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Tax Credits are odd creatures. Their name suggests that they are something to do with tax, but they aren’t. They are means-tested benefits. However, there are two important ways in which they are a bit ‘tax-y’:

1. They are administered by part of Her Majesty’s Revenue & Customs, who are normally responsible for collecting taxes;
2. Unlike other benefits they are worked out on a yearly basis, and after the end of the Tax Year your entitlement for that year is finalised. This is very similar to the way that self-assessment income tax works.

Most of the problems with tax credits are caused by number 2: assessing benefits on an annual basis is a bad idea (in my opinion). 

On the other hand, there are some good things about them. Here are some of the important ones:

• They don’t suddenly stop if your income increases a bit, unlike Income Support or income based Employment and Support Allowance, for example.
• They treat savings and other capital very differently from the way that they are treated by other means-tested benefits: it is the taxable income on the capital that matters (e.g the interest on your savings) and even this is ignored if it is less than £300 a year.

Child Tax Credit introduced

Child Tax Credit is a means-tested benefit for people with children. The rules deciding whether you are responsible for children are complicated, but basically, if you are entitled to Child Benefit for a child or young person, that’s good enough for Child Tax Credit too.

If you claim Child Tax Credit there is a Maximum Child Tax Credit figure that you can be entitled to, which depends only on how many children you have, and if any of them are disabled.

If you are getting Income Support, income based Jobseeker's Allowance, income based Employment and Support Allowance, or Pension Credit, you get the Maximum Child Tax Credit.

If you don’t get one of these benefits, you might get less than this: basically, the higher your income the more your Child Tax Credit gets reduced

Working Tax Credit introduced

Working Tax Credit is a means-tested benefit for people who work full time.

Working out whether you are classed as working full time can be tricky.

If you are work at least 30 hours a week and are over 25 years old you are classed as working full time, whether you’re single or part of a couple. That’s easy enough, but it gets harder…

If you are single you only need to work 16 hours a week to be classed as working full time, but only if you fit into one of these groups:

• You are responsible for a child or young person
• You have a disability and qualify you for the Disabled Worker Element (there’s no easy way to explain this but if you click here I’ll tell you about it)
• You are 60 years old or older

If you are a couple, only one of you needs to work 16 hours a week to be classed as working full time if:

• You have a disability and qualify you for the Disabled Worker Element (there’s no easy way to explain this but if you click here I’ll tell you about it)
• You are 60 years old or older
• You are, as a couple, responsible for a child or young person, but only if your partner
• ⁃ Is classed as a carer of a disabled person by the Jobcentre Plus
• ⁃ Is unfit for work. This applies if they have been getting contribution based Employment and Support Allowance (or national insurance credits because of incapacity for work) for at least 28 weeks (if they’ve been getting Statutory Sick Pay before this it counts towards the 28 weeks), or Disability Living Allowance, or Personal Independence Payment, or Attendance Allowance, or Incapacity Benefit, or Severe Disablement Allowance, or get the constant Attendance allowance part of Industrial Injuries Disablement Benefit, or get Housing Benefit that includes the disability premium or the higher pensioner premium.
• ⁃ Is in prison
• You are, as a couple, responsible for a child or young person, and you work at least 24 hours between you (for example, you work 20 hours per week, your partner works 4 hours per week, and you have three children)

If you claim Working Tax Credit there is a Maximum Working Tax Credit figure that you can be entitled to, which depends only on how whether or not many children you have, and if any of them are disabled.

If you are getting Income Support, income based Jobseeker's Allowance, income based Employment and Support Allowance, or Pension Credit, you get the Maximum Working Tax Credit. Having said that, this is unlikely to happen as there aren’t many situations where you are working full time and entitled to any of these benefits.

If you don’t get one of these benefits (which is quite likely), you might get less than this: basically, the higher your income the more your Working Tax Credit gets reduced.

Choose which of the following subjects you want to ask about:

• ‘I want to know how the amounts are calculated’
• ‘I want to know what to do if I have problems with overpayments of tax credits’

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