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1 June 2023 - 2 min read

Tax Credits

In this article

Tax credits are currently being phased out and replaced with Universal Credits. More on that below. 

What are tax credits? In the UK tax credits function like a benefit. The two main differences are that tax credits are calculated yearly, and they are administered by HMRC, whereas most other benefits fall under the DWP (Department for Work and Pensions). 

What are the different tax credits? 

There are two types of tax credits, the WTC and the CTC. Currently you are only eligible to claim for one of these, if you already receive the other one.

As per the HMRC website, if you are not currently receiving any of the two tax credits, you will have to direct new claims to Universal Credit instead.

Working Tax Credit (WTC)

The Working Tax Credit is paid out to people who work and have a low income. 

Child Tax Credit (CTC)

The Child Tax Credit is for those who are taking care of a child. This tax credit does not affect your Child Benefit.

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Tax credits are being replaced by Universal Credit

As mentioned above a new system called Universal Credit is currently being phased in to replace a number of credits and benefits: 

  • Working Tax Credit
  • Child Tax Credit
  • Housing Benefit
  • Income Support
  • income-based Jobseeker’s Allowance (JSA)
  • income-related Employment and Support Allowance (ESA)

How to make a new tax credit claim?

New claims for tax credits should instead be made through the Universal Credit system, which you can find via gov.uk. 

What if I already receive tax credits?

If you claimed tax credits before the transition started, you will not be affected unless: 

  • You have a change of circumstances that requires reporting 
  • The government will send out something they call a “Migration Notice”, informing you to start claiming Universal Credit instead of the Tax Credit(s) you are already receiving

The transition to Universal Credit is expected to be complete in 2028. 

FAQ

While some benefits are subject to tax, tax credits are not. And neither is Universal Credit.
For all intents and purposes, yes. It is however managed by HMRC instead of the Department for Work and Pensions.
Gov.uk has made a calculator to help you find out if you are eligible to receive Universal Credit or other benefits. You will need accurate information about your financial situation to get a usable result.

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