How to Claim Tax Credits: What You Need to Know Before Applying

Tax Queen

Tax Expert @ Pie

4 min read

How to claim tax credits outlines statutory eligibility requirements, claim procedures, and application channels established by His Majesty’s Revenue and Customs for UK taxpayers. While Working Tax Credit and Child Tax Credit have largely been replaced by Universal Credit, existing claimants can manage their active awards, and specific eligible individuals can still apply for tax credits by contacting HMRC directly. Applicants must provide details of household earnings, hours worked, and childcare costs, reporting income changes within 30 days to avoid underpayments or penalties. Eligible working parents can claim up to 70% of qualifying childcare expenses, subject to statutory limits of £175 per week for one child or £300 for two or more children. Utilising Open Banking tax applications like Pie enables self-employed workers and low-income earners to track net earnings in real time, monitor benefit eligibility thresholds, and submit compliant tax records to HMRC.

All You Need to Know

Tax credits are money the government gives to people who need extra help with living costs. There are two types: Working Tax Credit and Child Tax Credit.

Working Tax Credit is for people with jobs who don’t earn much money. You need to work a minimum number of hours each week to qualify. Working tax credit eligibility is determined by criteria such as income level, the number of hours worked per week, and considerations for those with children and other dependents.

Child Tax Credit helps families with the costs of raising children. You don’t need to be working to get this one, which makes it accessible to more families. Individuals can apply for child tax credits under specific circumstances, such as having a low income or being responsible for a child under 16.

It’s worth noting that Universal Credit is now replacing tax credits for most people. You can only make a new tax credit claim in very specific situations.

Your income, family sise, and work hours all affect whether you can claim. Many people miss out because they don’t realise they qualify!

The transition from tax credits to Universal Credit primarily affects individuals who are under the state pension age.

Types of Tax Credits

There are two main types of tax credits: Child Tax Credit and Working Tax Credit. These tax credits are designed to provide financial support to individuals and families who meet specific eligibility criteria.

Child Tax Credit is aimed at families with children. You don’t need to be working to qualify for this credit, making it accessible to a wide range of families. It helps cover the costs associated with raising children, such as education, childcare, and everyday expenses. The amount you receive depends on your income, the number of children you have, and whether any of your children are disabled.

Working Tax Credit is intended for individuals and families who are in work but have a low income. To be eligible, you need to work a minimum number of hours per week. This credit is designed to top up your earnings and make it easier to manage living costs. Factors such as your income, the number of hours you work, and whether you have children or a disability will affect the amount you receive.

Both types of tax credits are gradually being replaced by Universal Credit, but existing tax credit claimants will continue to receive their payments until they are asked to switch. It’s important to stay informed about these changes to ensure you continue to receive the support you’re entitled to.

How do I actually claim tax credits?

Claiming tax credits starts with checking if you’re eligible. The rules have changed significantly recently with Universal Credit taking over for most new claimants.

If you’re already getting tax credits, you’ll keep receiving them until HMRC asks you to switch to Universal Credit. This transition is happening gradually across the UK.

For new claims, most people will need to apply for Universal Credit instead. New claims for tax credits are no longer accepted, and individuals must apply for Universal Credit. However, if you get the severe disability premium, you might still be able to claim tax credits.

To start a claim, call the HMRC tax credits helpline on 0345 300 3900. They’ll ask about your situation and send you a form if you qualify. Make sure to follow the necessary steps for your tax credit payments, including providing accurate information and meeting deadlines.

Fill in the form completely and honestly. Missing information can delay your money or lead to incorrect payments that you might need to repay later.

Return your form quickly – the sooner you send it, the sooner your payments can start helping with your household expenses. If there are any errors or issues with the information provided, contact HMRC immediately to resolve them.

What information will I need to provide?

Before you pick up the phone or fill in forms, gather all your important details. This makes the process much smoother and prevents delays.

You’ll need your National Insurance number and your partner’s if you have one. Details about your income from the last tax year will be essential, so dig out your P60 or any self-employment records.

If you pay for childcare, have those costs handy as you might get extra money to help with these expenses. Your bank account details are needed so HMRC can pay you directly.

