Universal credit: Tax credits and UC

This page explains the relationship between tax credits and Universal Credit and looks at how claimants can move from UC back to tax credits and vice versa.

The general rule
New tax credit claims
Existing tax credit claimants
Claims for tax credits by UC claimant
Treated as entitled to tax credits
Moving back to tax credits from UC

The general rule

The general rule is that you cannot claim tax credits (working tax credit and/or child tax credit) at the same time as Universal Credit. There are exceptions to this rule:

New tax credit claims

Whether a person can make a tax credit claim depends on the status of UC in their area. If UC has not reached their postcode then they can claim tax credits as normal. If UC has reached their postcode area then whether they can claim depends on if their area is a digital service area or a live service area. See ‘current eligibility to claim’ to find out more.

We have created a a postcode checker - universalcreditinfo.net - that shows who can claim UC and the status of tax credit claims and other benefits in that postcode area.

Enter your postcode in the box below to find out about your area:
 


Existing tax credit claimants

At present, existing tax credit claimants are not currently affected by the roll-out of UC. From July 2019, DWP will start to move existing tax credit claimants across to UC. This will be completed in 2022 based on current plans.

The only way existing tax credit claimants can move to UC is if they choose to do so or if they have a change in circumstances that ends their tax credit award or in digital areas if they need to make a claim for another legacy benefit. First, the person needs to understand whether they are in a live service area or a digital service area. See 'current eligibility to claim' to find out more.

Claims for tax credits by UC claimants

A UC claimant cannot make a claim for tax credits. DWP treat a person as a UC claimant if:

This rule, where a UC claimant cannot make a claim for tax credits, also applies even if a claim for the benefit is made or treated as made at a time when the claimant was not a UC claimant. This specifically refers to the normal tax credit rule which allows backdating of claims up to 31 days. Similarly, a claim for WTC may not be made where backdating is claimed due to being awarded a qualifying disability benefit or refugee status that gives entitlement to longer backdating of WTC.

Where a person is treated as making a claim for tax credits under certain provisions, the above rule will not apply. This means that in some cases, a UC claimant can make or be treated as making a claim for tax credits. This applies where the tax credit claimant is treated as a new claimant partner in UC or where the person is treated as making a tax credit claim under UC legislation. See below our section on people treated as entitled to tax credits.

A new claimant partner for UC refers to a tax credit claimant who forms a couple with an existing UC claimant. The couple are treated as having made a claim to UC providing they both meet the basic conditions (except the claimant commitment requirement). The tax credits award will terminate the day before the UC award as a couple starts. If this happens during the renewals period, UC legislation treats this person as making a claim for tax credits for the current year. They will not be affected by the general rule above that says a tax credit claim cannot be made by a UC claimant.

Treated as entitled to tax credits

Under normal tax credits legislation, there is no entitlement to tax credits without a claim. Due to the annual cycle of tax credits, there are periods where potentially a person (or couple) could be receiving payments of tax credits but not have ‘entitlement’ to tax credits under the Tax Credits Act 2002. Much of the UC legislation refers to people who are ‘entitled’ to tax credits and so to address the differences legislation was introduced in the Universal Credit (Transitional Provisions) Regulations 2014 which treats certain people as having made a claim for tax credits for the current year for UC purposes (even if they technically have not for tax credit legislation purposes).

The general rule noted above is that a UC claimant cannot make a claim for tax credits. However this rule does not apply where someone is treated as claiming tax credits under UC legislation. This ensures that people do not lose out on tax credits for a period before they claim UC.

A person is treated as entitled to WTC or CTC (or both) with effect from the start of the current tax year even though a decision (a Section 14) decision has not been made on their claim providing they were entitled to WTC or CTC (or both) for the previous tax year and:

Moving back to tax credits from UC

Often referred to as the ‘lobster pot’ – the principle is that once a person is entitled to UC, they stay on it even if their circumstances change or they move to an area where UC has not yet been introduced.

One of the questions that advisers often have is ‘is there any way for someone claiming UC to go back to tax credits?’. The answer is potentially yes, whilst HMRC are accepting tax credit claims, it is possible for someone to leave UC (escape the lobster pot) and return to tax credits.

Before moving from UC to tax credits or vice versa, advice should be taken from a welfare rights specialist so that the full range of implications can be understood. Some people will be better off on UC than legacy benefits (including tax credits) whereas others will be worse off. The complexity of the roll-out of UC means that until claims for legacy benefits are completely closed off it may be necessary to carry out a ‘better-off’ calculation. However this is not just restricted to which is financially the better choice, but other factors may affect the decision such as passported benefit entitlement, conditionality in UC, monthly payments in UC as well as a host of other points. This is an extremely complex area and advice should be sought before withdrawing a claim for UC.

It will not come as a surprise to find that the situation is complex. We have tried to summarise the current situation in this section, however there are still a number of unanswered questions and we will update once we have answers.

UC claimants cannot claim tax credits

We have explained above that anyone treated as a ‘UC claimant’ cannot claim tax credits. If a claimants falls into one of those categories moving will not be an option unless they fall out of that criteria so that they are no longer a UC claimant.

UC claim ends naturally

Where a claim for UC comes to an end (for example because the claimant has capital over £16,000, becomes a full time student, reaches state pension credit age) then whether a person can then claim tax credits depends on whether they live in a live service area or digital service area. The only exception to this is in live service areas where UC has ended to an increase in earnings – in those cases the person may still be treated as a UC claimant and so not able to claim tax credits for 6 months.

Existing UC claimants

In response to a Freedom of Information request DWP confirmed that it is possible for a UC claimant to end their award.

No provision in the Universal Credit Regulations or Commencement Orders explicitly permits or prohibits the relinquishment of a Universal Credit award. In the absence of such a prohibition, a person receiving Universal Credit who wished to end their award could contact this Department in the usual way when they have a question concerning their award. Once this Department has received the claimant’s notification that they wish to relinquish their award, the necessary work would be taken to end it.

So, presuming a claimant can convince DWP to end their UC award – can they claim tax credits? The answer depends on their postcode.

However, before withdrawing a UC claim, a better-off calculation should be performed and consideration should be given to timing (due to the rules on assessment periods in UC) as well as other rules that exist under UC (such as conditionality, waiting days, monthly payments) that don’t exist on tax credits.

NOTE: This section and indeed the whole site is about the interaction between UC and tax credits. There are similar considerations in relation to other benefits which UC is replacing and the rules about switching between them may be different.

Updated 26 July 2016