Working tax credit

What is working tax credit

Working Tax credits are intended to provide an additional financial backing to those who have a low income. The tax credit also aims to help those who have a disability, or those who have children. Individuals are eligible for a Working Tax Credit if either of the following applies:

• they are aged between 16 to 24 and have a child, or a qualifying disability
• they are 25 or above, with or without children

To be eligible for a working tax credit, individuals must work a certain number of hours within a week, get paid for the work done, and have an income less than a certain level.

Various circumstance	Least amount of working hours a week
Aged 25 to 59	30
Aged 60+	16
Couple with one or more children	Usually at least 24 hours between the couple (with either of the two working for at least 16 hours)
Single with one or more children	16
Disabled	16

If singles / couples meet the eligibility criteria, a basic amount of £1,960 a year (known as the ‘basic element’) is available as working tax credit. Also, an additional amount, referred to as ‘elements’, is also available depending on the circumstances. The below mentioned table helps to understand the available working tax credit

Element	Amount
For a couple applying together	Upto £2,010 per year
For a single parent	Upto £2,010 per year
Individuals working at least 30 hours a week	Upto £810 per year
In case of a disability	Upto £2,970 per year
In case of a severe disability	Upto £1,275 a year (usually in addition to the disability payment)
Paying for approved childcare	Upto £122.50 (1 child) or £210 (2 or more children) per week

The eligible amount is paid directly into the bank or building society account, every week or 4 weeks. For a couple, either one of the two accounts must be chosen. More often than not, the payment is made from the date of the claim upto the end of the tax year (5 April).

The following activites are termed as ‘work’ for working tax credit computation:

• Working for someone else, as an employee
• Working for oneself, i.e. self-employment
• A combination of the above mentioned two

Working tax credit calculator

To find out the eligible tax credits during the 2016 to 2017 tax year, click here. The tax year is from 6 April to 5 April the following year. Details required include:

• income
partner’s income
• number of working hours
any benefits previously claimed (or claiming), or have stopped claiming
• the average weekly amount spent on childcare

Usually, the calculator prompts to enter the prior year income. In case the income is expected to be different from the prior year, or is anticipated to change by more than £2,500 in the current tax year, an estimate of the income must be provided by either reducing £2,500 from the income if it is increasing or add £2,500 to it if it is decreasing. For credit computation, this new figure will have to be considered instead of the actual income. This is because of the fact that the Tax Credit Office ignores the initial £2,500 of the income change, but the calculator doesn’t. For example, if the income for the prior tax year was £30,000 and it is presumed that the income will drop to £20,000 in the current tax year then enter £22,500 into the calculator

Working tax credit and help with childcare costs

In case the working hours are 16 hours a week and individual(s) are paying for childcare, then they might be able to claim the ‘childcare element’ of working tax credit, to help with upto 70% of the childcare costs.

• For a couple, minimum working hours to qualify for the credit are atleast 16 hours
• Can be eligible if employed or self-employed
• In most cases, it is important to be registered or have a approval for childcare. This can include playgroups, child-minders, and nurseries

How to claim for tax credit

A claim form can either be applied using an online tool or by calling the Tax Credits Office. In order to receive the tax credit, it needs to be renewed every year. The tax credits office will write to the individual(s) informing about what needs to be done to renew the tax credits. In case certain scenarios (change in income, child leaves home, or single partner / couple move out) change during the year, the tax credit office needs to be informed by making a call on 0345-300-3900. Changes in the circumstances can affect the amount of money that will be received. For example, if the income drops, additional support will be required. Or if the income increases, the overpaid amount will need to paid back.

Tax credits and income changes

From April 2016, the amount by which the income can change before the tax credit office needs to be informed falls from £5,000 to £2,500. This is called the income disregard. In case, the income increases by £2,500 or more and the tax credit office is not informed in time or the individual waited until the next time the claim is due to be re-assessed, there is a possibility that he /she might have overpaid tax credits. They will be asked to pay back the extra money, either by reducing the future tax credits or by direct payments if the tax credits have stopped.

To avoid this, it is imperative to inform the tax credit office within 30 days of when the additional money is received. On the other hand, if the income falls by £2,500 or more, individual(s) might be entitled to more tax credits.

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About the author



Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.