We are sharing this update from ACCA, our professional body, for the interest of clients and contacts. The content is (c) ACCA
Tax credits claims must be renewed annually or are very likely to be stopped
Claimants need to renew their tax credits by the date shown on their renewal pack. For most people, this is 31 July 2023.
Tax credits claims last for a maximum of one tax year (6 April to following 5 April). HMRC will automatically send the renewal papers between April and June.
Failure to renew means that no new claim is made, and any provisional payments received from April 2023 will be overpaid (because there is no claim) and HMRC will seek to recover them via direct recovery.
However, regulations allow the claim to be restored provided you renew it within 30 days from the date on the notice telling you that your payments are to be stopped (technically called the Statement of Account).
If you failed to renew within the 30-day grace period, the claim can only be restored if you can show that you have a good reason for failing to renew by the deadline as long as you submit the renewal papers by the later deadline of 31 January 2024.
Read HMRC’s guidance on how to renew.
The government is gradually introducing Universal Credit (UC), a new benefit which will eventually replace tax credits. In this year’s renewal pack you might receive information about UC; it is for information only; people should understand what UC means for them. Most tax credit claimants will be affected by UC at some point. Some people may choose to claim UC because they will be better off; others will need to claim UC due to a change of circumstances that brings their tax credits to an end.
HMRC states that it is no longer possible for anyone to make a brand new claim for tax credits, but existing claimants can still renew their claims and add extra elements.
There are two tax credits that have different qualifying conditions but which can be claimed on the same form: working tax credit (WTC) and child tax credit (CTC)
To be entitled to tax credits, a claim must be made. Without a claim, there can be no entitlement.
Working tax credit
Working tax credit (WTC) is paid to people working on a low income and it is based on the hours of paid work. Unpaid work does not count for WTC.
To qualify to claim WTC an individual must be aged 16 or over, in qualifying remunerative work (employed or self-employed) and not be subject to immigration control.
The claimant must work a minimum number of hours a week.
In the case of a single claim:
- the claimant is aged 16 or over and works at least 16 hours a week and: is responsible for a child or qualifying young person; or
- qualifies for the disability element of WTC; or
- the claimant is aged 60 or over and works at least 16 hours a week; or
- the claimant is aged 25 or over and works at least 30 hours a week.
In the case of a joint claim where there is no responsibility for a child or qualifying young person:
- the claimant is aged 16 or over and works at least 16 hours a week and qualifies for the disability element of WTC; or
- the claimant is aged 60 or over and works at least 16 hours a week; or
- the claimant is aged 25 or over and works at least 30 hours a week.
In the case of a joint claim where there is responsibility for a child or qualifying young person:
- the claimant is aged 16 or over and works at least 16 hours a week and qualifies for the disability element of WTC; or
- the claimant is aged at least 16 and is a member of a couple where one partner works at least 16 hours a week and the total number of hours for which the couple work is not less than 24 hours a week; or
- the claimant is aged at least 16 and is a member of a couple where one partner works at least 16 hours a week and the other partner is incapacitated, in prison, in hospital or entitled to carer’s allowance or carer’s assistance (Scotland); or
- the claimant is aged 60 or over and works at least 16 hours a week.
- the work done must be employed or self-employed.
Elements of WTC
WTC is made up of a number of separate components:
- basic element – up to £2,280
- couple and lone parent element – up to £2,340
- 30-hour element – up to £950
- disability element – up to £3,685
- severe disability element – up to £1,595 a year usually on top of the disability payment
- Childcare element – maximum weekly childcare cost for 1 child £175, maximum eligible cost for 2 or more children is £300, percentage of eligible costs covered is 70%.
The income threshold withdrawal threshold for 2023/2024 is £7,455. Above this threshold, the maximum tax credits award will be reduced by 41p for every £1 of income.
Find out about the tax credits rates from April 2023.
Child tax credit
Child tax credit (CTC) supports families with children. It is paid in addition to child benefit and the person does not have to be working to be entitled to it. Children are eligible up to their 16th birthday. After that date, the child becomes a ‘qualifying young person’ up until 31 August following his or her 16th birthday. There is no requirement to satisfy the full-time education or approved training conditions during this period, but other conditions relating to being a qualifying young person must be met. After that date, the credit remains payable only to those who continue in full-time, non-advanced education or training up to the age of 20, provided the course of education or training started before the young person became 19.
Elements of CTC
CTC is made up of the following components:
- Family element (one per family) – £545. Before April 2017, the family element was paid to each family entitled to CTC, irrespective of the number of children. Only one family element was payable on each claim.From 6 April 2017, the family element (set at £545) will only be included in awards where the claimant has responsibility for a child or young person born before 6 April 2017.
- Child element (paid for each child) – £3,235. Before changes introduced from 6 April 2017, a child element was included in a CTC award for each child or qualifying young person that the claimant was responsible for. The child element was payable at one of three rates – the standard rate, a disabled child rate and a severely disabled child rate.Since 6 April 2017, the number of child elements included in a CTC award has been limited to 2 children and broadly this means that anyone who has a third child born on or after 6 April 2017 will not receive the child element for that child unless an exception applies to the child.
A child element continues to be included in the award for each child that the claimant is responsible for who was born before 6 April 2017. There is a list of exception scenarios where a child element can still be included in an award.
- Disabled child element (paid in addition to the child element) – £3,905.
- Severely disabled child element (paid in addition to the child and disability elements) – £1,575.
CTC-only claims
Where a claimant (or their partner) has no entitlement to the basic element of WTC, but they are responsible for a child or qualifying young person, the CTC only threshold should be used. For 2023/2024 this is £18,725.
Above the £18,725 threshold, the maximum tax credits award will be reduced by 41p for every £1 of income.
Where a claim includes both WTC and CTC, the WTC is tapered first, followed by the childcare element of WTC, and finally the CTC.
Each calculation of tax credits involves a series of steps which, in brief, are:
- Determine the number of relevant periods. This is a period during the award period in which the rate of tax credit a person is entitled to remains the same. A relevant period ends with a change of circumstances which changes the amount of tax credits they are entitled to.
- Calculate maximum entitlement for each relevant period by adding together the WTC and CTC elements that are applicable to the claimant’s circumstances.
- Apportion the income figure and the relevant threshold for each relevant period on a daily basis.
- Calculate the ‘excess income’ figure (the amount that the person’s income exceeds the threshold for that relevant period).
- Calculate the ‘reduction due to income’ by multiplying the ‘excess income’ figure by the first taper percentage (currently 41%).
- Take the Step 5 figure away from the figure in Step 2 to find the tax credits for the relevant period.
- Add the amount due for each relevant period to find the entitlement for the tax year.
