While they are rather simplistic in nature, there is much confusion surrounding tax credits. Tax credits are simply tax payments received from the government. If you are a parent, you may qualify for the Child Tax Credit. If you are currently working, but are in a low-income bracket, you may be eligible for the Working Tax Credit. In fact, people often receive both types of tax credits, and best of all, they are not considered taxable income. Unfortunately, many in the UK seem to be confused about tax credits. So, let’s take a look at ten things that may help clear the air.
1. Working Tax Credit
Depending on the number of hours you work and the amount you are paid, you may be eligible for the Working Tax Credit. The Working Tax Credit is open to both employees and self-employed individuals. However, any unpaid work cannot count towards the Working Tax Credit.
2. Child Tax Credit
The Child Tax Credit is another significant tax credit that is available to anyone responsible for a child. Unlike the Working Tax Credit, you do not have to be working in order to claim the Child Tax Credit.
3. The Amount You Receive
The amount you can receive from tax credits depends on a variety of factors, such as the number of children you are supporting, if you are single or living as a couple with someone, how many hours you work, if you have a child with a disability, and if you pay for childcare. Your Child Tax Credit payment is also dependent on your income level. Essentially, the lower your income level, the more you may be able to receive in tax credits.
4. Tax Credit Income Limits
Whether or not you can receive tax credits and the amount you are eligible to receive depends on your own individual circumstances. You may be able to receive tax credits if your annual income falls below the following limits:
• £26,000 if you are the parent of one child
• £32,200 if you are the parent of two children
• £13,000 if you are single and have no children
• £18,000 for a couple without children
Please note, that these are the limits for receiving tax credits for the current year, which ends on April 5th, 2018.
If your income is above these amounts for each category, you are not likely to receive anything. However, it’s important to know that not everyone is constricted to these income limits. For example, if you or your child has a disability, you pay for childcare, or you have more children, you may be granted a higher income limit. You must also place a claim to receive a definitive answer regarding the amount you are entitled to.
5. Types of Income Considered
When claiming a tax credit, your income before National Insurance and taxes is considered. The Tax Credit Office will use the income from the year ending on April 5th, 2018 if you claim tax credits this year. For couples, the joint income is considered.
In addition to work earnings, any ‘Other’ income and some state benefits may also count. So, pensions, rental income, and interest earned on savings can all count towards your annual income if the total amount is greater than £300.
6. How Tax Credits Work
If you are married, living together as married, or in a civil partnership, you will typically need to file a joint tax credits claim. In most cases, you must not fall into one of these groups to make a single claim.
Any tax credits you receive will be directly paid to your building society, bank, National Savings, or Post Office account once a week or monthly.
7. Receiving Tax Credit Payments
If you are making a new tax credit claim, your payments will typically run from the date the claim was made to the last day of the tax year. However, it is not unusual for claims to be backdated for a month or longer from the date it is received by the Tax Credit Office.
8. Renewing Your Tax Credit
The Tax Credit Office will notify you every April, May, or June and ask you to confirm your annual income for the year that recently ended as well as check to ensure the accuracy of the information regarding your personal circumstances. The deadline for renewing your tax credits is typically July 31st.
9. Reasons to Renew Your Claim
Renewing your tax credit claim allows you ensure that you have been receiving the correct payments, and it also allows the Tax Credit Office to base next year’s payments on the correct income. Sometimes, you may not be paid enough or you may be paid too much, and the renewal process helps find and adjust any errors.
10. Updating the Tax Credit Office
Anytime your circumstances change, the amount of money you should be receiving may vary. Having a child, starting a new job, or breaking up with a partner can make a difference in the amount of tax credits you receive. Therefore, you should contact the Tax Credit Office and inform them of any changes that might have occurred.