CPAG in Scotland Tax Credits Project: Factsheet 18

Tax Credits and Going Back to Work

Introduction
Basic rules
How to claim
Going back to work and responsible for a child
Going back to work after illness or disability
Going back to work aged 50 or over
Going back to work for 30 hours a week or more
How much do you get?
Income and going back to work
Self-employed
Childcare
Stopping work
Other help when you start work
Further information and advice

Introduction

This leaflet looks at tax credits for people who are starting work for the first time, or going back to work, for example after a period of illness, unemployment, study, childcare or caring responsibilities.

There are two types of tax credit; child tax credit and working tax credit. You can qualify for child tax credit if you are responsible for children whether or not you are in work. You can qualify for working tax credit if you are working at least 16 or 30 hours per week, depending on your circumstances. You may be employed or self-employed. Tax credits are administered by Her Majesty’s Revenue and Customs, referred to as the Revenue in this leaflet.

Basic rules

You qualify for working tax credit if you pass the residence and immigration tests and you pass any one or more of the following four conditions.

1. Responsible for a child
   – You are aged 16 or over,
   – Work at least 16 hours a week, and
   – Are responsible for at least one child
   
   
2. Disabled worker
   – You are aged 16 or over,
   – Work at least 16 hours a week,
   – You have a disability that puts you at a disadvantage in getting a job, and
   – You get, or you were getting in the last 26 weeks before your claim, a qualifying disability benefit – see Going back to work after illness or disability below
   
   
3. Aged 25 or over
   – You are aged 25 or over, and
   – Work at least 30 hours a week
   
   
4. Aged 50 or over
   – You are aged 50 or over, and
   – Are returning to work of at least 16 hours a week after 6 months on benefits (this applies for the first year of your claim only) - see Going back to work aged 50 or over below.

How to claim

Claim tax credits on form TC600 available from the Tax Credit Helpline (0845 300 3900, text phone 0845 300 3909). You can claim working tax credit if you have been offered a job and it is due to start within 7 days of the date of your claim. The work must be expected to last at least four weeks.

You make a joint claim, ie, you both claim together, if you are married or registered civil partners or are living together as though you were married or civil partners. You make a single claim if you are not a member of a couple.

If you already get child tax credit, you do not need to make a new claim to qualify for working tax credit. You should notify the Revenue that you are starting work and provide your employer’s details. Your award should be increased to include the working tax credit elements.

Going back to work and responsible for a child

If you start work of at least 16 hours per week and are responsible for a child who is normally living with you, you may be entitled to working tax credit and child tax credit. Generally, a child or young person qualifies as a child as long as s/he is:

• aged under 16, and up to 31 August after the child’s 16th birthday, or
• aged under 20 and in full-time non-advanced education or approved training (see CPAG in Scotland’s leaflet, Parents claiming for young people in further education or training [117 KB pdf file] for more information).

You may be entitled to maximum tax credit in the first year that you start work but this may reduce in future years (see Income and going back to work below). You may also be entitled to help with childcare costs and other help when you start work (see relevant sections below).

Going back to work after illness or disability

If you are going back to work of at least 16 hours per week after a period of illness, you may be entitled to working tax credit, including an additional amount as a disabled worker. To qualify you must meet the following conditions:

• for at least one day in the six months before starting work you were receiving
  – incapacity benefit (long-term or short-term higher rate) or
  – employment and support allowance for at least 28 weeks (including periods on statutory sick pay)
  – severe disablement allowance, or
  – a disability premium in income support, income-based jobseeker’s allowance, housing benefit or council tax benefit, or would be entitled but are over 60, and
  
• you have a disability which puts you at a disadvantage in getting a job – a list of physical, sensory and other disabilities is provided by the Revenue on Disability Help Sheet TC956 and in the notes with the claim form.

If you are going back to work of at least 16 hours per week on reduced earnings after a shorter period of illness, you may qualify for working tax credit as a disabled worker under a ‘fast track’ rule. To qualify under this rule you must meet all the following conditions:

• for at least 20 weeks, ending within 8 weeks of starting work, you were receiving:
  – statutory sick pay
  – occupational sick pay
  – short-term lower rate incapacity benefit, or
  – employment and support allowance, or
  – income support or national insurance credits on account of incapacity, and
  
  
• your gross earnings now are less than they were before your disability began by at least 20% (or by £15 a week if that is greater,) and
  
  
• you have a disability that is likely to last at least six months, and
  
  
• you have a disability which puts you at a disadvantage in getting a job – see Disability Help Sheet TC956, or the notes with the claim form.

You also qualify as a disabled worker if you receive disability living allowance and have a disability which puts you at a disadvantage in getting a job. See CPAG in Scotland’s leaflet Tax credits for disabled workers for more information.

