Universal credit: Tax credits and UC
This page explains the relationship between tax credits and Universal Credit and looks at how claimants can move from UC back to tax credits and vice versa.
The general rule
New tax credit claims
Existing tax credit claimants
Claims for tax credits by UC claimant
Claimants responsible for three or more children
Treated as entitled to tax credits
Moving back to tax credits from 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. There are exceptions to this rule:
- 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.
- If you are treated as entitled to tax credits by UC legislation
Whether a person can make a tax credit claim depends on the status of UC in their area. In live service areas, brand new claims for UC are no longer possible and so claimants will need to claim tax credits and other legacy benefits. The only exception to this is if they had previously claimed UC in the live service and are eligible to re-claim. If UC full service has reached their postcode area then most people will no longer be able to make a new tax credit claim, although there are some exceptions. See ‘current eligibility to claim’ to find out more.
Existing tax credit claimants
At present, existing tax credit claimants are not currently affected by the roll-out of UC. From July 2019, DWP will start to move existing tax credit claimants across to UC. This will be completed in 2022 based on current plans.
The only way existing tax credit claimants can move to UC is if they choose to do so, if they have a change in circumstances that ends their tax credit award but they need to continue claiming support (e.g. change from joint to single household) and they live in a full service area or, or in full service areas, if they need to make a claim for another legacy benefit. See 'current eligibility to claim' to find out more.
A UC claimant cannot make a claim for tax credits. DWP treat a person as a UC claimant if:
- They are entitled to UC
- A decision has not been made on a claim for UC and they have not been informed that they are not entitled to claim UC
- A joint award of UC ends because they separate and they are not exempt from the requirement to make a claim for UC within one month, starting from the date they notify DWP that they ceased to be part of a couple
- They are treated as having made a claim for UC or may be entitled to UC without having to make a claim but a decision has not been made
- A decision has been made that they are not entitled to UC and the decision maker is considering whether to revise that decision or they have appealed that decision and the appeal has not been determined
- (From 16 November 2015 in live service areas only) Their UC entitlement has ended, or a claim refused, due to the level of the claimant’s earned income – for a period of 6 months after the award of UC has come to an end. This is because during this 6 month period, UC regulations allow an award of UC to be made without a claim in live service areas if the claimant’s circumstances change.
This rule, where a UC claimant cannot make a claim for tax credits, also applies even if a claim for the benefit is made or treated as made at a time when the claimant was not a UC claimant. This specifically refers to the normal tax credit rule which allows backdating of claims up to 31 days. Similarly, a claim for WTC may not be made where backdating is claimed due to being awarded a qualifying disability benefit or refugee status that gives entitlement to longer backdating of WTC.
Where a person is treated as making a claim for tax credits under certain provisions, the above rule will not apply. This means that in some cases, a UC claimant can make or be treated as making a claim for tax credits. This applies where the tax credit claimant is treated as a new claimant partner in UC or where the person is treated as making a tax credit claim under UC legislation. See below our section on people treated as entitled to tax credits.
A new claimant partner for UC refers to a tax credit claimant who forms a couple with an existing UC claimant. The couple are treated as having made a claim to UC providing they both meet the basic conditions (except the claimant commitment requirement). The tax credits award will terminate the day before the UC award as a couple starts. If this happens during the renewals period, UC legislation treats this person as making a claim for tax credits for the current year. They will not be affected by the general rule above that says a tax credit claim cannot be made by a UC claimant.
From 6 April 2017 to 31 January 2019, claimants who are responsible for three or more children will not be able to make a claim for UC unless they:
- Have claimed UC in the previous 6 months and are able to make a re-claim for UC; or
- Are a single person and were claiming UC with someone else as part of a couple and that claim ended in the last month
For this purpose ‘reclaim’ means a claim that is made by a single person or members of a couple jointly and the claimant (or either joint claimant) meets the following conditions:
- The claimant was previously entitled to an award of universal credit the last day of which fell within the 6 months preceding the date on which the claim is made; and
- During that 6 months:
The claimant has continued to meet the basic conditions required for universal credit (disregarding the requirement to have accepted a claimant commitment and any temporary period of absence from Great Britain that would have been disregarded during a period of entitlement to universal credit); and
The claimant was not excluded from entitlement to universal credit due to restrictions (for example due to being a member of a religious order who is fully maintained by their order, is a prisoner or serving a sentence of imprisonment detained in hospital unless certain exceptions apply).
