Tax Credits: How do tax credits work?
In this section you will find information about how the tax credits system works.
The annual cycle: Unlike other benefits, tax credits are based on a tax year. This section explains the yearly cycle and critical dates during the tax year including claims starting , changing , renewals and finalisation.
Forms, notices and checklists: In this section you will find links to the most common current forms and notices used by HMRC to communicate information to claimants. You will also find archived versions of forms, notices and checklists used in previous years.
Calculating tax credits: Calculating tax credit awards can be complicated. This section explains how awards should be calculated under the legislation as well as quicker ways for advisers to do calculations that are still accurate.
Making a claim: In this section you will find information about the different ways of making a claim for tax credits including protective claims . It also explains how claims are processed once received by HMRC and what steps need to be taken to request backdating.
Who can claim: In this section you will find information about the basic conditions for claiming including single/joint claims, residence and immigration requirements.
Entitlement: This section provides information about the rules concerning entitlement to tax credits and the various elements
Payments: This section of the site explains how payments of tax credits are made, how tax credits interact with national insurance contributions and the rules around bank accounts.
What is income: A tax credits award is based on the income of the claimant, or of both claimants if the claim is a joint one. This section provides information covering the detailed rules on what counts as income.
Real Time Information and tax credits: HMRC are able to use Real Time Information provided by employers and pension providers for tax purposes to help finalise some tax credit claims. This section explains more about RTI and how it will be used for tax credits.
Who can claim: To be entitled to tax credits, a claim must be made. Without a claim, there can be no entitlement. This section provides information about the rules regarding who can claim tax credits
Changes of circumstances: Some changes of circumstances affect the amount of tax credits payable and some must be reported to HMRC within a certain timeframe. This section explains what changes must be notified , other changes that can be notified and how to notify changes.
Understanding the disregards: The disregards for rises and falls in income are unique to the tax credits system and cause a great deal of confusion amongst claimants. This section explains in detail how the disregards work and includes several examples.
Understanding childcare: Childcare is one of the most complicated parts of the tax credits system for claimants, advisers and HMRC. This section of the site explains the law relating to the childcare element and also covers how to calculate childcare costs.
Understanding disability: A claimant with disabilities may not necessarily be disabled for tax credits purposes. This section explains the disability elements of working tax credit and child tax credit in detail.
Understanding couples: A claim for tax credits must be made jointly by a couple or by an individual. Making the wrong claim can have severe consequences in terms of overpayments and penalties. This section explains the concept of a couple and outlines the consequences of making the wrong claim. It also explains ‘notional offsetting’ and how this can help overpayments relating to wrong capacity claims.
Understanding self-employment: This section of the site explains parts of the tax credits system relevant to self-employed claimants. It includes detailed information about self-employment compliance investigations.
Special circumstances: In this section you will find information about foster carers and shared lives carers, and special provisions for situations involving domestic violence.
Overpayments and underpayments: Overpayments and underpayments are built into the tax credits system and can occur naturally even if everything is done correctly by HMRC and the claimant. This section explains the most common causes of overpayments and underpayments.
Last reviewed/updated 14 May 2019