Tax Credits: Claims under EU Regulations

The UK left the European Union (EU) on 31 January 2020 and entered a transitional period, currently due to end on 31 December 2020, during which EU law continues to apply in the UK. The UK's relationship with the EU beyond the end of the transitional period has not yet been finalised. Please note that the guidance below reflects the law as it applied before the UK's departure from the EU, and as it will continue to apply throughout the transitional period.

European legislation provides for the right of freedom of movement within the EU. Underpinning this freedom of movement is the legislation to co-ordinate the rules on social security across the EU countries. All countries decide who is to be insured under their own legislation, which benefits are granted and under what conditions and the EU provides common rules to protect individual’s social security rights when moving within Europe. EU legislation therefore affects certain aspects of entitlement to tax credits for workers from EU countries. Child tax credit is classified as a ‘family benefit’ under EU law and working tax credit is classed as a ‘social advantage’ – so entitlement to either or both of them can vary depending on the individual circumstances.

The GOV.UK website carries a message that there will be no change to the rights and status of EU nationals living the UK, nor UK nationals living in the EU, while the UK remains in the EU.

This is a specialist complex area of entitlement and we recommend that advisers consult the Tax Credit Technical Manual and European Commission website for more detail.

EU Member States

The European Union includes:

Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Greece, Germany, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom;

The rules on social security co-ordination cover:

Switzerland and the EEA which includes EU countries and:-

Norway, Iceland, Liechtenstein

It does not include the Isle of Man or the Channel Islands.

Cross border workers

A cross border worker in this context refers to someone who lives in one EEA country and regularly travels to another for work. For example, a person who lives in the Republic of Ireland who is exercising their EU law rights by taking a job in Northern Ireland and travelling each day. Equally, a person may live in the UK and travel to another EEA country to work.
Where WTC is payable, the childcare element can be claimed providing the claimant is responsible for the child (as defined for CTC purposes) and the childcare costs are for registered/approved childcare in accordance with the normal rules.

EU migrant workers

In this content, this phrase generally refers to a worker from an EEA country or Switzerland who has come to live and work in the UK for a period of time while their family members remain living (and possibly working) in another EEA country.

Family Benefits

Child tax credit and child benefit are listed as UK family benefits under EU law. This means that workers claiming under the EU social security coordination principles may be entitled to these even where they do not meet the standard domestic residence rules.

In order to claim family benefits, the children included in the claim must meet the definition of ‘family member’. In some situations, this can be a matter of judgement. There is very little guidance on this point and the rules state that in order to be regarded as a family member of the worker, for these purposes, the family member should be mainly financially dependent on the worker. Interestingly though, in a child benefit case (CF/2872/2017) before the Upper tribunal, the decision determined that a step-child is not a child of the claimant for the purposes of Head (2) of the definition of 'member of the family' in Article 1(i) of Regulation 883/2004.

Competent States

An individual is only covered by the legislation of one country at a time so only pays contributions in one country – that country is the ‘competent state’. The decision on which country's legislation applies will be made by the social security institutions.

Where all the family lives in the same country where the worker is insured (ie is liable to and pays national insurance contributions), this country is responsible for paying benefits.

If the family members do not live in same country as the worker, there could be entitlement to benefits in more than one country. But benefits are not paid twice: "priority rules" decide which country is responsible for providing them.

The priority rules:

Generally, the country where the claimant works and pays national insurance is the competent state.

If there is entitlement through employment in 2 or more states, then the country where the child lives take priority and the other country is liable only to pay a supplement (top-up).

If there is entitlement through receipt of (state) pension payments in 2 or more countries, then the country where the child lives takes priority.

If there is entitlement only through residence in 2 or more countries (ie no work or pension), then the country where the child lives takes priority.

To illustrate:

If the non-working mother can claim any kind of family benefit from France, then UK are still the priority competent state here and France would pay a top-up.

Top-ups (supplements)

Where there is entitlement from 2 countries and benefits are lower in the priority state, the benefit from the second state is suspended up to the value of the priority state – in other words, the second state pay a top-up to the value of their countries’ benefit entitlement level.

See GOV.UK for more information.

Claiming under EU law

The tax credit rules for cross border and EU migrant workers are generally based on EU law. The current HMRC guidance is that a single claim should be made if the person has no children and their partner (if they have one) does not live and work in the UK. In this situation, only the worker’s income is taken into account, however it does also mean that no second adult element can be awarded.

A joint claim should be made if they have a partner who also works in the UK or if they have a partner (whether or not they work in the UK) and they are responsible for a child or qualifying young person.

In cases involving both WTC and CTC, WTC will be calculated using the worker’s circumstances and income only (because that is based on single entitlement), whereas CTC will be calculated using the partner’s income as well, because that will be based on joint entitlement.

The claim for family benefits should be made in the country where national insurance (or equivalent) contributions are being made. The second priority EEA country top up payment of family benefits (for the UK, these are CTC and Child Benefit combined) if the family benefits in the other country are lower than that of the first priority state.

It should be noted, that because these cases can be complex and a mix of joint and single entitlement or supplement payments short of a full award amount, HMRC process them manually. Where another EU state is involved, HMRC often need to contact them to confirm competency arrangements. This means they generally take longer than standard claims to process, put into payment and to renew and claimants can expect to receive manual correspondence from HMRC rather than automated letters.

CTC for those living outside of the UK

Under current EU law, it is possible for some claimants to claim CTC even if they, and their family, live in another EEA member state. To qualify the claimant must be getting incapacity benefit, state pension, widow’s benefit, bereavement benefit, industrial injuries disablement benefit, contribution based employment and support allowance or severe disablement allowance. For this purpose, the HMRC website lists EEA member states as Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland. Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden It should be noted that these provisions apply only from 1 May 2010 when EC regulation 883/2004 came into force. Initially, HMRC paid CTC to this group of claimants under Article 77, EC regulation 1407/71 on the basis that CTC was a family allowance. However in 2009, HMRC received legal advice which concluded CTC was not a family allowance. On that basis, CTC for such people was stopped. HMRC wrote to people in May 2010 once the new regulations came into force and initiated their CTC claims once again.

Last reviewed/updated 4 February 2020