Claimants responsible for three or more children who cannot make a UC claim can claim tax credits and other legacy benefits instead until 31 January 2019. After that date it is expected that these claimants will be able to claim UC, although the Secretary of State has the power to extend this period
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. Much of the UC legislation refers to people who are ‘entitled’ to tax credits and so to address the differences legislation was introduced in the Universal Credit (Transitional Provisions) Regulations 2014 which treats 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).
The general rule noted above is that a UC claimant cannot make a claim for tax credits. However this rule does not apply where someone is treated as claiming tax credits under UC legislation. This ensures that people do not lose out on tax credits for a period before they claim UC.
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 decision (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)
- 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 Section 17 notice has been issued, 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 did not make a declaration in response to the notice by the date specified; and
- The person was given notice that payments would stop due to failure to make the declaration. This is a non-renewal situation where a statement of account would be issued by HMRC; and
- The persons claim for WTC/CTC is made within 30 days of the statement of account notice.
The legislation now covers the situation where a tax credit claim is accepted where there was good cause for missing both the 31 July deadline and the 30-day grace period meaning that if a person has good cause for missing the deadline and contacts HMRC to renew by 31 January following the renewal deadline, they will reinstate the tax credit claim from the previous 6 April. This will be for the full tax year if the person has not claimed UC, or up until the day before the UC award starts if they have already claimed UC.
Often referred to as the ‘lobster pot’ – the principle is that once a person is entitled to UC, they stay on it even if their circumstances change or they move to an area where UC has not yet been introduced fully.
One of the questions that advisers often have is ‘is there any way for someone claiming UC to go back to tax credits?’. The answer is potentially yes but only in a limited number of situations, whilst HMRC are accepting tax credit claims. Those who are on UC and who live in a full service postcode are not able to claim tax credits unless an exception applies and so it is unlikely they would be able to move back. Where one of these exceptions applies, we are currently considering this further and will update the page with more information as soon as it is available. The more common scenario will be someone who is claiming UC under the live service and who may want to move back to tax credits.
Advice should be taken from a welfare rights specialist to understand if such a move is possible and also so that the full range of implications can be understood. Some people will be better off on UC than legacy benefits (including tax credits) whereas others will be worse off. The complexity of the roll-out of UC means that until claims for legacy benefits are completely closed off it may be necessary to carry out a ‘better-off’ calculation. However this is not just restricted to which is financially the better choice, but other factors may affect the decision such as passported benefit entitlement, conditionality in UC, monthly payments in UC as well as a host of other points. This is an extremely complex area and advice should be sought before withdrawing a claim for UC.
It will not come as a surprise to find that the situation is complex. We have tried to summarise the current situation in this section, however there are still a number of unanswered questions and we will update once we have answers.
UC claimants cannot claim tax credits
We have explained above that anyone treated as a ‘UC claimant’ cannot claim tax credits. If a claimants falls into one of those categories moving will not be an option unless they fall out of that criteria so that they are no longer a UC claimant.
UC claim ends naturally
Where a claim for UC comes to an end (for example because the claimant has capital over £16,000, becomes a full time student, reaches state pension credit age) then whether a person can then claim tax credits depends on whether they live in a full service area. The only exception to this is where someone is claiming UC as part of the live service and their UC claim ended due to an increase in earnings. In those cases, the person may still be treated as a UC claimant and so not able to claim tax credits for 6 months.
Existing UC claimants
In response to a Freedom of Information request DWP confirmed that it is possible for a UC claimant to end their award.
No provision in the Universal Credit Regulations or Commencement Orders explicitly permits or prohibits the relinquishment of a Universal Credit award. In the absence of such a prohibition, a person receiving Universal Credit who wished to end their award could contact this Department in the usual way when they have a question concerning their award. Once this Department has received the claimant’s notification that they wish to relinquish their award, the necessary work would be taken to end it.
So, presuming a claimant can convince DWP to end their UC award – can they claim tax credits? The answer depends on their postcode.
- A UC claimant who lives in a full service area does not usually have the option of going back to tax credits (unless they or their partner have reached State Pension Credit age or they have three or more children and they cannot claim UC)
- A UC claimant who lives in a live service area could potentially withdraw their UC claim and claim tax credits. The one exception to this is those who are treated as a ‘UC claimant’ which includes someone in a 6 month reclaim period after an earnings increase (see above) This would also seem to be the case if a full service claimant moves to a live service area.
However, before withdrawing a UC claim, a better-off calculation should be performed and consideration should be given to timing (due to the rules on assessment periods in UC) as well as other rules that exist under UC (such as conditionality, waiting days, monthly payments) that don’t exist on tax credits.
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 31 May 2018