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 . 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 £7,455. First, work out your maximum WTC (and add the maximum CTC, if applicable). Then work out your income (see Chapter 17). 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 £7,455, 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 £2,280 a year plus whichever one or more of the following elements apply:
•lone parent/couple element of £2,340 a year;
•30-hour element of £950 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 £3,685 a year if you qualify for WTC as a disabled worker (see here); •severe disability element of £1,595 a year if you get the highest rate care component of disability living allowance (DLA)/adult disability payment 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 2023 to April 2024. The maximum amounts usually go up each April. You will get less than the maximum if your income is more than a set threshold.
Examples
Sian is 26 and gets CTC. She does not work during the academic year, but in the summer vacation she gets a job for 30 hours a week and expects to work for nine weeks. Sian is eligible for WTC. Whether any WTC is payable depends on the level of her wages and other income.
Katherine and Spencer have a four-year-old child at nursery school. Katherine is a student and Spencer works 24 hours a week. Katherine works 16 hours a week during the summer only. They are eligible for WTC throughout the year. During the summer they can get a 30-hour element included in their WTC and they can also claim help with nursery charges.
Morag is a full-time student on a Higher National Certificate course. She has an eight-year-old daughter. She works 20 hours a week. Her income is a student loan, lone parents’ grant of £1,305, and earnings of £9,300 in the tax year April 2022 to April 2023. In the previous tax year 2021/22, she worked 30 hours a week and earned £16,300.
Her maximum tax credits are:
| £ |
CTC family element | 545 |
CTC child element | 2,935 |
WTC basic element | 2,070 |
WTC lone parent element | 2,125 |
Total maximum tax credits | 7,675 |
Her income this year is more than £2,500 lower than last year when she was working full time, so this year’s income plus £2,500 is used.
Her income is £9,300 + £2,500 + £1,305 = £13,105
The threshold is £6,770.
Income minus threshold is £13,105 - £6,770 = £6,335
41% x £6,335 = £2,597.35
Maximum tax credits of £7,675 is reduced by £2,597.35.
Morag gets tax credits of £5,077.65, or about £97.65 a week .
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 17 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.