22 September 2021

£500 one-off payment for working households receiving tax credits – extension of scheme

Following an announcement in the March 2021 Budget, HMRC made one-off £500 payments to certain working households on tax credits. These payments were made in April 2021. Tax credit claimants qualified for the original payment if, on 2 March 2021, they had:

A current award of working tax credit at an amount higher than Nil; or
A current award of working tax credit of Nil but they received CTC at an amount higher than nil

HMRC state that 1.4 million households received a payment in April. However, the original direction established entitlement for the payment based on the status of the award on 2 March 2021. Changes after the 2 March were not taken into account which meant that some people missed out on the payment even though, for example, once their actual income for 2020-21 was declared they fell into the group intended to benefit from the payment. As a result, HMRC have published a further direction which extends the one-off payments to a further group of claimants. Tax credit claimants who, as a result of a final award decision, were entitled to

Working tax credit at a rate other than a nil rate; or
Working tax credit at a nil rate and child tax credit at a rate other than a nil rate

for a period including 2 March will now receive a one-off £500 payment. This extension only applies to those who meet this condition and who did not already receive a payment. As with the original payment, only one member in a couple will receive the payment. This is not a payment of tax credits and is not part of the claimant’s tax credit award. The payment does not count as income for benefits and is not taxable.

Claimants do not need to do anything as HMRC will identify all those who now qualify for the payment under the new direction. HMRC say they expect to make these payments during September 2021 to around 6,500 claimants. Some claimants will not have had their award for 2020-21 finalised yet, either because there is a delay completing the renewals process or because they are waiting to provide HMRC with their actual income figures by 31 January 2022 after giving an estimate by 31 July, we are seeking confirmation from HMRC about the arrangements to make payments to those who qualify once finalisation is complete.  

The Direction is available on the GOV.UK website