Universal credit: Tax credits and UC
Tax credits are gradually being replaced by Universal Credit (UC). This page gives an overview of the relationship between tax credits and UC.
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.
However, this rule does not apply during the first assessment period for UC after two people become a couple and the tax credit award of the ‘new claimant partner’ terminates after the first date of entitlement to UC. This is because in such a case UC rules may treat the claim as made at an earlier date than the TC termination date.
HMRC’s position is that most people are no longer able to make a brand new tax credit claim. See below for some discussion about the lack of clarity in the legislation about this point.
The legislation that prohibits tax credit claims by is found in the various UC roll-out commencement orders. Broadly speaking, HMRC's view of the commencement orders is that they prohibit the making of a tax credit claim (as well as housing benefit and income support claims) on any date where the person would be able to make a UC claim with (now) one exception. See our 'current eligibility to claim' section which explains those currently prohibited from making UC claims and who are allowed to make new tax credit claims.
A claim for tax credit is made by the person on the date which the person takes 'any action which results in a decision on a claim being required under the relevant Regulations' and it is deemed irrelevant that the tax credit regulations might allow longer backdating.
As is usual with broad rules, there are some exceptions where new tax credit claims can be made:
- Where there has been a determination made under Regulation 4 Universal Credit (Transitional Provisions) Regulations 2014. That regulation allows the Secretary of State to stop UC claims in any area or in any category of cases (either in all areas or in a specified area) to safeguard the efficient administration of UC or ensure the effective testing of systems for the administration of UC.
- Where the claimant is already entitled to child tax credit and wants to claim working tax credit or they are already entitled to working tax credit and child tax credit are two separate benefits with separate claims under Tax Credits legislation, it has always been a joint claims process. For that reason, adding the other tax credit is not treated as a brand new tax credit claim for this purpose.
- Where the claimant is entitled to child tax credit or working tax credit for a tax year and they more (or are treated as making) a claim for the next tax year. This protects existing tax credit claimants. Technically, tax credit claims only last a maximum of one tax year and then a new claim is needed for the new tax year. This new claim is made via the annual renewals process. This exception ensures that people in that position can continue to receive tax credits and are not prevented from renewing their claims even if they live in UC full service areas.
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 and so not fall under the provision above which requires 'entitlement' to tax credits for it to apply. This situation is covered by provisions is Universal Credit (Transitional Provisions) Regulations 2014 which treat 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).
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 (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:
- No Section 17 notice has been issued (a renewals notice) in respect of the previous tax year
- A Section 17 notice has been issued but:
- the date in the notice (normally 31 July) has not yet passed so there is no claim made (or treated as made) for the current year
- a claim for tax credits has been made (or treated as made) before the date in the notice (normally 31 July) but no Section 14 decision has been made by HMRC for the current year claim
- A Section 17 notice has been given, no claim for tax credit for the current year has been made or treated as made and there is no Section 18 decision in respect of entitlement to tax credits for the previous tax year
- A Section 17 notice has been given and:
- The person made their declaration by the deadline date specified on the notice; or
- They failed to make a declaration by the deadline date but did so within 30 days of the date on their statement of account; or
- They failed to make a declaration by the deadline date but did so by the following 31 January and HMRC accept they have good reason for missing the renewals deadline.
NOTE: HMRC’s position is that no brand new tax credit claims are possible unless the person falls into an exception group above, is already claiming either WTC or CTC and wants to claim the other tax credits or they are renewing their claim. However, the legislation is not clear on this point and one interpretation of the current legislation is that other people may be able to make new claims for tax credits. We have written some guidance for advisers which provides further information about this – however, it is extremely complex and should not be followed without speaking to a welfare rights specialist.
At present, existing tax credit claimants are not currently affected by the roll-out of UC. From July 2019, DWP started testing the migration process with a view to increasing numbers from November 2020. However, due to the impacts of the coronavirus outbreak (March 2020 onwards) this pilot to test the migration process is suspended.
The only way existing tax credit claimants can move to UC is if they:
- Choose to do so
- Have a change in circumstances that ends their tax credit award but they need to continue claiming support (assuming no exceptions applies to them)
- They need to make a claim for another benefit which UC has replaced (such as housing benefit).
We explain more in our 'existing tax credit claimants' section.
We noted above that existing tax credit claimants can be affected by the introduction of UC if they choose to claim UC.
If an existing tax credit claimant makes a claim for UC, their tax credit award will be terminated and HMRC will begin the stopping tax credits process. We explain more about this in our 'existing tax credit claimants' section.
Now that UC has fully rolled out across the UK, most people wanting to make a new claim will need to claim UC (or pension credit, depending on their age) rather than tax credits unless an exception applies. Generally, once someone is on UC, they won't be able to go back to tax credits unless their UC claim is closed and an exceptions applies.
NOTE: HMRC’s position is that no brand new tax credit claims are possible unless the person falls into an exception group, is already claiming either WTC or CTC and wants to claim the other tax credits or they are renewing their claim. However, the legislation is not clear on this point and one interpretation of the current legislation is that other people may be able to make new claims for tax credits. We have written some guidance for advisers which provides further information about this – however, it is extremely complex and should not be followed without speaking to a welfare rights specialist.
For existing claimants of legacy benefits who would receive less on UC than existing benefits if they move before transitional protection is in place, it may be important to try and remain on legacy benefits rather than moving to UC. We consider situations where existing tax credit claimants mistakenly or accidentally claim UC in our 'existing tax credit claimants' section.
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.
Last reviewed/updated 29 January 2021