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Student Support and Benefits Handbook 2021/22

Chapter 23: How income affects tax credits
This chapter covers:
1. Income and tax credits (below)
2. Grants and loans (here)
3. Earnings (here)
4. Benefits (here)
5. Other income (here)
This chapter explains how your weekly income affects your entitlement to child tax credit and working tax credit. For information on how income affects universal credit, see Chapter 21. See also Chapter 22 for how your income is assessed for means-tested benefits and Chapter 24 for health benefits.
 
Basic facts
– Most student income is ignored when working out your entitlement to tax credits.
– The higher education adult dependants’ grant and some elements of professional and career development loans are taken into account.
– Earnings, some benefits and certain other income are also taken into account.
1. Income and tax credits
If you are getting income support, income-based jobseeker’s allowance, income-related employment and support allowance or pension credit, you are entitled to maximum tax credits without any income test. If you are not on one of these benefits, the tax credit assessment is based on your income over a full tax year (6 April to 5 April). To assess your award, HM Revenue and Customs (HMRC) uses your income from the previous complete tax year. For example, if you are getting tax credits between 6 April 2021 and 5 April 2022, HMRC uses your income from 6 April 2020 to 5 April 2021 to work out your entitlement. Note: although your income from the previous year is used in the initial tax credit assessment, all other relevant circumstances, such as the age of your child, are taken from the current year of the tax credit award.
Your tax credits are first assessed using the previous year’s income, even if HMRC knows at the outset that your circumstances have changed. If you expect your income over the current tax year to be more than £2,500 lower or more than £2,500 higher, tell HMRC and it reassesses your tax credit entitlement. If you do not tell HMRC, you will have an overpayment to repay at the end of the tax year, or an underpayment that you will get back as a lump sum.
At the end of the tax year, HMRC sends you an annual review form to check whether your income and circumstances have stayed the same over the year. It reassesses your award for the previous year based on the current year’s income plus £2,500 if it is more than £2,500 lower than in the previous year, or based on the current year’s income less a disregard of £2,500 if it is more than £2,500 higher.
If your income increases by £2,500 or less since the previous tax year used to assess your claim, you do not need to tell HMRC as this does not affect the amount to which you are entitled (but you should let it know if the change means you are now eligible for working tax credit (WTC) or more WTC). However, any increase will be taken into account from the following April (April 2022 for an increase in the 2021/22 tax year), so it is important to tell HMRC of any increase by this date, otherwise you are likely to incur an overpayment.
If you have a partner, your tax credits claim is made jointly and her/his income counts as well as yours.
Unless you or your partner are working and eligible for WTC, your maximum child tax credit is reduced if your income is above the threshold of £16,480 a year. If you are eligible for WTC, this threshold is £6,565.
When working out your income for tax credit purposes, some income is disregarded.
2. Grants and loans
Most grants and loans are disregarded when calculating a student’s income for tax credit purposes (see below).1Reg 8 TC(DCI) Regs The following are the exceptions.
    Adult dependants’ grant. Any grant received for an adult dependant is included in the calculation.
    Professional and career development loan. Any part of this paid for living costs for the period supported by the loan is taken into account in full.2Reg 19(c) Table 8 para 2 TC(DCI) Regs Note: this loan is no longer available but could appear in claims using income for the 2019/20 tax year.
 
