Using our calculations, you should be able to determine approximately how much of a tax credit you are eligible to receive for the current tax year.
How can I figure out how much tax credit I am entitled to?
Calculating how much money you will get through tax credits can be difficult, and the amount you receive will differ from person to person depending on their specific situation.
Both the working tax credit and the child tax credit are comprised of a number of distinct components, some of which will apply to you while others will not. In addition, there are many other factors, such as who you live with and how much money you make, that can either decrease or increase the amount of money that you are awarded.
This information may be useful to you as a guide, but the precise amount of tax credits to which you are entitled will be communicated to you by HMRC once the claim that you have submitted has been processed.
Your ‘maximum credit award,’ which is the highest amount that can be paid to you, is determined by HMRC by adding up all of the factors for which you are eligible. After this, any reductions that are required are applied (we will discuss these in more detail later), and the result is the amount that you will actually receive.
Therefore, the first thing you need do is determine which aspects of it you are eligible for.
Components of a functioning tax credit system
You might be eligible for the working tax credit if you have a job (being self-employed does not exempt you from this requirement) but your income is not very high.
On top of the basic tax credit element, which can bring your annual total to a maximum of £2,070, you will also receive any additional tax credit elements for which you are eligible.
|Basic payment||£2,070 a year|
|A couple applying together||Up to £2,125 a year|
|A single parent||Up to £2,125 a year|
|Work at least 30 hours a week||Up to £860 a year|
|Disability||Up to £3,345 a year|
|Severe disability||Up to £1,445 a year|
|Approved childcare||Up to £175 a week for one child; up to £300 a week for two or more children|
The fundamental component of the working tax credit. If you are determined to have a low income and are eligible for the working tax credit, this will always be included in your tax return.
Couples who are both employed are eligible for the working tax credit.
If you are a married couple filing a joint claim, use this option.
Component of the working tax credit for thirty hours of work.
You will receive additional compensation if you work at least 30 hours per week. It is possible for couples who have children to combine their working hours in order to achieve the requirement of 30 hours per week, provided that at least one partner works at least 16 hours per week. Even if both spouses work more than 30 hours per week, there will only be payment for one of the elements.
Childcare expenses covered by the working tax credit.
This helps with the expenditures associated with childcare. You are required to utilise a daycare provider who has been approved, and only some of the fees will be compensated.
Element of the working tax credit for people with disabilities
You will be qualified for this if you work a minimum of sixteen hours per week, have a disability that makes it difficult for you to acquire a job, and get a benefit that qualifies you for it. If you and your partner are both eligible for the handicap element, then each of you will receive two of the elements.
The severe disability component of the working tax credit.
This is for people who get the highest rate of either the armed forces independence payment, the enhanced rate daily living component of the personal independence payment, the higher rate attendance allowance, or the disability living allowance for people with severe impairments. To qualify for the severe disability aspect, it is not necessary for you to be actively working.
Components of the child tax credit
If you are a parent or guardian of a kid, you can be eligible for tax credits for children. Depending on the specifics of your situation, you may or may not be eligible to receive both working tax credits and child tax credits at the same time.
If your family is receiving Income Support or an income-based Jobseeker’s Allowance, you will automatically receive the full amount of child tax credit that you qualify for. The amount that you receive will vary depending on the number of children you have and whether or not any of them have a disability. If your family is receiving Income Support or an income-based Jobseeker’s Allowance, you can expect to receive this credit.
If you have a total of two children, rather than just one, you are eligible for additional tax credits. However, if more than two of your children were born after April 6, 2017, you will not be eligible for any additional credits even if some of your children were born after that date.
The term for this restriction is the “limit of two children.”
There are some circumstances in which this rule does not apply, such as when there are numerous births in a single pregnancy or when a kid whose care you are providing already has a child of their own.
If at least one of your children was born prior to April 6, 2017, then you might qualify for the family component of child tax credits.
If all of your children were born before April 6, 2017, you are eligible to receive the ‘child element’ of the child tax credit for each of your children, in addition to the ‘family element’ basic amount. This is the case even if you have more than one child.
|Child tax credit elements||Maximum amount paid|
|Family element – the basic element for families with one or more children||£545|
|Child element – one for each child or young person||£2,935|
|Disability element – one for each child you are responsible for with a registered disability||£3,545|
|Severe disability element – one for each child you are responsible for who receives the Highest Rate Care Component of Disability Living Allowance||£1,430|
In the following, we will describe each component:
The child component of the child tax credit.
This is included for every child who was born before April 6, 2017, and can be claimed at any time. After that point, a child component is only added if there are two children or fewer in the family, with a few exceptions made for multiple births and situations in which one of your children is taking care of another child.
