What Is Child Tax Credit?

Child Tax Credit is a financial support system in the UK designed to help families with children manage their living expenses. Administered by HM Revenue & Customs (HMRC), this benefit provides extra income to families with children, regardless of whether the parent is employed. Although new claims for Child Tax Credit are no longer available due to the transition to Universal Credit, many families still rely on this form of financial aid.

In this article, we’ll explore what Child Tax Credits are, how they work, eligibility criteria, how payments are calculated, and their transition to Universal Credit.

What Is Child Tax Credit?

Child Tax Credit (CTC) is a benefit paid by the government to support parents or guardians responsible for children under 16, or young people under 20 who are in full-time education or approved training. It’s designed to help families manage the financial burden of raising children, providing them with much-needed financial support.

Unlike Working Tax Credit, you do not need to be employed to qualify for Child Tax Credit. This makes it a key source of financial help for unemployed or low-income families, single parents, and those studying or undergoing training.

Eligibility for Child Tax Credit

To qualify for Child Tax Credit, you must be responsible for at least one child under the age of 16, or under 20 if they are in full-time education or approved training. You can claim Child Tax Credit if:

• You live in the UK.

• You have a child or qualifying young person living with you.

• You meet the income threshold, which varies based on how many children you have and other circumstances.

New claims for Child Tax Credit are no longer being accepted as of 2018. If you’re already receiving it, you can continue to do so, but new applicants will need to apply for Universal Credit instead.

How Much Is Child Tax Credit?

The amount of Child Tax Credit you receive depends on several factors, including your household income, the number of children you’re responsible for, and whether any of your children have a disability. There are two main elements of Child Tax Credit:

1. Family Element: This is paid to most families who qualify for Child Tax Credit. However, this element has been removed for new claims made on or after 6 April 2017, except for those with children born before that date.

2. Child Element: This is paid for each child or qualifying young person in your household. If a child has a disability, you may be entitled to a disability element or a severe disability element.

The more children you have, the higher your Child Tax Credit payment will be, but payments start reducing if your household income exceeds a certain threshold. The income threshold for Child Tax Credit varies depending on your specific circumstances, but once your income exceeds £16,385, the amount of Child Tax Credit you receive will start to decrease.

How Is Child Tax Credit Calculated?

Child Tax Credit is calculated based on your household’s previous year’s income. HMRC will use your income information to determine your entitlement. The process of calculating how much Child Tax Credit you are entitled to involves several steps:

1. Determine Your Income: HMRC looks at your household’s income from the previous tax year to calculate your current entitlement.

2. Calculate the Maximum Child Tax Credit: This is the total of the family element and the child element for each child in your household.

3. Apply Income Threshold: Your Child Tax Credit is gradually reduced if your income exceeds the income threshold. The reduction is calculated as a taper rate of 41p for every £1 you earn above the threshold.

For example, if your household income is £20,000 and you are entitled to a maximum of £3,000 in Child Tax Credit, your payments will be reduced by 41p for every pound you earn over £16,385.

How Are Child Tax Credits Paid?

Child Tax Credit is typically paid directly into your bank or building society account. You can choose to receive payments either weekly or every four weeks, depending on what suits your household’s budgeting needs.

Child Tax Credit vs. Universal Credit

Since Universal Credit was introduced, Child Tax Credit has been gradually phased out for new claimants. Universal Credit consolidates multiple benefits, including Child Tax Credit, Working Tax Credit, Housing Benefit, and others, into a single monthly payment.

For those already claiming Child Tax Credit, you can continue to do so unless your circumstances change significantly. In such cases, you may be required to transition to Universal Credit, where your overall benefit amount may be recalculated.

Here are some key differences between Child Tax Credit and Universal Credit:

• Payment Frequency: Child Tax Credit is often paid weekly or every four weeks, while Universal Credit is paid monthly.

• Income Assessment: Child Tax Credit is based on your income from the previous year, while Universal Credit is calculated based on your current income.

• Claiming Process: New applicants must apply for Universal Credit rather than Child Tax Credit. You cannot claim both benefits simultaneously.

Reporting Changes in Circumstances

If your circumstances change while receiving Child Tax Credit, it’s crucial to inform HMRC as soon as possible to avoid overpayments or underpayments. Examples of changes include:

• Increase or decrease in income.

• Changes in employment status.

• A new child or child leaving full-time education.

• Changes in relationship status, such as marriage, separation, or divorce.

Failing to report changes could result in overpayment, which you will have to repay.

Frequently Asked Questions About Child Tax Credit

1. Can I claim Child Tax Credit if I already receive Universal Credit?

No, you cannot receive both Child Tax Credit and Universal Credit. If you claim Universal Credit, your Child Tax Credit claim will end.

2. What happens if I am overpaid Child Tax Credit?

If you are overpaid, HMRC will recover the overpayment either by reducing future payments or requesting direct repayment.

3. Can I receive Child Tax Credit if I’m unemployed?

Yes, Child Tax Credit is available to families regardless of whether the parent is employed or not, as long as they meet the eligibility criteria.

4. What happens when my child turns 16?

Child Tax Credit usually stops on 31 August following your child’s 16th birthday. However, if your child stays in approved education or training, you can continue to receive payments until they turn 20.

5. Do I need to renew my Child Tax Credit claim?

Yes, you must renew your Child Tax Credit claim annually. HMRC sends out renewal packs, and you must respond by the deadline, usually 31 July, to continue receiving payments.

Conclusion

Child Tax Credit has long been an essential form of financial support for families in the UK. Although it is being replaced by Universal Credit, many families still rely on Child Tax Credit to help with the costs of raising children. It is important to understand how Child Tax Credit works, how payments are calculated, and how the transition to Universal Credit might affect your household finances.

For those new to the benefits system, Universal Credit is now the only option for financial support, but for existing claimants, managing your Child Tax Credit effectively can ensure you receive the support you are entitled to.