total amount of taxable income you and your partner have (income for the current year and previous year can be relevant for tax credits); whether you, your partner, or your children have a disability or long-term health problem; the number of hours you work; and the amount you pay for childcare.
You must also pass residence and immigration tests.
The GOV.UK website has a tax credits calculator which may you give you a very rough estimate of what you might get. There are also other calculators available from third parties that can help you work out if you are entitled to tax credits and other benefits. You should be aware that the HMRC calculator will show potential entitlement from the day you use the calculator until the end of the tax year whereas the Entitled to benefits checker will show potential entitlement for the whole current tax year (from 6 April to 5 April).
For more information about how the tax credits system works, and whether you can claim use the navigation on the right. You can also find out more about tax credits on GOV.UK. If you are looking for detailed information you will find the following pages of our website for advisers (Revenuebenefits) useful: