Most Important Factors That Affect Your Tax Credits

Tax Credits

If you’re a person who lives in the UK, it is very important to be well aware of the concept of tax credits as applicable in the country. More importantly, you should know what are the different factors that can impact tax credits.

Tax credits: A brief introduction

There are two types of tax credits, namely, working tax credit and child tax credit.You can claim working tax credit depending on certain factors but to claim child tax credit, you or your partner need to be getting working tax credit. However, this is dependent on your household situation. Claims for tax credits are handled by the HMRC (HM Revenue and Customs).

  • Working Tax Credit (WTC): If you are an individual who is employed but your income is low, you can claim this tax credit. You can either be a self-employed individual or an employee. WTC claims are not affected by whether you have a child or not.
  • Child Tax Credit (CTC): If you are an individual who has one or more children, you may have the right to claim this credit. It is given in addition to child benefits. The important thing to note here is that the individual who claims CTC does not need to be a working individual.

Factors that affect tax credits

Here’s a look at the different factors that affect your tax credits in the UK:

Number of working hours

  • This is one of the most important factors that affect your claim for a Working Tax Credit. If you’re below the age of 25 years, the only way you can claim WTC is if you work for at least 16 hours per week and you either fulfill the criteria for ‘disability element’ or you have a child or are responsible for a child below the age of 16 years.
  • People aged between 25 to 59 years need to work for at least 30 hours per week.
  • Individuals aged 60 years and above are required to work for a minimum of 16 hours per week.
  • If you have a partner and have a child together, you need to work at least 24 hours per week and one of you has to work for a minimum of 16 hours.
  • For disabled individuals and single people who are responsible for a child, 16 hours of work per week is necessary to claim WTC.

Responsible for a child

If you’re a person who is responsible for a young person, i.e., a child, you can claima tax credit.Responsibility of a child means that either the child lives with you at all times or the child spends most of his/her time with you and you’re the primary caregiver for that child.

If you have a partner and you’re both responsible for the child, then only one of you may claim WTC. The person who is the main caregiver can claim responsibility for that child.

The child in question has to either be under 16 years or within the age range of 16-20 years and must be in approved training or education.

However, the number of children you can claim the CTC for depends on when they were born.

  • You can only claim for up to two children if they were born on or after April 6, 2017. (You can still claim child benefit for them all.)
  • You can claim for more than two children if your children were born before April 6, 2017.

Relationship status– Single or Couple?

It’s critical to know the difference between claiming as a single person and claiming as a couple. If you make a mistake here, you may end yourself with an overpayment that you will have to repay. There’s a chance you’ll have to pay a penalty as well.

To be considered eligible to claim WTC as a couple, you and your partner must be in a civil partnership, married, or live together. Couples who are legally married but just temporarily separatedmust make a joint claim. You and your partner will not be considered a couple eligible to claim WTC if you’re legally separated or divorced or permanently separated. The tax credit amount is dependent on the combined income of you and your partner.

It is very important to report any change in your circumstances to HMRC to avoid being overpaid. However, you don’t need to report change in working hours due to being furloughed because of the coronavirus pandemic.

It’s a good idea to get professional accounting advice to find out how tax credits may benefit your business and whether you’d be eligible.