What Is Working Tax Credit?

Working Tax Credit (WTC) is a financial benefit provided by the UK government to assist people on low incomes, whether they are employed or self-employed. It is designed to top up earnings, helping individuals and families meet essential living costs. Working Tax Credit is administered by HM Revenue & Customs (HMRC) and, alongside Child Tax Credit, has been an important part of the UK’s welfare system for many years.

However, Working Tax Credit is being gradually replaced by Universal Credit. While new claims for Working Tax Credit are no longer accepted, many people are still receiving payments, and it remains a vital benefit for those who have not yet transitioned to Universal Credit.

This article will cover everything you need to know about Working Tax Credit, including eligibility, how it is calculated, how payments work, and its relationship with Universal Credit.

What is Working Tax Credit?

Working Tax Credit (WTC) is a form of financial support for people who are in paid work but have low incomes. It is intended to help with living costs, whether you are employed by someone else or working for yourself. The amount of Working Tax Credit you can receive depends on several factors, including your income, hours worked, and whether you have children, a disability, or other caring responsibilities.

Working Tax Credit provides support for the following categories of people:

• Single parents.

• Couples with children.

• People with disabilities who are in paid work.

• Workers aged over 25 who meet the income and working hour requirements.

The tax credit is paid directly into your bank account, typically every four weeks, though you can opt for weekly payments if that suits your financial needs better.

Who is Eligible for Working Tax Credit?

To be eligible for Working Tax Credit, you must meet certain criteria based on your income, age, hours worked, and employment status. While new claims for Working Tax Credit are no longer being accepted due to the transition to Universal Credit, those already receiving it may continue to do so until their circumstances change.

The main eligibility requirements are as follows:

1. Age and Work Hours Requirements:

• You must be at least 16 years old if you are responsible for a child or have a disability.

• If you do not have children or a disability, you must be at least 25 years old.

• The number of hours you work per week affects your eligibility:

  • 16 hours if you’re single and responsible for a child.

  • 24 hours combined for couples responsible for children (one person must work at least 16 hours).

  • 30 hours if you’re 25 or over without children.

  • 16 hours if you have a disability or are aged 60 or over.

2. Income Thresholds:

Working Tax Credit is means-tested, meaning your income must fall below a certain threshold. The threshold varies depending on your circumstances, such as whether you have children, a disability, or other responsibilities.

3. Self-Employment:

If you are self-employed, you may still qualify for Working Tax Credit as long as your work is genuine and you aim to make a profit. HMRC may assess whether your work qualifies, particularly if your earnings are low. Self-employed people must show they are working regularly and aim to earn a reasonable income from their business.

How Much Working Tax Credit Can You Get?

The amount of Working Tax Credit you receive is calculated based on your income, hours worked, and individual circumstances. Different elements of Working Tax Credit are combined to make up your total payment. These include:

• Basic Element: Paid to all eligible applicants.

• Lone Parent Element: Paid if you’re a single parent.

• Couple’s Element: Paid if you’re part of a couple.

• Disability Element: Paid if you have a disability that puts you at a disadvantage in the workplace.

• Severe Disability Element: Paid if your disability is more severe.

The exact amount you receive depends on how your total income compares to the income thresholds. As your income increases, the amount of Working Tax Credit you’re entitled to decreases. The reduction rate is currently 41p for every £1 of income you earn above the threshold.

For example, if you qualify for £3,000 of Working Tax Credit but your income is above the threshold by £1,000, the payment would reduce by 41% of £1,000, which is £410. You would therefore receive £2,590 in Working Tax Credit.

How is Working Tax Credit Paid?

Working Tax Credit is usually paid directly into your bank or building society account either weekly or every four weeks, depending on your preference. The payments are made in arrears, which means you receive money after the period it covers.

It is important to keep track of any changes to your income, working hours, or personal circumstances, as these may affect your entitlement to Working Tax Credit. You must report changes to HMRC to avoid overpayments or underpayments.

Working Tax Credit and Universal Credit

Working Tax Credit is gradually being replaced by Universal Credit, a single monthly payment that consolidates several benefits, including Working Tax Credit, Child Tax Credit, and Housing Benefit. New applicants must apply for Universal Credit, as Working Tax Credit is no longer available for new claims.

Those already receiving Working Tax Credit will continue to do so until their circumstances change, or until they are invited to switch to Universal Credit as part of the government’s wider welfare reform plans.

Changes in Circumstances

If you’re currently receiving Working Tax Credit, it’s essential to inform HMRC if your circumstances change, as this could affect your entitlement. Examples of changes that need to be reported include:

• A change in working hours (e.g., dropping below the required number of hours worked).

• An increase or decrease in income.

• Changes in childcare costs.

• Changes in relationship status (e.g., if you get married, form a civil partnership, or separate).

• Changes in disability status or any new disability.

Failing to report changes in your circumstances can lead to overpayments, which you’ll have to pay back, or underpayments, meaning you could miss out on the support you’re entitled to.

Frequently Asked Questions About Working Tax Credit

1. Can I claim Working Tax Credit if I am self-employed?

Yes, as long as you meet the eligibility criteria, you can claim Working Tax Credit as a self-employed person. You must be able to prove that your work is genuine and that you aim to make a profit from your business.

2. Can I claim both Working Tax Credit and Child Tax Credit?

Yes, you can claim both Working Tax Credit and Child Tax Credit if you are eligible for both. These two benefits are calculated separately, but you’ll receive them together in a single payment.

3. What happens if I am overpaid Working Tax Credit?

If you receive too much Working Tax Credit, HMRC will ask for the overpayment to be repaid. This can be done by reducing future payments or by asking for the money to be repaid directly.

4. What happens if my Working Tax Credit claim is refused?

If your claim for Working Tax Credit is refused, you have the right to appeal the decision. You can ask for a mandatory reconsideration if you believe the decision was incorrect. If HMRC still refuses your claim, you can appeal to the First-tier Tribunal.

5. Can I still get Working Tax Credit if I’m receiving Universal Credit?

No, you cannot receive both Working Tax Credit and Universal Credit at the same time. If you apply for Universal Credit, your Working Tax Credit will end. It’s important to check which benefit you’re better off with before making any applications.

Conclusion

Working Tax Credit has been a key financial support for low-income workers in the UK, helping to top up wages and provide stability for individuals and families. Although it’s being phased out in favour of Universal Credit, those already claiming it can continue to receive payments as long as they remain eligible.

Understanding how Working Tax Credit works, how much you might be entitled to, and the impact of changes in your circumstances is crucial to ensuring you receive the right level of support. If you’re transitioning to Universal Credit, it’s important to familiarise yourself with the new system and how it might affect your household income. the support you are entitled to.