The child disability aspect of the child tax credit.
There is a fee for a child who has a disability, as well as a fee for a child who has a severe disability. The circumstances surrounding the child who is in your care will determine which option you are given.
The family aspect of the child tax credit.
If there is at least one child in the household who was born before to April 6, 2017, the family will be eligible to receive one family element. If the child or children in question were all born after this date, this information will not be presented.
When you have added up all that you are eligible for, you will have reached what is known as your’maximum credit amount.’
Possible causes for a reduction in the amount of tax credits you receive
There are a variety of factors that could lead to a reduction in the total amount that you are awarded, despite the fact that you could be eligible for the maximum amount of all of the components.
1. You are submitting a claim during the middle of the tax year.
It is imperative that you take into consideration the current season.
Calculations of tax credits are done using the fiscal year, which begins on April 6 and ends on April 5 of the following year.
For instance, if you submit your application for tax credits in January, you will be compensated for the remaining days of the year up until April 5th.
After you have determined your maximum payment and deducted the “reduction due to income,” the next step is to take that number and divide it by 365 to get your daily rate. This will tell you how much you will be required to pay each day.
The next step is to multiply your daily rate by the number of days still remaining in the current tax year. In the event that your claim begins on January 1st, for instance, there are only 95 days left until the conclusion of the fiscal year; hence, you will need to multiply your daily rate by 95.
This will offer you an estimate of the amount of money that may be refunded to you in the form of tax credits before the conclusion of the tax year.
After the beginning of the new tax year, you will most likely be requested to renew your tax credits, at which point they will be recalculated for the entire year.
2. There will be a decrease in funds as a result of your income
There are varying maximum income requirements for the various tax credits available. If your annual pay is greater than a specific threshold, the amount of tax credits you receive will be reduced; this phenomenon is referred to as “reduction owing to salary.”
If you are eligible for working tax credit, you can receive the highest possible payment even if your annual earnings are as high as £6,770, regardless of whether you are employed or self-employed.
If you make more than this amount, you will be penalised 41 pence of the maximum amount for each additional pound that you earn.
Therefore, if you make £7,770 a year, you will earn an additional £1,000, which is equal to 41 pence multiplied by 1,000. Because of this, the maximum payout that you were eligible for will be reduced by £410.
The maximum salary that can be claimed for child tax credits is £17,005. If your income is higher than that, the amount of child tax credit you are eligible to receive will be cut by 41 pence for each additional pound that you earn above the threshold.
If you make £20,000, this means that you will earn £2,995 more than the threshold. Multiplying £2,995 by 41 pence results in £1,227.95, which is the amount of child tax credit that you would lose annually.
If you are eligible for both the working tax credit and the child tax credit, and if the deductions that follow apply to you, the maximum amount that you are eligible to receive for each component will be reduced as follows, starting with the working tax credit:
tax credit for working families, excluding any childcare component tax credit for working families that includes childcare component tax credit for children component tax credit for families component tax credit for children
Tax credits calculator
At this stage, it is understandable if you are suffering from a headache. The truth is that individuals who are applying for tax credits have a tough time determining how much money they are eligible to receive.
The HMRC’s tax credits calculator is something you should look into using if you are qualified for both the working tax credit and the child tax credit at the same time.
The calculator does not explain how the award is determined, but it does provide you with a total amount that is calculated based on your income and the conditions of your family if you were to file a claim on the same day that you finished the calculator.
If it appears that you are eligible, you will be able to acquire a tax credits claim form from the government website.
Maintaining your eligibility for tax credits
The answers that you get from the HMRC calculator will not be based on a complete year’s worth of earnings but rather on what you’ll be paid for the remainder of the current tax year.
Each new tax year will require a new calculation of this. The HMRC will send you a renewal pack, which you will typically need to complete with your most up-to-date information and then send back to them.
Each year, the packets are mailed out between the months of April and June, and the 31st of July serves as the cutoff date for filing your renewal.
If you submitted your initial claim for tax credits after April 6, 2022, you will not receive your first renewal pack until April 2023.
What should I do if I am awarded Universal Credit?
The new model for government benefits, known as Universal Credit, is being implemented step by step across the United Kingdom at this time. This will take the place of a number of other benefits that are determined by one’s means, including the working tax credit and the child tax credit.
If it has already been implemented in your region, you will not be able to claim tax credits because the money for them will be included in your universal credit payment, along with money for any other benefits you are eligible for, in a single payment. If this is the case, you will not be able to claim tax credits.
You can submit an application and proceed with your tax credit claims as usual if you are not currently receiving Universal Credit.