Tax credits are important – if you are working on a low income, you may be able to get money back from the government. It’s essentially free cash that can make a real difference to your quality of life, so it’s definitely worth taking a moment to learn about tax credits and see whether you are entitled to them.

• The different tax credit categories explained
• How do they work?
• What do you need to do next?

If you’re already on tax credits…

• Make sure you renew your claim
• What do the new government changes mean for me?

Don’t miss out on money you could be owed

You’d be amazed at just how many people could be claiming tax credit and aren’t. Don’t be one of them.

After all, it would be stupid to miss out just because you didn’t take the time to check!

For example did you know that nine out of ten families with children are entitled to free money from the government? According to Unbiased.co.uk, hundreds of thousands of families will fail to claim benefits that are rightfully theirs – missing out on an average annual windfall of £829.

If you don’t have kids but are on a low income, you might also qualify for help.

Even if tax credits don’t apply to you, make sure that your friends and family are in the know.

What are the different tax credit categories?

There are loads of tax credit categories. Visit the HM Revenue and Customs for information on who qualifies and how to apply. (They also have a useful tax credit calculator).

The different tax credits that you could apply for are:

Additional childcare tax credits – These credits help you with various costs of raising children from childcare and living expenses to taking care of a disabled child.

Working tax credits – These are credits that you receive on your working pay.

Disabled tax credits – This is for you if you have a disability and you work an average of 16 hours or more a week.

Claiming tax credits if you live outside the UK – If you must work out of the UK either because you are a Crown Servant or a civil servant employed by the UK Government or a member of the armed forces working abroad you may be able to get tax credits.

Going abroad temporarily and claiming tax credits – When you are away for up to 12 weeks for medical treatment or a family death you are still eligible for tax credits. You are also eligible for tax credits if you are out of the country for up to eight weeks.

New Arrivals to the UK Credits – Even though there are some strict rules in this category you can still apply for tax credits when you first settle in the UK.

What is tax credit?

A tax credit is money that HM Revenue and Customs (HMRC) pays directly into your bank account in order to improve your income. The original idea was to stop the madness of people staying unemployed and on benefits because it wasn’t financially worth their while to go out and get a job. The tax credits are designed to encourage people on relatively low incomes to stay in work rather than go on benefits.

However, as many families have found, the tax credit system – though well-intentioned – doesn’t always work as it should. They’re supposed to help, but because they were badly administered in the last few years, some people were paid too much in credits and are now struggling to pay them back. If this has happened to you we would like to hear about it so leave us a comment below.

When the system works, though, it represents some very helpful extra cash each week or each month.

How do tax credits work?

Tax credit payments are based on each individual circumstance and income – the lower your income the greater your credits will be. The amount of credit you receive will also depend on the following criteria:

• How many children you have living with you
• Whether you work – and how many hours you work
• If you pay for childcare
• If you or any child living with you has a disability
• If you’re aged 50 plus and are coming off benefits

When are tax credits paid?

When you make a claim for tax credits your payments will usually be paid from the date of your claim to the end of the tax year. So if you made a claim on 1 September 2012, your payments would be worked out from then until 5 April 2013.

Since payments are directly based on your annual income you will have to renew your claim annually and specify any changes to your income or situation. To make sure they are paying you the correct amount, the Inland Revenue send out a questionnaire every year during April, May and June asking you to:

• Verify that your personal information is still correct
• Confirm your income for the tax year that has just ended
• Renew your claim

Single claims or claiming as a couple?

If you are living with a partner or married, you must apply jointly with your partner and you must both qualify for Working Tax Credit before payments can be made. If you are single and living alone you can apply to make single claims.

If you are going to be making claims for Child Tax Credit with your partner, only one of you will be paid the credits. You must therefore decide who will be applying as the ‘main carer’ and it will be their account that is credited.

Figure out how much money you could earn in tax credits with the HMRC online calculator.

Directgov have lots more information on how to make a joint or single tax credit claim.

What do you need to do next?

Claiming your tax credit is very simple. All you have to do is fill in a claim form and then post it to:

Tax Credit Office, Preston, PR1 0SB.

You can get your form by calling the Tax Credit Helpline on 0845 300 3900 or Textphone 0845 300 3909. Once you’ve spoken to them they will send you a self-explanatory tax credits claim pack.

Don’t worry if you find the form confusing as people often panic in situations like this. There should be a number on your form which can ring for help, and the person on the other end will be more than happy to guide you through the process.

To find out how much tax credit you could claim take the Directgov questionnaire now.

Backdated tax credit claims

You’ll usually start receiving your tax credit once the Tax Credit Office has received your form. But in some circumstances they also pay your tax credit for the three month period leading up to them getting your form. This is known as backdating your claim.

Why would they do that?

If you’ve had a new baby or stopped claiming benefits, your tax credits will automatically be backdated as long as you claim within three months. If you, your partner or child have a disability, or you’re claiming asylum in the UK, there is a chance your tax credit might be backdated further than three months.

Your best bet would be to contact the Tax Credit Helpline on 0845 300 3900 or if you’re calling from outside the UK dial +44 289 053 8192.

From 2012 however, the government will only backdate claims as far as one month.

Already on tax credits? Make sure you renew your claim

Inland Revenue will ask you to renew your tax credits once a year. This is to make sure that you are being paid the right amount of money (if you are paid more tax credits than you’re entitled to, you will normally have to pay them back).

You’ll need to renew if you have been sent an Annual Declaration form TC603D (or TC603D2) with an Annual Review notice (TC603R).

However you don’t need to renew if you’ve only received an Annual Review notice. (In which case your claim will be renewed automatically). But you must tell them if you’re circumstances have changed from the details that are shown on the Annual Review statement (for example, you’ve moved in with a partner or your annual income has changed).

You can report any changes to your circumstances by ringing the Tax Credit Helpline on 0845 300 3900.

For full details on the changes you need to report, see here.

How will the new budget affect my tax credit claim?

The current government has made a number of changes to the existing tax credits set-up. The main alterations are:

• Income limits: If your income goes up by more than £10,000 from the last tax year, the amount of tax credits you get for the current tax year will be reduced.
• Child tax benefit: Before 6th April 2012 you could usually get some child tax credit as long as your income wasn’t over £41,300, but now the income limit will depend on your situation.As a rough guide, you now might not be able to claim if:

  - you have one child and your annual income is more than around £26,000
  - you have two children and your annual income is more than around £32,200

  This is just a rough guide though, so you could still qualify even if your income is above these amounts – for example if you pay for registered or approved childcare, you’re disabled or you have more than one or two children.

• Help with childcare costs: The amount of help you can get with your childcare costs has now dropped from 80% to 70%. This means that the maximum amount of money you can get towards childcare from tax credits is     £122.50 a week for one child, and £210 a week for two or more children.
• Working Tax Credit for those aged 60+: From 6 April 2011, if you’re aged 60 or over you only need to work 16 hours or more to qualify for Working Tax Credit.
• Working Tax Credit for couples: From April 2012, a couple are only able to claim Working Tax Credit if they work a minimum of 24 hours a week between them, with one working at least 16 hours.

Do bear in mind that these are just the headline changes – how your individual tax credit claim will depend on your individual circumstances. The best thing to do is to use the HMRC online tax credit calculator to give you an idea of what you personally can expect to receive.

Useful links

• Find out if you’re entitled to tax credit
• Find out how much tax credit you’re entitled to
• HMRC online calculator
• Directgov
• HMRC & Customs
• How to claim a tax refund
• How to claim childcare vouchers