Going back to work aged 50 or over

If you are aged 50 or over and are going back to work of at least 16 hours per week after a period of unemployment or illness, you may qualify for working tax credit and be entitled to an additional amount. This rule only applies for 12 months, after which you must qualify for working tax credit under one of the other rules, eg as a disabled worker or working 30 hours. For at least six months immediately before starting work, you must have been getting one of the following:

• income support
• jobseeker’s allowance (income-based or contribution based)
• incapacity benefit (any rate) or employment and support allowance or severe disablement allowance
• state retirement pension topped up with pension credit (savings or guarantee)
• a ‘work-based learning for adults’ or ‘training for work’ scheme training allowance
• national insurance credits, eg for unemployment or incapacity

Consecutive periods on these benefits with gaps of less than 12 weeks can be linked to reach a total of at least 6 months. If you were getting one of these benefits immediately before starting work but for less than six months, and prior to that you were getting carer’s allowance, bereavement allowance or widowed parent’s allowance, you can combine these periods to equal a total of at least six months. You can also qualify if your partner was getting an increase for you in one of the benefits listed above.

Going back to work for 30 hours a week or more

If you are 25 or over and do not qualify under one of the other routes, you may qualify for working tax credit if you work for 30 hours a week or more.

An additional amount is included in the calculation for all claims if you, or your partner, are working for 30 hours a week. If both members of a couple with children are working (one must be working for at least 16 hours a week) and the combined total is more than 30 hours a week, the 30 hour element is included. If you are over 50 and going back to work for 30 hours a week or more, a higher amount is included in the first year.

How much do you get?

Tax credits are made up of different elements according to your circumstances. The maximum amount payable is calculated according to which of the above groups you fall into. It is possible to fall into more than one of these groups, in which case you should make this clear when you claim, because you will be entitled to additional elements. You may not receive the maximum tax credit payable in your circumstances because it depends on income – see Income and going back to work below.

Income and going back to work

An award of tax credits is initially based on income in the previous tax year from 6 April in one year to 5 April in the next. This means that if you were not working in the previous tax year, you will usually be entitled to your maximum amount of tax credits for the first year that you start work. However, it is important to remember that the level of tax credits may reduce dramatically in future years.

When you claim tax credits, the form asks you to provide your total income in the previous tax year. The income that counts is your taxable benefits, gross earnings from employment, taxable profits from self-employment, pension income, savings income and other taxable income. Income from savings or pensions (and a few other sources) only counts if it is over £300 a year in total; the first £300 is ignored. Both your incomes count if you are claiming jointly as a couple.

Your income is compared with a threshold of £6,420 (2008-09 rate) for working tax credit. If your previous year’s income was less than this threshold, you will be entitled to maximum working tax credit. When your annual award comes to an end in April, the Revenue asks you for details of current year’s income and makes a comparison with previous year’s income.

• If current year’s income is lower than the previous year’s, your award is based on current year’s income
• If current year’s income is higher than previous year’s, but not more than £25,000 higher, your award is still based on previous year’s income
• If current year’s income is more than £25,000 higher than previous year’s, your award is based on current year’s income but the first £25,000 is disregarded

You should not wait till the end of the year to tell the Revenue if current year’s income is going to be lower or more than £25,000 higher than previous year’s. If you tell the Revenue as soon as possible, they can reassess your award straight away. It is important to ensure the estimate of current year’s income is accurate and notify of any subsequent changes. This reduces the risk of being over or underpaid.

If current year’s income is less than £25,000 higher than previous year’s, this does not affect your award in the current year but does affect it the year after, starting from 6 April. The process of renewal can take a few months so do not wait until you get the renewal forms but tell the Revenue straightaway so they know how much to pay you from 6 April.

At the end of the tax year, entitlement is finalised according to the current year’s income, but an increase of up to £25,000 on the previous year income is disregarded. If your income exceeds your previous year’s income by more than £25,000, it is important to ask for your tax credit award to be adjusted straight away to avoid an overpayment at the end of the year.

Self-employed

You may be entitled to working tax credit if you are self-employed, as long as you are spending the required number of hours a week on your business. The Revenue may carry out checks to investigate whether you are normally working enough hours per week. It is a good idea to claim tax credits if you are starting a new business and unsure of your likely income. If you have to use estimates, as a general rule it is best to over-estimate income to avoid being overpaid tax credit. This can protect your entitlement until you know how much you have earned. If your profit after completing your tax return is less than expected, you may receive a lump sum of tax credits. See CPAG in Scotland’s leaflet Tax credits and self-employment for more information.

Childcare

Working tax credit also includes a childcare element to help towards the cost of paying a registered or approved childcare provider for looking after your children. You may be entitled to the childcare element if:

• you are a lone parent and work at least 16 hours a week
• you are part of a couple and you both work 16 hours or more a week
• you are part of a couple and one of you works at least 16 hours and the other is ill, disabled or in prison

Other help with childcare may be available through schemes such as Working for Families or vouchers from your employer. For more information, see CPAG in Scotland’s leaflet Tax credits and childcare.

Stopping work

If you stop working at least 16 hours per week, you are entitled to a four week run-on of working tax credit. You may be able to claim income-based jobseeker’s allowance or income-related employment and support allowance and housing benefit or council tax benefit when you stop work. The run-on of working tax credit counts as income for these benefits, so you may find that you need to reclaim or notify the relevant benefit office after four weeks.

If you stop work due to sickness, you can still qualify for working tax credit for 28 weeks (you need to be getting a qualifying benefit) and if you stop work due to maternity you can still qualify for working tax credit for up to 39 weeks in most cases.

If you were getting incapacity benefit or severe disablement allowance before starting work and you stop working within two years, you can usually return to your former benefit at the same level.

For families, if you stop work and start to receive income support, income-related employment and support allowance or income-based jobseeker’s allowance, you will be entitled to maximum child tax credit. In other cases, child tax credit can be revised according to an estimate of your reduced current year income.

Other help when you start work

Extended payments of housing benefit or mortgage interest payments and council tax benefit
If you have been getting income support, income-based jobseeker’s allowance, employment and support allowance, incapacity benefit or severe disablement allowance for at least 26 weeks, and your entitlement ends because you start work, you will be entitled to an extended payment of housing benefit and council tax benefit for four weeks. You must notify the local authority or Jobcentre Plus that you are starting work.

You may still be entitled to some housing benefit or council tax benefit once you start work, depending on the amount of your wages and tax credits.

For owner occupiers, if you have been getting income support, income-related employment and support allowance or income-based jobseeker’s allowance for at least 26 weeks, and were entitled to help with mortgage interest and other housing costs, you can qualify for extended payments of these housing costs for four weeks. There is no help with mortgage interest through tax credits.

Job Grant
The Job Grant is payable to help ease the transition into work. You are entitled if you have been on income support, income-based jobseeker’s allowance, incapacity benefit or severe disablement allowance for at least 26 weeks. The Job Grant is a lump sum of £100, or £250 if you have children. It does not count as income or capital for tax credits and benefits.

Return to work credit for disabled people
The return to work credit for disabled people is available in Pathways to Work areas, which cover the whole of Scotland. The return to work credit of £40 per week for 52 weeks is payable if:

• you start work of at least 16 hours per week,
• you have been on incapacity benefit, severe disablement allowance, or income support because of incapacity for at least 13 weeks, or were getting statutory sick pay for at least 13 weeks followed by one of these benefits,
• your annual salary is less than £15,000, and
• your job is expected to last at least 5 weeks.

In-work credit for lone parents
The in-work credit of £40 per week for 52 weeks is payable if:

• you are a lone parent
• you have been on income support for 52 weeks, and
• you start work of at least 16 hours per week.

The Job Grant, return to work credit and in work credit are not part of the tax credit system but are paid by Jobcentre Plus under employment legislation. They are disregarded as income for benefits and tax credits.

Further information and advice

CPAG in Scotland Tax Credits Project summary webpages

Child Poverty Action Group in Scotland
0141 552 0552 advice line for advisers on benefits and tax credits,
Monday, Tuesday, Wednesday and Thursday 10am to 12pm

Email: advice@cpagscotland.org.uk
email advice for advisers on benefits and tax credits

Website: www.cpag.org.uk
for more tax credit leaflets from CPAG in Scotland

CPAG publishes the Welfare Benefits and Tax Credits Handbook, a comprehensive guide to benefits and tax credits for claimants and advisers.

CPAG in Scotland’s advice line is only for advisers. If you are having problems with your own tax credit or benefit claim and are in need of advice you should contact your citizens advice bureau or other local welfare rights service.

HM Revenue and Customs (formerly the Inland Revenue)
Tax Credits Helpline 0845 300 3900
(textphone 0845 300 3909)
Website: www.hmrc.gov.uk

© Child Poverty Action Group, October 2008

Child Poverty Action Group is a charity registered in England and Wales (registration number 294841) and in Scotland (registration number SC039339). Company limited by guarantee registered in England (registration number 1993854). Registered office: 94 White Lion Street, London N1 9PF

CPAG in Scotland’s Tax Credit Project is funded by the Scottish Government.

This factsheet was last updated October 2008

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