Chapter 20: Working tax credit

• 1. What is working tax credit
• 2. Who is eligible
• Qualifying hours
• 3. Amount of working tax credit
• 4. Awards of working tax credit
• 5. Challenging a decision
• 6. Tax credits and benefits

Basic facts

– Working tax credit (WTC) is paid to top up low wages.

– You cannot make a new claim for WTC.

– Both part-time and full-time students are eligible.

– You may be eligible if you are over 25 and working at least 30 hours a week.

– You may be eligible if you are working at least 16 or 24 hours a week and you have a child, a disability or are over 60.

– You can get help with childcare costs in your WTC.

– The amount you get depends on your income, but most student support is ignored in the assessment.

1. What is working tax credit

Working tax credit (WTC) helps supplement low wages. It is administered by HM Revenue and Customs. It is paid to people who are working (employed or self-employed) for at least 16 hours a week or, in some cases, 24 or 30 hours a week. Full-time and part-time students are eligible. You get a higher amount if you work 30 hours a week or have a disability. You can get childcare costs paid with WTC. The amount of WTC you get depends on your income in the tax year.

Note: you cannot make a new claim for WTC because it is in the process of being replaced by universal credit. If you already get WTC you can add child tax credit to your award, and vice versa.

2. Who is eligible

• Qualifying hours

As new claims cannot be made, students getting working tax credit (WTC) will be those who were already on WTC (and/or child tax credit – CTC) before starting the course. If you cannot claim WTC, you may be able to get universal credit instead (see Chapter 18).

You qualify for WTC if you meet all of the following conditions.

•You are working sufficient hours and have a child or a disability, or you meet certain age conditions (see below).
•You are ‘present and ordinarily resident’ in the UK and not a ‘person subject to immigration control’. These terms are explained in CPAG’s Welfare Benefits and Tax Credits Handbook.
•Your income is not too high (see here).

There are no special rules for students. Both part-time and full-time students are eligible.

Qualifying hours

To get WTC, you must work sufficient hours and meet other conditions. There are four ways to qualify.1Reg 4 The Working Tax Credit (Entitlement and Maximum Rate) Regulations 2002 No.2005

•You have a child living with you. You are eligible if:
◦you are aged 16 or over; and
◦you are working at least 16 hours a week and you are single or your partner is incapacitated, in hospital or prison, or gets carer’s allowance, or you are a member of a couple and you are working at least 16 hours a week and between you and your partner you are working at least 24 hours a week; and
◦you have a dependent child. The rules are the same as for CTC (see here).
•You are a disabled worker. You are eligible if:
◦you are aged 16 or over; and
◦you are working 16 hours or more a week; and
◦you have a disability that puts you at a disadvantage in getting a job and you pass a disability benefit test. If you are unable to satisfy one of a list of activities or functions about your mobility, manual dexterity, vision, hearing, speech, fits and mental disability, and about any severe pain and rehabilitation, you pass the disadvantage test. HM Revenue and Customs (HMRC) may contact a doctor or medical professional to confirm this. You pass the disability benefit test if you get certain benefits such as disability living allowance or personal independence payment, or you have been getting other employment and support allowance for at least 28 weeks or a disability premium in a means-tested benefit. For more details, see CPAG’s Welfare Benefits and Tax Credits Handbook. The test is also detailed in the notes for the claim form, TC600.
•You are over 25. You are eligible if:
◦you are aged 25 or over; and
◦you are working 30 hours or more a week.
•You are over 60. You are eligible if:
◦you are aged 60 or over; and
◦you are working 16 hours or more a week.

In each case, the work you do must be paid work. It must be expected to continue for at least four weeks from the time you claim WTC. This means you can claim WTC for work during long vacations but not during short vacations unless you will be working for at least four weeks. You can also claim during term time if you normally work sufficient hours to qualify. You must tell HMRC when you stop work, or if your hours reduce below the level required to qualify for WTC. In either case, your WTC award continues for another four weeks (called the ‘four-week run-on’).

