The following information contains advice on tax credits and how a change in your circumstances might
affect the payments you’re entitled to. It also explains how you can make sure you’re receiving the correct amount of tax credits and what to do if you are paid too much.
Calculating tax credits
Your tax credits are calculated by HMRC for each year that runs from April to April. The amount you will receive will be based on the income you received in the previous tax year. This means that at the end of the year, HMRC will work out whether you have been paid the correct amount of tax credits, or whether you have received too much or too little.
Changes in circumstances
It is important to inform HMRC about any changes to your circumstances as soon as possible. This way they can make the necessary amendments, decreasing the likelihood that you will be paid the incorrect amount of tax credits. If a change in your circumstances means you’re entitled to receive more tax credits, you will be able to claim payments backdated by one month from when HMRC are notified of the change. However if the change means you’re entitled to less tax credits, you will be obliged to pay back the overpayments you received from the date that the change happened. For this reason it is very important changes are reported as soon as possible, so you don’t miss out on payments that you are owed, or end up owing a large amount of money back to HMRC.
Reporting changes
The following changes to your circumstances must be reported to HMRC within one month. If you fail to do this, you may have to pay a penalty. Inform HMRC straight away if you:
- Stop being part of a cohabiting couple
- Start being part of a cohabiting couple
- Leave the UK for 8 weeks or more
- Lose your right to remain in the UK
- No longer pay for childcare, or your weekly costs go down by £10 or more for 4 weeks in a row
- Change your working hours to below 30 or below 16 per week
- Are no longer responsible for a qualifying child
It is also recommended that you inform HMRC within one month if any of the following occurs:
- You change your job and there is a gap between your old and new jobs
- You have a baby or become responsible for another child
- A child you are responsible for becomes, or stops being, disabled
A decrease in income
If your income decreases by less than £2,500 and you have no other changes to your circumstances, your tax credits for that year will not be affected. If your income decreases by more than £2,500 you may be entitled to higher tax credit payments. HMRC will ignore the first £2,500 of your drop in income, and so will base your new tax credit calculations on your new annual income plus £2,500. Remember, if your income drops significantly you might be entitled to other benefits like housing benefit. If your weekly working hours decrease to fewer than 16, you may no longer be entitled to working tax credit.
An increase in income
If you are receiving tax credits based on your income from the previous year, and your current income increases by up to £2,500, there will be no changes to the amount of tax credits you are paid that year. If your income increases by more than £2,500 compared to the previous year, tell HMRC to avoid being overpaid tax credits. If your income changes more than once within a tax year you must tell HMRC, even if it is by less than £2,500, as this rule only applies if your tax credits are being based on your previous year’s earnings.
Working hours
If your working hours drop to below 16 hours a week for 4 weeks in a row you will no longer be entitled to working tax credit. Inform HMRC within one month of the change, otherwise you will be overpaid and will end up having to pay back the overpayments. You may be entitled to more benefits, or other benefits you receive might be increased. Similarly, if you normally work over 30 hours and your working hours drop to below 30 hours a week for 4 weeks in a row you will need to inform HMRC, as this will affect the amount of tax credit you receive.
If your working hours change to more than 30 hours a week, inform HMRC as you may be entitled to receive the additional ’30 hour element’ payment.
Changes to your family
Separating from a partner
If you have been claiming tax credits as part of a couple, you will need to inform HMRC within one month if you separate from your partner. If your household income is now less than it was previously, you are likely to be entitled to more tax credits.
Disabilities
If you or a child in your family have a long-term illness or disability, you may be able to claim an extra payment of working tax credit or child tax credit. To qualify you will need to be able to show that you are already receiving qualifying benefits, such as disability living allowance, employment and support allowance or personal independence payments.
Responsibility for a child
If you have a baby or a child moves in with you, you will be entitled to an additional amount of tax credit. If a child who was previously dependent on you no longer lives with you, or leaves full-time education, you may be entitled to less, or no, tax credits, depending on your other circumstances.
Children aged 16-19 years
You will be entitled to receive child tax credit until the end of August after your child’s 16th birthday. If your child stays in school to continue with full-time, non-advanced education, you can receive child tax credit until the are 20. If you have a child who is younger than 18 years old and who leaves school, you will be entitled to child tax credit for up to 20 weeks if your child is registered for work or training with a careers service. You will need to provide evidence that your child is staying in education to continue receiving child tax credit.
The information below gives some advice on when you will and won’t be able to claim child tax credit.
| Circumstance | When Child Tax Credit will stop |
| Your child is aged 16, has left school and is not continuing with full-time education or training. | On the last day of August after your child’s 16th birthday. |
| Your child is aged 16-18, is no longer in education but has registered for work or is training with a career service. | 20 weeks after your child leaves education. |
| Your child is aged 16-20, is no longer in education and has not registered for work or training. | On the last day that your child attends non-advanced education or training. |
| Your child is aged 16-19 and is in full-time, non-advanced education or training. | When your child completes their education or training, or on their 20thbirthday, whichever comes first. |
| Your child is over 16 years of age and is either working full time or claiming work-replacement benefits, e.g. income support. | When your child starts work or starts claiming benefits. |
It is worth noting that your own working tax credit may change when your youngest child either turns 16 or leaves education. Once your youngest child stops being eligible for child tax credit, you must be working at least 30 hours a week to qualify for working tax credit, instead of 16 hours a week if you have a child younger than 16. If you have a disability or are over the age of 60, there may be an exception to this.
Changes in childcare
If you are claiming help with childcare costs through your working tax credit and there’s a change to the amount you’re spending on childcare, you must inform HMRC. If your childcare costs stop or decrease by more than £10 a week for 4 or more weeks in a row, HMRC must be notified. Similarly, if you start paying for childcare or your existing costs go up by £10 or more a week, you may be entitled to an increased payment as part of your tax credit.
If the cost of your childcare varies from week to week, it will need to be broken down into an average weekly cost over the course of the 52 weeks in the year.
If you use childcare only, or more, during school holidays, there are two ways of claiming any extra tax credit you may be entitled to:
- If you know in advance what your childcare costs are, you might choose to have the extra amount needed during school holidays to be spread out over the whole year, meaning your weekly working tax credit payment will be slightly higher throughout the whole year.
- You might prefer to receive a higher payment of working tax credit during the time when you need the money to pay for the additional childcare. Remember that your costs have to go up by at least £10 a week for 4 weeks or more, so you won’t be able to claim higher payments during shorter school holidays.
Overpayments
If you are overpaid by HMRC, once they become aware of the overpayment you will be obliged to pay back the full amount. This can result in your tax credits being reduced or even stopped completely until the overpayment has been paid back. If you have some reason to believe that you might be being overpaid, it is really important to contact HMRC as soon as possible to avoid building up overpayment which you might struggle to pay back later. HMRC will contact you if they discover there has been overpayment, and will explain the steps that will be taken to pay back the money. If you are contacted by HMRC but you feel their decision about your tax credits is incorrect, you can find out how to appeal the decision by visiting www.gov.uk.
If your tax credits are reduced and you’re struggling to afford you rent or other essential living expenses, you can contact the HMRC Payment Helpline on 0345 302 1429 and ask if you can replay the overpayment over a longer period of time, but remember that your tax credits will continue to be reduced until the overpayment has been repayed.