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Tax Credits Explained

Posted in: Finance Last updated: 06 Apr 2016

Tax credits are regular payments designed to boost the finances of families with children or on a low income. The rules about who can claim and how much aren’t always simple, but this short video covers the basics.

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Note: Just to be clear, this video is not meant to be taken as advice. Also, your individual circumstances are probably different from the examples we’ve shown. The information in this video is correct as at 6th April 2016.

Video transcript

Tax Credits are a tax free payment from the government and can help with the costs of having children. There are two kinds: Child Tax Credits and Working Tax Credits.

To receive Child Tax Credits, you need to be responsible for at least one child, regardless of whether you're working or not.

To receive Working Tax Credits, you do need to be working, but you don't need to have a family.

However, if you're a working parent and have to pay for childcare, the Childcare Element of Working Tax Credits is especially relevant to you.

You can get help with some of your childcare costs, but there are limits to the total amount you can claim, and how much you receive depends on your income.

To get this help, you'll need to be with a registered childcare provider and you can get a list of these from your local Family Information Service.

There are several factors that determine whether you're eligible for any tax credits.

If you do qualify, all the elements that relate to your own personal circumstances are added together to give you a maximum award.

Don't forget to add 70% of your average annual childcare costs to the calculation as well. Older children are eligible too.

The total award is then gradually reduced depending on your household income: the higher your income, the more Tax Credits are taken away.

The calculation can be tricky to work out on your own, so using an online calculator tool should be more accurate.

So how do you claim? You can't do it online, but instead will have to order a pack over the phone. Make sure you have the following details to hand:

  • Your National Insurance Number
  • Your income for the previous tax year
  • Details of any benefits you receive
  • Details of any other earnings, such as savings interest, pensions or rental income
  • Your bank details
  • Childcare costs, if they are with an approved or registered provider

You should also keep evidence of your childcare payments somewhere safe, because HMRC choose random claims to investigate each year.

You'll need to renew every year, but should your circumstances change in between times, be sure to inform the Tax Credits office immediately, or you may find yourself paying back any overpayments.

In any case, help may be at hand...

And you're just a few calculations away from finding out if you're eligible to receive any Tax Credits...

Want to find out more?

Whether you can claim Tax Credits or not depends on your individual circumstances. Factors include your income, how many children you have and if you pay for childcare. Our Tax Credits Guide explains this in more detail and tells you how to claim.

If you want an idea of how much you could be entitled to, our Child Tax Credits Calculator does the complex calculation for you. You just have to answer a few simple questions.

Please Remember

Tax Credit rules are complicated, and the amounts shown may vary on your personal circumstances. This information is meant as a guide only and based on information that’s correct at 06/04/2016. We can’t guarantee it will always be accurate.