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Will I lose money now that my tax credits are changing to Universal Credit?

  • 6 min read
  • 28 Apr 2022
Tax credits are changing to Universal Credit

If you’re receiving tax credits, you can expect some changes soon. Well, by 2024 so maybe not that soon. If you’re on tax credits, you’ll be transitioned to Universal Credit instead by 2024.

Those who already claim tax credits, about 2.1 million people, should be receiving their annual renewal packs from HMRC between 25th April 2022 and 27th May 2022. Like us, we’re sure you usually dread hearing from HMRC (when is it ever good news?) but these renewal packs are definitely an exception.

What are UK tax credits?

Tax credits are a type of benefit that is available to you if you’re on a lower income to give you general support. 

There are two types of tax credits:

  1. Child tax credit (CTC) 
  2. Working tax credit (WTC)

Depending on your circumstance, you can claim either one or both of these credits. To be eligible for these tax credits you must be:

  • A UK resident
  • A citizen of a country in an EEA (European Economic Area) and you work in the UK
  • A Crown Servant posted overseas
  • A citizen of an EEA country living abroad and you receive a UK State Pension and/or contribution-based JSA

Child tax credit

CTC is paid to you by HMRC if you have – you guessed it – children. You don’t have to be working to claim this credit.

Are you already receiving child benefit? You might be eligible to also claim CTC. It’s paid in addition to child benefit so there’s no worry that you’ll lose it!

Working tax credit

WTC is paid to you by HMRC if you work and have a low income. The great thing about this credit is that it doesn’t matter if you’re an employee or self-employed. Either way, you’re eligible to claim WTC (hooray!).

However, you can only make a claim if you already get CTC.

Do I qualify for child tax credit?

You can only claim CTC for children you’re responsible for. 

If your children were:

  • Born before 6th April 2017, you get the child element of CTC for all your children (you’ll also get the family element)
  • Born after 6th April 2017, you get the child element of CTC for up to two children

There are some exceptions. You won’t get the family element unless one of your children was born before that 👆  date. 

Child tax credit rates for 2023/2024:

ElementYearly amount
The basic amount (the family element)Up to £545
For each child (the child element)Up to £3,235
For each disabled childUp to £3,905 (on top of the child element)
For each severely disabled childUp to £1,575 (on top of the child and disabled child element)

Do I qualify for working tax credit?

Whether you qualify for WTC depends on your circumstance. Working tax credit rates are as follows for 2023/2024:

ElementYearly Amount
Basic elementUp to £2,280
You’re a couple applying togetherUp to £2,125
You work at least 30 hours a weekUp to £950
You’re a single parentUp to £2,125
You have a disabilityUp to £3,685
You have a severe disabilityUp to £1,595 (usually on top of the disability element)
You pay for in-person approved childcareUp to £122.50 (1 child) or £210 (2 or more children) per week

You’d generally be eligible for the basic element if you satisfy one of the below conditions. 

AgeHours of work a week
25 to 59At least 30
DisabledAt least 16
60 or overAt least 16
Single with 1 or more children At least 16 
Couple with 1 or more childrenAt least 24 collectively with one person working at least 16

There are two exceptions for couples with at least one child. You can claim if you work less than 24 hours a week collectively and one of the following applies:

  • You work at least 16 hours a week and you’re disabled or 60 years old or above
  • You work are least 16 hours a week and your partner is incapacitated (receiving benefits because of disability or illness), is entitled to Carer’s Allowance, or is in hospital or prison

Like we mentioned previously, you can be self-employed, employed, or even both ( 🤯 ) and still claim WTC. If you’re self-employed, there is a certain criteria you have to meet, which HMRC outline for you here

Visit the tax credits calculator on the HMRC website to check your eligibility. 

Income Thresholds

There are income thresholds to receive both CTC and WTC. If you earn above these thresholds, then the amount you’re paid is reduced. 

CTC Income Threshold 2023/2024WTC Income Threshold 2023/2024
£18,725 per year£7,455 per year
  • For every £1 you earn over the threshold, your CTC or WTC payment is reduced by 41p 
  • The amount you earn over the threshold x 0.41 = the reduction in your CTC or WTC payment

CTC example:

If you earned £20,000 this year, then you earned £2,995 over the limit. This means that the WTC you’re paid will be £1,227.95 less for the year.

WTC example:

If you earned £10,000 this year, then you earned £3,320 over the limit. This means that the WTC you’re paid will be £1,324.30 less for the year.

How can I claim tax credits?

You can’t – well, not anymore at least. Tax credits are being replaced by Universal Credit so you can claim that instead. The upside is those switching over are more likely to receive more financial support, according to HMRC.

You can only make a claim for either of the tax credits if:

  • You’re already claiming one of them
  • You’re looking to update them – report any changes to HMRC using this link

Otherwise, you can apply for Universal Credit. You might also be eligible for Pension Credit, if you or your partner are over State Pension age. 

What’s the deal with Universal Credit?🤔

Universal Credit (UC) is a payment you’re entitled to that you receive from the government to support you. In most cases, you receive single monthly payments. This can be either just for you or for both you and your partner if you have a joint claim.

UC combines the following six older benefits into one: 

  • Child tax credit
  • Working tax credit
  • Housing benefit
  • Income support
  • Income-based jobseeker’s allowance (JSA)
  • Income-related employment and support allowance (ESA)

By 2024, everyone on tax credits will be moved to UC. It’s an ongoing process and as you can imagine, it’s a heck of a lot of work! You can’t receive UC and tax credits at the same time so once you’re moved, you won’t be able to go back to tax credits or any other benefits listed above. 

If you choose to make the move yourself, make sure you double check your claim works best for you and that you’re eligible

When do I change from tax credits to Universal Credit?

The good news is that unless you’re told otherwise, you don’t need to do anything. We know, music to your ears. 🎶 

You only need to do something if:

  • Your circumstances change 
  • DWP, the Department of Work and Pensions, gets in touch with you (or your partner if you have one) to make a Universal Credit claim

If your circumstances do change, you should report the change as soon as you can. That way, you’re ahead of the game and don’t have to worry as much. 

After checking that you’re eligible and that this is the best financial decision for you, you can apply for Universal Credit here

What if I have tax credits debt?

If you have tax credits debt and you move to UC, your debt will also be transferred over to DWP, according to HMRC. Depending on your situation, your UC payments may be reduced to recover the debt. 

If you have a repayment plan with HMRC, it will be cancelled once you switch over to UC and DWP will make a new plan with you to repay this debt. If you have any questions or concerns, you can contact HMRC for further guidance. Don’t stress, you’ve got this.😊

Wait, what are the annual tax credits renewal packs?

Good catch! Like we said, between the end of April and end of May this year, working families will be receiving their tax credits renewal packs. 

There are two types of packs:

  • The first one has a red line across the first page which reads “reply now”

If you receive this one, you need to check your circumstances listed are correct and then you need to confirm this with HMRC. You’ll need to renew your tax credits online, over the phone or by post. HMRC have guidance on how to renew your tax credits here

  • The second one has a black line across the first page and reads “check now”

If the details listed are correct, you don’t need to do anything. Your tax credits will be automatically renewed. 

So if you’re already receiving tax credits and are looking to renew them, keep your eyes peeled for your letter. 👀

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