 

1     Reg 4 The Working Tax Credit (Entitlement and Maximum Rate) Regulations 2002 No.2005 »

3. Amount of working tax credit

The amount of working tax credit (WTC) you get depends on your circumstances (your ‘maximum WTC’) and how much income you have. Tax credits are calculated according to a maximum annual amount that you could receive in the tax year (6 April - 5 April). However, often awards must be calculated on part years because of changes in your circumstances – eg, you have another child, you cease to be a member of a couple or you change your hours of work. What follows, therefore, is a simplification of what is often a very complicated calculation and assumes you are claiming for a full tax year and have no changes in your circumstances during that year. See CPAG’s Welfare Benefits and Tax Credits Handbook for the detailed rules.

The government website has tax credit pages at gov.uk/topic/benefits-credits/tax-credits. You can use these to check whether you qualify and how much WTC you are likely to get.

The way in which WTC is calculated is the same as for child tax credit (CTC – see here), except that the threshold with which your income is compared is always £6,770. First, work out your maximum WTC (and add the maximum CTC, if applicable). Then work out your income (see Chapter 18). Use your income for the previous tax year, unless the current year’s income is more than £2,500 less than this (in which case use the current year’s income plus £2,500) or more than £2,500 more than this (in which case use the current year’s income minus £2,500). Finally, work out 41 per cent of the amount by which your income exceeds £6,770, and subtract this from your maximum WTC.

Note: this simplified calculation gives an approximate amount of WTC. Amounts are actually calculated using daily rates. See CPAG’s Welfare Benefits and Tax Credits Handbook for more details.

The maximum WTC you can get is made up of a basic element of £2,070 a year plus whichever one or more of the following elements apply:

•lone parent/couple element of £2,125 a year;
•30-hour element of £860 a year if you work at least 30 hours a week (you can add your hours to your partner’s if you have a child);
•disabled worker element of £3,345 a year if you qualify for WTC as a disabled worker (see here);
•severe disability element of £1,445 a year if you get the highest rate care component of disability living allowance (DLA) or the enhanced rate of the daily living component of personal independence payment;
•childcare element. You can get up to 70 per cent of your childcare costs up to a limit of £175 a week for one child or £300 for two or more children – ie, a maximum of £122.50 or £210. The childcare must be of a certain type, including a registered childminder, nursery or playscheme, an out-of-hours club or sitters service. You do not get help with childcare at home provided by a relative. To get the childcare element you must be a lone parent, or a couple and either both of you are working 16 hours or more a week, or one of you is incapacitated, in hospital or in prison.

These are the amounts for the tax year April 2022 to April 2023. The maximum amounts usually go up each April. You will get less than the maximum if your income is more than a set threshold.

The income threshold is £6,770. If your income is below this you get maximum WTC. If your income is above this threshold, you get a reduced amount. See Chapter 23 for what income counts in the assessment.

If your circumstances change so that you could gain or lose an element, tell HM Revenue and Customs (HMRC) so your award can be adjusted. If you should gain an element (eg, because your hours of work increase or you incur eligible childcare costs), you must tell HMRC within one month, otherwise you do not get the increase fully backdated. The exception to this is that the disabled worker element or severe disability element can be fully backdated if you notify HMRC within one month of DLA being awarded.

Some changes must be reported within one month – eg, if you stop working.

4. Awards of working tax credit

Any childcare element of working tax credit (WTC) is paid to the main carer directly into a bank account. Otherwise WTC is paid into the bank account of the person in work.

Your award is based on your income in the previous tax year (see Chapter 23). Your income might be very different this year. When you get your initial award, tell HM Revenue and Customs straight away how much your income is expected to be in the current year if it will be more than £2,500 lower or more than £2,500 higher than the previous year.

5. Challenging a decision

If you think a decision about your working tax credit is wrong, you can ask HM Revenue and Customs (HMRC) to look at it again. This process is known as a ‘mandatory reconsideration’. Provided you ask within the time limit (usually 30 days), HMRC notifies you of the decision in a ‘mandatory reconsideration notice’. If you are still not happy when you get this notice, you can appeal to the independent First-tier Tribunal. If it was not possible to ask HMRC to reconsider the decision within 30 days, you can ask for a late review (within 13 months), explaining why it is late. You can also ask HMRC to look at a decision again at any time if certain grounds are met – eg, if there has been an official error.

If HMRC has overpaid you, see here.

6. Tax credits and benefits

If you or your partner get working tax credit (WTC), the benefit cap does not apply.

See here for details of how WTC affects benefits.

See here for details of the passported benefits you may be eligible for if you get WTC.