Universal credit: When will tax credits stop?
Existing tax credit claimants are currently unaffected by the roll-out of UC. Their awards of tax credits will continue at present until DWP introduce rules to migrate those people across to UC. DWP current plans are to migrate remaining tax credit claimants to UC between 2019 and 2023.
At present, existing tax credit claimants will only be affected if they choose to move to UC, they have a change that ends their tax credits award or they need to make a claim for another legacy benefit (one of the other benefits that UC is replacing). The general rule is that you cannot claim tax credits and UC at the same time.
Existing tax credit claimants who live in areas where UC has rolled out may be able to choose to claim UC and leave tax credits.
If a claim for UC is made (or is treated as having been made) and the person (or persons) meet the basic conditions for UC (except for the claimant commitment requirement) then all awards of tax credits for which there is entitlement (on the date of the UC claim) will terminate on:
- The date before the first date on which the claimant is entitled to UC in connection with the claim; or
- If the claimant is not entitled to UC, on the day before the first date on which he or she would have been so entitled, if all of the basic and financial conditions applicable to the claimant had been met
This will be the case even if under Tax Credits legislation the award would terminate on a later day.
It is important that claimants seek advice from a welfare rights specialist before leaving tax credits as there are many issues to consider aside from which one is better financially as the UC rules are very different to tax credits. It is also important that the decision is the right one, as if the claimant lives in a full service area they will not be able to re-claim tax credits. Those in live service areas may be able to withdraw the UC claim and re-claim tax credits at the present time, although this is subject to exceptions.
Although the legislation works in such a way as to bring a tax credits award to an end when a UC claim is made, and the process between DWP and HMRC is such that there should be notification to HMRC to end the tax credits claim, we would advise that claimants report the situation to HMRC in case the process breaks down.
Where a tax credit claimant has a change of circumstances that ends their award, they may have to claim Universal Credit. This would be the case if they live in a full service area as they would no longer be able to claim tax credits unless they are over state pension credit age or they have 3 or more children and are not able to re-claim UC under special rules. If they live in a live service area then they may be able to claim UC if they meet certain conditions. In such cases, HMRC will normally terminate the tax credit claim because the claimant has reported a change – for example the loss of a job by a WTC only claimant. However it would also be terminated if the person claims UC and has not told HMRC about their change as HMRC would receive information from DWP about the UC claim once DWP had confirmed the person meets the basic conditions for UC.
If an existing tax credit claimant forms a couple with an existing UC claimant, then they will be treated as claiming UC as a couple. HMRC should be informed by DWP that this claim has been made (once DWP are satisfied the basic UC conditions are met) and terminate the tax credit award. However, tax credit claimants still have a responsibility to notify changes to HMRC and so the tax credit claimant should also report the change to HMRC. The tax credit claimant’s tax credit award will be terminated from the date that they became a couple (note that this may be different to the UC start date as UC rules may treat the couple claim for UC as made at an earlier date than the tax credit termination date).
DWP do not actually send a notification to HMRC each time someone claims UC. In brief, what actually happens is that DWP set a marker on their system that there is a UC interest and HMRC trawl the system to look for National Insurance Number matches with tax credit claimants. This should only happen where DWP have confirmed that the person (or persons in a joint claim) has satisfied the basic conditions for UC. Where there is a match the tax credit claim will be terminated.
However, it is important to remember that tax credit claimants have an obligation to notify HMRC of changes. A change of status from single to part of a couple is something that must be reported for tax credit purposes anyway and we recommend that claimants continue to notify changes and not rely on DWP to transfer information otherwise there is a risk of a tax credits overpayment if the process fails.
If an existing tax credit claimant in a full service postcode has a change of circumstances that means they need to make a claim for income-based jobseeker’s allowance, income-related employment and support allowance, income support or housing benefit then they will need to claim UC instead because those benefits are no longer available in full service postcode areas. This means that their tax credits award will come to end when they claim UC
Examples of situations where this may happen include:
- Where a WTC and CTC claimant loses their job and needs to claim income based JSA – under the old system, WTC would stop and CTC would continue and the claimant would make a claim for income based JSA. However, under the new digital area rules, the person would need to claim UC to access out of work support and their CTC claim will end as a result.
- Where a tax credit claimant has a fall in income, so that they need to claim housing benefit to get some help with their rent. Under the old system, a claim for housing benefit would be made and the income fall reported to HMRC who would (if the fall was big enough) adjust the tax credit claim. However, under the new digital area rules, the person would need to claim UC to access help with their rent and so their WTC and CTC claim would end as a result.
Once tax credits have been terminated due to a claim for UC, HMRC will begin the in-year finalisation (IYF) process. This may begin immediately or there could be a delay if the claimant ends their tax credit claim and doesn’t claim UC until later in the same tax year. See our finalising tax credit claims section for more detailed information.
Last reviewed/updated 16 October 2018