Coronavirus – the impact on tax credits
If you are currently getting tax credits, your entitlement may be affected by the coronavirus outbreak.
Child tax credit (CTC) provides support for children, and working tax credit (WTC) provides support for people working at least a certain number of hours, employed or self-employed, on a low income.
Tax credits do not include help with rent, but if you are already entitled to housing benefit, you can continue to get it and the amount you get may go up if your income has gone down.
This briefing covers:
Increased amounts
The basic element of WTC is increased by £1,045 on top of the planned rise from 6 April 2020. The basic element is £3,040 for 2020/21 (a daily rate of £8.33). This is equivalent to the increase in the standard allowance of universal credit. If you get CTC only, and are not entitled to WTC, there is no equivalent increase.
Claiming universal credit
If you do not have enough to live on, you may be advised to claim universal credit (UC), which can include help with your rent as well as amounts for adults and children in the household. Claiming UC means that your tax credits are automatically terminated and you will not be able to get them back.
Get advice about whether you should claim UC to make sure claiming will not make you worse off if you are currently getting tax credits. This depends on your individual circumstances and income. Some common situations in which you may lose out by claiming UC are described below.
You have capital over £16,000. This is the capital limit for UC, so you will not be entitled to UC, but you will still lose your tax credits if you claim UC. The value of your home is ignored, but it includes owning property other than the home. Property can be disregarded in some situations, for example if you are trying to sell it. Capital can still be counted against you if you deliberately dispose of it in order to claim UC. If you are self-employed, business assets are ignored while you are carrying on work, or for at least six months if you are unable to work due to illness.
You are a student. Most students are not entitled to UC. You may be entitled to UC if you have children or a disability, but student income affects the amount you get. Nearly all student income is ignored for tax credits.
Staying on tax credits
Off work or reduced hours due to coronavirus
From 23 May 2020, a change in the rules means that you can remain entitled to working tax credit during the coronavirus pandemic. This applies to you if you are:
a furloughed employee under the government’s Coronavirus Job Retention Scheme;
an employee and your employer has notified that you are not required to work due to coronavirus;
an employee or self-employed worker and you have had to reduce your hours or stop work temporarily due to coronavirus; or
You are treated as still working your normal hours (at least 16, 24 or 30 hours a week) during these circumstances.
You are also treated as in work for a further 8 weeks after these circumstances no longer apply to you, as long as you return to work and intend to resume working sufficient hours. If after the end of the 8 week period you are not working sufficient hours, you will be entitled to a four week run-on of working tax credit.
After these circumstances no longer apply to you, if you do not return to work or your hours are permanently reduced to less than required, you will be entitled to a four week run-on of working tax credit.
You are also treated as in work during any period that you are on leave from work because you are an emergency volunteer in health or social care.
HMRC has said that you do not need to report a change in your working hours if you are working less due to the coronavirus.
You must notify the Tax Credits office if your job has ended (ie, you have been dismissed or made redundant and your employer has given you a P45) or if your business has ended (ie, you have ceased trading and stopped being self-employed).
Off work due to infection or self-isolation, or caring for a child who is infected or in isolation
You can continue to be entitled to WTC if you are absent for work and you are:
getting statutory sick pay (SSP) as an employee; or
are self-employed and would otherwise have qualified for SSP; or
are getting employment and support allowance (ESA); or
are getting credits on your national insurance record for limited capability for work.
These periods must start immediately after working and can continue for a maximum of 28 weeks.
Key workers
If you are a key (critical) worker, you have three months, instead of the normal one, to report changes of circumstances that reduce your tax credits. You cannot be given a penalty if you report a change within three months. An overpayment may arise, but HMRC has discretion not to recover any overpayment.
If you are a key worker, you have three months, instead of the normal one month, to report changes of circumstances that increase your tax credits. You will be entitled to the increased amount backdated for up to three months, or longer in relation to disability elements.
These rules apply from 23 May 2020 for as long as the government’s coronavirus Job Retention Scheme remains open. Follow the links below to:
Childcare costs
You are entitled to the childcare element of WTC for registered childcare provided for a child for whom you are responsible. It covers 70% of your actual costs, up to a maximum payable of £122.50 for one child or £210 for two or more children. To qualify for the childcare element, you must continue to be entitled to WTC (see above) and paying for childcare. You continue to be entitled to the childcare element if you stop paying for childcare costs for less than four weeks. The amount of the childcare element only changes if your average weekly childcare costs change by at least £10 a week for four weeks in a row.
Stopped paying for childcare
If you have stopped paying childcare costs or you are no longer employed or self-employed, there is a four week run-on in which you remain entitled to the amount of the WTC childcare element you were getting.
Paying a retainer for childcare that is not being provided
If you are still paying your registered childcare provider but childcare has not been provided for more than four weeks, HMRC has not published updated guidance on this situation yet. For example, if your childcare provider has asked you to pay, say, half your regular fees while your child is at home as a retainer to keep the place, and you will still have to pay in full when your child is able to attend again, the childcare element in WTC can continue for at least four weeks. After four weeks, contact HMRC to report the change in circumstances and ask it whether the childcare element can continue.
Paying in advance for childcare
The childcare element can continue if you are paying in advance for childcare that will be provided in future. For example, if your childcare provider has asked you to continue paying, say, half your regular fees while your child is at home, but has said that you will then get a 50 per cent reduction on the fees when you child is able to attend again in future, this can still be covered by the childcare element in WTC. You must report the change in the amount you are paying.
Income
If your income in 2019/20 reduced by more than £2,500 compared to your 2018/19 income, you may have been underpaid tax credits for 2019/20. As the tax year came to an end on 5 April, any underpayment should be paid to you when your entitlement is finalised during the annual review, by 31 July 2020.
If your income in 2020/21 is likely to be reduced (compared to your 2019/20 income), your payments for the new tax year, which started on 6 April, may be increased, based on an estimate of your 2020/21 income.
For these reasons, you should provide an estimate of your actual income in 2019/20 and your expected income in 2020/21 as soon as you can. If things change, it is vital to keep your current year estimate up to date.
If you are an employee and receiving wages through the government’s Job Retention Scheme, this counts as employment income.
If you are self-employed, the money you receive through the government’s Job Retention Scheme to pay your employees does not count as your income.
Payments through the government’s Self-Employment Income Support Scheme and any other government support scheme for the self-employed count as trading income for tax credits purposes, so should be declared to the Tax Credits Office.
If you are an emergency volunteer in health or social care, any payments you receive in connection with this scheme do not count as income.
Payments instead of free school meals do not count as income.
The £60,000 death in service lump sum payment for families of frontline NHS workers does not count as income, but interest on it does count as income.
Contact the Tax Credits Helpline on 0345 300 3900 or online using the manage your tax credits tool on gov.uk.
Recovery of overpayments
Recovery of overpayments is discretionary, and HMRC has the power to suspend recovery in exceptional circumstances. If recovery is causing you hardship, contact the Tax Credits Payment Helpline on 0345 302 1429 to request that recovery is suspended during these exceptional circumstances.