What are Tax Credits?
Tax Credits are made up of two parts. Child Tax Credit provides financial support to those on low incomes who have children. Working Tax Credit is an earnings top-up benefit payable to those who are employed or self-employed and on a low income. Working Tax Credit can be paid to those without children, but is key in supporting self-employed mums, especially during the first couple of years whilst you get your business up and running.
Tax Credits are not taxable but will count as income for other benefits and for low-income schemes, such as learner support via a college – and they are not based on your National Insurance contributions.
Are you eligible to claim?
For Child Tax Credit you must be responsible for a child 16 and under, or a child under 20 who is in ‘approved’ education or training
For Working Tax Credit you must be 16 or over to claim (25 for those without children, unless they have a disability)
For Working Tax Credit you also need to fulfil the working hours requirement (or be seen as still working, ie. whilst claiming Maternity Allowance). You can add together hours employed/self-employed if you also have a job:
- 16 hours for single parents, people with a disability, or aged 60 and over
- 24 hours for couples with children, with one person working at least 16 hours. Or 16 hours if you’re part of a couple with children and are disabled or aged 60 or over. Or 16 hours if your partner is disabled, a carer, in hospital/prison.
- 30 hours for those aged 25 to 59 without children
For Working Tax Credit you need to be earning, or expect to start earning, from the work you do.
How much will you get?
Tax Credits are worked out by adding together a range of elements which apply to your circumstances, such as a family element, an element per child, a 30-hour element, a childcare element (up to 70% of your relevant childcare costs, up to a maximum amount). This gives you a maximum annual entitlement for Child and Working Tax Credit.
Your annual household income is then taken into account, which includes money from employment and self-employment, for both you and your partner. Any loss from self-employment can be off-set against other earned income to lower your household income figure. Your maximum entitlement will then be reduced based on your household income and an annual amount will be calculated for your entitlement.
This annual figure will then be divided by 366 days for a full year, or less days if calculated part-way through the tax year, to give a daily amount and multiplied by 7 to give you a weekly amount. This method of calculating Tax Credits often confuses people, especially if they are used to claiming benefits with a set weekly rate.
This amount is then only provisional, based on what you think you will earn. You will need to complete a declaration each year to confirm what you actually earned in the previous tax year, and your claim will be adjusted – meaning you may have an overpayment.
How to make a claim
The easiest way to claim is via the Tax Credit helpline 0345 300 3900
If you are already claiming Child Tax Credit but not Working Tax Credit and you become self-employed, just call them to update your existing Tax Credit Claim. You may need your UTR number for this. You can claim 7 days ahead of starting your self-employment, but if you claim afterwards your claim may not be backdated.
If you have a partner you will have to claim as a couple.
Note: If you are claiming Universal Credit you can no longer make a new claim for Tax Credits. You will need to report your change in circumstances and update your Universal Credit claim, which can also provide financial support to self-employed mums on a low income.
Not happy with your Tax Credit decision?
If you are not happy with the decision on your Tax Credit claim, generally you have a month from the date on your decision letter in which to ask for this to be revised. You will need to ask for a ‘mandatory reconsideration’ which can be done by phone or letter and you should point out facts which you think are wrong, or information you think they have missed or not taken into account. This is always worth a try as a high percentage of decisions are changed at this point.
If the decision is not changed in your favour you will have the chance to make an appeal which goes to a Tribunal. It would be wise to seek assistance from a Law Centre, community law service, County Council welfare benefits team or Citizens Advice at this point.