What is working tax credit and are you entitled to it?

Despite the name, the credit has little to do with tax – people receiving them need not be paying any tax whatsoever. Here's why.

Working Tax Credit is a payment that some people on low income may receive to complement salary from their existing employment. Despite the name, the credit has little to do with tax – people receiving them need not be paying any tax whatsoever. As of the end of 2015, around 4.5 million people were claiming them, and the vast majority were parents.

While the credit may be paid if the person is employed or self-employed, there are certain criteria that need to be met. These will be means tested. The basic amount (known as the ‘basic element’) of working tax credit is £1,960 a year, but this can vary depending on circumstances. You may be able to claim it if:

*You’re aged between 16 to 24 and have a child or a disability that qualifies you for the credit.

*You’re above the age of 25.

*You’re working a certain number of hours per week, although this largely depends on your personal circumstances such as age, health and family responsibilities. You and/or your partner must be working full time, although what ‘full time’ actually means varies. Typically, it’s 30 hours for those 25 to 59, and 16 hours for older workers, or people who are disabled/single parents.

*Your income is below a certain level, although this varies. The cut-off point is roughly £13,000 a year for a single person, and £18,000 for a couple.

As well as the ‘basic element’ of the Working Tax Credit, certain other elements can be added – these include the ‘couples and lone parent element’, ‘the 30-hour element’, and the ‘disability element’. As an example, a couple applying together or a single parent can expect an additional payment of £2,010. You can also claim up to 70 per cent of childcare costs.

The working tax credit was created in 2003, as a consolidation of other previous taxes including the Working Families Tax Credit. The idea was to introduce a tax that would not immediately punish people who were planning to return to work, but on a low income. According to the BBC tax credits as a whole between 1998-99 have created a fall in child poverty, from 35 per cent of the child population to 19 per cent.

Each person’s status and financial position varies, but there’s a good chance that if you’re on a low income but working full-time, and perhaps having children, you will be entitled.

The simplest way to find out is to contact the HMRC website to find out if, how much you’ll get paid and when, or call an advisor on 0345 300 3900. You’ll need all your personal details including your National Insurance number, and be aware that you need to renew every year.

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