Children's Handbook Scotland 2020/21Chapter 7: Children living with kinship carers4. Benefits and tax credits if a child is looked after Tax credits
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Tax credits
Note: if you are not already getting tax credits, you are very likely to have to claim UC instead.
Child tax credit
Note: if the local authority payment (kinship care allowance) is not for accommodation or maintenance (usually a Section 22 payment – see here), you should be entitled to CTC for the child providing you satisfy the normal conditions of entitlement.
The ‘two-child limit’ (see here) generally means that you cannot get CTC for a child born on or after 6 April 2017 if you already have child elements included in your CTC for two or more children. If you are a kinship carer and have parental rights or responsibilities for a child as a result of a permanence order, that child is exempt from the ‘two-child limit’. S/he continues to be exempt after her/his 16th birthday providing you are still responsible for her/him.1Regs 7(2A), 9 and 12(f) and (g) CTC Regs This is the only exception to the ‘two-child limit’ which affects kinship carers of looked-after children.
If the child is looked after by the local authority and the local authority is paying towards her/his accommodation and/or maintenance, you cannot get CTC in respect of the child for whom you care.2Reg 3(1) r4 Case A CTC Regs This is because the tax credit rules prevent you from being treated as responsible for a child if s/he is provided with or placed in accommodation under Part 2 of the Children (Scotland) Act 1995 or under the Children’s Hearings (Scotland) Act 2011, and the cost of the child’s accommodation or maintenance is borne wholly or partly out of public funds.
This rule only applies if the local authority payment is for accommodation or maintenance.
 
1     Regs 7(2A), 9 and 12(f) and (g) CTC Regs  »
2     Reg 3(1) r4 Case A CTC Regs »
Working tax credit
If the child for whom you care is looked after by the local authority and the local authority is paying towards the child’s accommodation and/or maintenance, s/he does not count as a dependent child for working tax credit (WTC) purposes.1Reg 2(2) WTC(EMR) Regs However, being a kinship carer of a looked-after child may help you qualify for WTC.
In order to get WTC, you have to be in ‘qualifying remunerative work’. This means that you are working (either employed or self-employed) for a certain number of hours a week and fall into at least one of five categories (see below). If the local authority makes a payment to you, being a kinship carer of a looked-after child can count as self-employed work for tax credit purposes, except if you have legal parental responsibilities for the child – eg, as a result of a permanence order.2ss803-6 IT(TOI)A 2005; reg 4(1) WTC(EMR) Regs fourth condition; BIM 52755 and 52758 HMRC guidance states that kinship carers should be treated as ‘being in remunerative work’.3para 124100 TCM If you are a kinship carer of a looked-after child and you are refused WTC on the basis that you are not self-employed, seek further advice immediately.
You may be able to claim WTC if:4Reg 4 WTC(EMR) Regs
    •you are aged at least 25 and work for at least 30 hours a week; or
    •you are aged at least 60 and work for at least 16 hours a week; or
    •you are a single claimant, you have a dependent child, and you work for at least 16 hours a week. If the local authority is paying you in respect of the child’s accommodation and/or maintenance, the child for whom you care as a kinship carer does not count as dependent for this purpose, but if you have a child of your own, s/he does count; or
    •you are a couple, have a dependent child and your combined working hours are at least 24 a week. If the local authority is paying you for the child’s accommodation and/or maintenance, the child for whom you care as a kinship carer does not count as dependent for this purpose, but if you have a child of your own, s/he does count. If you both work, one must work at least 16 hours a week. If only one of you works, you must work at least 24 hours. Note: if you are a couple with a dependent child and the non-working partner is incapacitated, a hospital inpatient, in prison or entitled to CA, you can qualify if you work at least 16 hours a week; or
    •you have a disability which puts you at a disadvantage in getting a job, and you work for at least 16 hours a week.
 
The effect of local authority payments
Under the HMRC tax relief scheme, if you are claiming WTC as a self-employed carer, up to £10,000 a year, plus £200 a week for each child under 11 and £250 a week for each child aged 11 or over, is not liable for tax. Local authority payments below these amounts are ignored as income for tax credit purposes.5Reg 19 Table 6 para 9 TC(DCI) Regs HMRC produces a helpsheet (HS236) on the tax relief scheme (available at gov.uk).
If you claim WTC as a kinship carer, your WTC counts as income for any means-tested benefits you get – eg, HB or CTR.
If you are not claiming tax credits as a self-employed earner, but are getting tax credits anyway (eg, because you are employed or you have other children for whom you can claim CTC), local authority payments are disregarded as income.6Because they are not defined as income under reg 3 TC(DCI) Regs (confirmed for s50 and s22 payments in HMRC email to CPAG, 22 April 2009).
 
1     Reg 2(2) WTC(EMR) Regs »
2     ss803-6 IT(TOI)A 2005; reg 4(1) WTC(EMR) Regs fourth condition; BIM 52755 and 52758  »
3     para 124100 TCM »
4     Reg 4 WTC(EMR) Regs »
5     Reg 19 Table 6 para 9 TC(DCI) Regs »
6     Because they are not defined as income under reg 3 TC(DCI) Regs (confirmed for s50 and s22 payments in HMRC email to CPAG, 22 April 2009). »