Any benefits you currently receive should be mentioned as they might affect your tax credits. Ensure all the information you provide is correct to avoid delays or incorrect payments. Having this information ready will make your application much more straightforward.

How much money could I get from tax credits?

The amount varies hugely depending on your circumstances. Some families get just a few pounds a week while others receive thousands per year.

Your income is the biggest factor – generally, the less you earn, the more tax credits you’ll get. Having children increases your entitlement, especially if they have disabilities. If your income was lower than expected, it is crucial to accurately report these changes to HMRC to ensure your benefit claims are correct.

Working more than 30 hours a week can boost your Working Tax Credit. The best way to get an estimate is to use the tax credits calculator on the GOV.UK website.

What should I do if my circumstances change?

This is super important! You must tell HMRC within one month if things change in your life. Getting married, moving in with someone, or splitting up needs to be reported right away. It counts as a change in circumstances that impacts your tax credits.

If your income goes up or down by more than £2,500, let them know. Changes to your work hours could affect whether you qualify at all, especially if they drop below the minimum.

Having another baby or if your child leaves home or education will affect your Child Tax Credit. If you don’t report changes, you might get paid too much and have to pay it back later.

I learned this the hard way when I didn’t report a pay rise promptly. HMRC continued paying me at the higher rate, and I ended up with an overpayment that took months to clear. If you find yourself in a similar situation, you can formally dispute the decision made by HMRC. Document your reasons for the dispute and be aware that recovering payments will continue during the dispute process.

How do I renew my tax credits each year?

Every year between April and July, HMRC will send you a renewal pack. Don’t ignore this! The pack contains details about your claim and income from the previous year. It is crucial to review the Annual Review letter for any inaccuracies.

You need to tell HMRC if anything is wrong or has changed. Even small mistakes can lead to problems with your payments or unexpected tax bills later. Finalising your tax credit claims based on accurate information is essential to avoid underpayment or overpayment.

The deadline is usually July 31st. Missing it could mean your payments stop completely, which can cause significant financial stress.

You can renew online, by phone, or by post – whichever is easiest for you. Keep a copy of everything you send and make a note of any phone calls for future reference.

What common mistakes should I avoid?

Not checking if you’re eligible is the biggest mistake. Many people miss out on thousands of pounds they’re entitled to simply because they assume they won’t qualify.

Forgetting to report changes in your life can lead to overpayments that you’ll have to pay back. Additionally, failing to inform HMRC on time can result in fines, with the potential for being fined up to £3,000 for not complying with deadlines or providing incorrect information. Missing the renewal deadline is an easy mistake that can cause your payments to stop.

Underestimating childcare costs means you might not get all the help you’re entitled to. Not keeping records of your claims and communications with HMRC can make resolving problems much harder.

If you disagree with a decision regarding overpayment recovery, you have the ability to appeal. This can be crucial in disputes about tax credit amounts and ensuring fair treatment.

Remember that tax credits are being replaced by Universal Credit, so check which one you should be claiming. This transition is important to understand for anyone receiving benefits.

Where can I get help with my claim?

If you’re confused about anything, call the HMRC tax credits helpline. The staff are there to help you navigate the system and answer your specific questions.

Citisens Advice can give free, impartial guidance about your claim. They’re especially helpful if you’re having problems or need face-to-face support with your application. The Department for Work and Pensions (DWP) manages benefits and will notify you about the transition from tax credits to Universal Credit.

If you’re self-employed or have complicated tax affairs, Pie might be worth checking out. Pie is the UK’s first personal tax app designed to help working people handle their tax matters.

Final thoughts on claiming tax credits

Getting the tax credits you're entitled to can make a real difference to your bank balance. Don't miss out because the process seems daunting or complicated.

Take it step by step, keep good records, and report any changes promptly. This will help everything run smoothly and prevent problems with your payments.

Remember that most new claimants will now need to apply for Universal Credit instead of tax credits. The system is changing, but help is still available for those who need it.

If you're managing self-employment alongside tax credits, check out Pie for an easier way to handle your tax affairs and make sure you're claiming everything you're entitled to.