 
1     Reg 8 TC(DCI) Regs »
2     Reg 19(c) Table 8 para 2 TC(DCI) Regs »
Grants and loans checklist
 
Student support
Treatment
Further education income
16–19 bursary fund
Disregarded
Advanced learner loan
Disregarded
Care to Learn grant
Disregarded
Dance and Drama Awards
Disregarded
Discretionary support funds/Financial Contingency Fund/hardship funds payment
Disregarded
Education maintenance allowance
Disregarded
Further education grant (Northern Ireland)
Disregarded
Learner support grant
Disregarded
Travel expenses allowance
Disregarded
Vulnerable student bursary (England)
Disregarded
Welsh government learning grant
Disregarded
Undergraduate income
Adult dependants’ grant
Taken into account in full
Base grant (Wales)
Disregarded
Childcare grant
Disregarded
Disabled students’ allowance
Disregarded
Hardship funds
Disregarded
Institutional bursaries or scholarships
Disregarded
Maintenance grants
Disregarded
NHS childcare allowance
Disregarded
NHS dependants’ allowance
Disregarded
NHS healthcare/nursing and midwifery bursary
Disregarded
NHS Learning Support Fund payments (including parental support)
Disregarded
NHS training grant
Disregarded
Parents’ learning allowance
Disregarded
Part-time students’ grant for course costs
Disregarded
Part-time students’ grant for tuition fees
Disregarded
Part-time students’ loan for living costs
Disregarded
Social work bursary (England and Wales)
Disregarded
Social work bursary (Northern Ireland)
Disregarded
Special support grant
Disregarded
Special support loan element
Disregarded
Special support payment (Wales)
Disregarded
Student loan for living costs (including any means-tested element where appropriate)
Disregarded
Teacher training bursary
Disregarded
Travelling or accommodation expenses
Disregarded
Tuition fee grant (Wales)
Disregarded
Tuition fee loan
Disregarded
Welsh government learning grant
Disregarded
Postgraduate income
Books and equipment expenses
Disregarded
British Academy grant
Disregarded
Postgraduate bursary (Wales)
Disregarded
Postgraduate loan for doctoral degrees
Disregarded
Postgraduate loan for master’s degrees in England (equivalent loans in Wales expected to be treated the same)
Disregarded
Postgraduate tuition fee loan (Northern Ireland)
Disregarded
Research Council studentship or scholarship
Disregarded
Social work bursary
Disregarded
Supplementary grants
Disregarded except for any adult dependants’ grant, which is taken into account in full
Teacher training bursary/grant/scholarship/salary
Disregarded
Other income
Professional and career development loan
Tuition and course cost payments disregarded; payments for living costs taken into account
3. Earnings
Your gross earnings from the last full tax year, plus those of your partner, are taken into account in the tax credit assessment. ‘Gross earnings’ means all income before any income tax or national insurance contributions are deducted. It also includes tips, overtime pay, taxable expenses and, ignoring the first £30,000, taxable payments related to the termination of employment such as redundancy pay and strike pay.1Reg 4 TC(DCI) Regs If you make any contributions to a personal or occupational pension approved by HM Revenue and Customs, these contributions should be disregarded.2Reg 3(7)(c) TC(DCI) Regs The first £100 a week of statutory maternity, paternity, shared parental and adoption pay is disregarded, but payments above this are included.3Reg 4(1)(h) TC(DCI) Regs Statutory sick pay is included in full.4Reg 4(1)(g) TC(DCI) Regs Any payments that are exempt from income tax should be ignored for the purposes of tax credits.
For full details of the way earnings are treated, see CPAG’s Welfare Benefits and Tax Credits Handbook.
 
1     Reg 4 TC(DCI) Regs »
2     Reg 3(7)(c) TC(DCI) Regs »
3     Reg 4(1)(h) TC(DCI) Regs »
4     Reg 4(1)(g) TC(DCI) Regs »
4. Benefits
In general, benefits that are not taxable are disregarded when calculating tax credits, and benefits that are taxable are included. For full details of the way social security benefits are treated, see CPAG’s Welfare Benefits and Tax Credits Handbook.
Benefits disregarded include:1Reg 7(3) TC(DCI) Regs
    bereavement support payment;
    child benefit;
    disability living allowance;
    personal independence payment;
    income-related employment and support allowance (ESA);
    guardian’s allowance;
    housing benefit;
    income support (except to strikers);
    income-based jobseeker’s allowance (JSA);
    industrial injuries benefit;
    maternity allowance;
    social fund payments;
    most war pensions;2Reg 5 TC(DCI) Regs
    increases for a child or adult dependant paid with any of the above benefits.
Benefits taken into account in full include:
    carer’s allowance;
    contributory ESA;
    long-term incapacity benefit;
    contribution-based JSA. Note: amounts above the ’taxable maximum’ are ignored. In practice, people are not paid above this amount, so in the majority of cases all contribution-based JSA is included;
    increases for a child or adult dependant paid with any of the above benefits.
Benefits partly taken into account include:
    state retirement pension (and private and occupational pensions);
    widowed parent’s allowance.
These are included in the tax credit calculation, except for the first £300 of the total income from pensions, and income from capital and foreign income, which is disregarded.
 
1     Reg 7(3) TC(DCI) Regs »
2     Reg 5 TC(DCI) Regs »
5. Other income
This is a brief outline of how other income is treated. For further details, see CPAG’s Welfare Benefits and Tax Credits Handbook.
Income from self-employment
Your taxable profits are taken into account, less any personal pension contributions.
Savings and investments
There is no capital limit for tax credits. You are eligible whatever amount of savings you have and whatever the value of other capital. However, income generated from your savings or other capital is taken into account. For example, interest from money in a bank account is taken into account, unless it is in a tax-free savings account. However, if you have no income from property or pensions, or foreign income, interest on savings or other capital is only taken into account if it is over £300 a year.
Property
The capital value of any property is ignored. Any taxable rental income is included, except for the first £300 of the total income from pensions, income from capital, and foreign income, which is disregarded.1Reg 11 TC(DCI) Regs
Note: you can rent a room in your own home without paying tax on the rental income, provided this does not exceed £7,500 a year. This income is not taken into account when working out your entitlement to tax credits.
 
1     Reg 11 TC(DCI) Regs »
Maintenance
Regular maintenance from an ex-partner is ignored, regardless of how the arrangement was made. Similarly, any support received from an ex-partner for your child(ren) is also ignored.1Reg 19 Table 6 para 10 TC(DCI) Regs
 
1     Reg 19 Table 6 para 10 TC(DCI) Regs »