What are Tax Credits in UK?

what are tax credits uk


Tax credits are government payments that provide additional money to persons in need, such as those who require assistance caring for children, disabled employees, and people on low incomes. Tax credits are classified into child tax credits and working tax credits. You may be qualified for both, depending on your circumstances.

Working tax credits are available to those who work, either for an employer or as self-employed individuals, but earn a modest income. Child tax credits are available to people responsible for children; they are paid in addition to child benefits and do not need you to be working.

Your family income and circumstances determine whether you qualify and how much you get. HMRC handles tax credit requests and payments. Learn about Tax Credits in UK in this guide.

Tax credits are generally considered a benefit since they are based on your circumstances

tax income

They are, however, distinct from benefits such as income assistance and housing benefit. For one reason, rather than the Department for Work and Pensions, they are controlled by HMRC (DWP). Furthermore, you must renew your tax credit claims each year, something you are not required to do with other benefits.

The two types of tax credits are the child tax credit and the working tax credit

Kid tax credit: If you are responsible for a child, you may be eligible for a child tax credit

Working tax credit: This is calculated depending on your earnings and the number of hours you work every week. Unpaid or volunteer employment does not qualify.

Who is eligible for tax credits?

who is eligible for tax credit

The eligibility requirements for getting tax credits are strict and vary greatly based on particular circumstances. You will only be eligible for assistance if your income falls under defined ranges.

Stated, you may be eligible for tax credits if you meet the following criteria

  • You have one kid and earn less than £26,000 per year.
  • You have two children and earn less than £32,000 per year.
  • You’re single, have no children, and make less than £13,000 per year.
  • You’re in a relationship, have children, and make less than £18,000 per year.

It is a fundamental explanation of the tax credit criteria, and these regulations do not apply to everyone. Some taxpayers do not fit into any of these categories, such as if you have more than one kid or if you or your child has a handicap.

The income band is likely to be lower in these unusual circumstances, and the benefits are the potential to be more significant.

Will tax credits have an impact on other benefits?

tax credit impact other besnifits

Tax credits will not alter the number of children benefits you get, but they may influence the number of other benefits.

If you apply for tax credits, you may see a decrease in your payments from the following sources

  • Housing benefits, Income Support, Jobseeker’s Allowance, Employment Support Allowance, and Pension Credit are all income-based benefits.
  • Because of this, you can’t claim any tax credits if you use Tax-Free Childcare. It is a government project that gives parents £500 every three months for each kid to assist with the cost of authorized daycare.
  • However, collecting tax credits may make you eligible for extra money from the government.

For example, receiving tax credits may entitle you to assist with the following

  • Medications and other healthcare expenses
  • A £500 “Sure Start Maternity Grant” is available to pregnant mothers and parents of small children.
  • school expenses, such as school meals, clothes, transportation, field excursions, burial expenses
  • Council heating and energy costs, court penalties, legal expenses, and trips to prison all contribute to home repairs.

How to apply for tax credits?

how to apply tax credit


  • You must apply to HMRC for both working and child tax credits. You may apply online or phone the tax credit office at 0345 300 3900. You may use it as a pair or independently if you have a partner.
  • Before dialing or filling out the tool, be sure you have all of the information you’ll need.
  • You’ll be asked for your NI number, how much you made the previous tax year, what benefits you now get (including childcare payments), how many hours you work each week, and how much money you make.
  • You will be able to obtain a claim form if the tool or phone call indicates you are qualified. It will be sent to you and might take up to two weeks to arrive.
  • The form will provide instructions to help you fill it out correctly. You may call the tax benefit hotline if you have any problems filling it out, your local benefits office, or Citizens Advice on 03444 111444 in England or 03444 772020 in Wales.
  • Tax credits may also be retroactively applied for up to 31 days from the commencement of your claim.

How much money will you receive?

Your wages and circumstances impact the amount of money you get.

Your child tax credit amount is determined by your income, the number of children in your household, and the amount you spend on daycare. If your child is disabled, you can be entitled to a more considerable child tax credit.

To claim the child tax credit, you do not need to work. In 2021-22, the baseline amount of working tax credit was £2,005, although you may get more or less.

Your compensation is determined by the amount you earn and the number of hours you work. If you have children, you may be able to get more money since you will be qualified for the working tax credit’s childcare component.


Tax credits are a tool for redistributing money to low-wage earners. There are two types: child tax credits, which are provided to families with children, and working from home tax credits, which are granted to persons who work but have low incomes.

More than 70% of households receiving tax benefits are employed. All 1.4 million unemployed households receiving tax credits have children and get just child tax benefits.

The primary goal of Tax Credits in UK is to assist low-income households in making ends meet. Tax credits are also meant to move families out of welfare

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