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Coronavirus: Tax Credits - Wages dropped
Tax Credits - Wages Dropped
Many workers are seeing a drop in their wages - either because their employer has 'furloughed'  them - click here, because they are off work sick (click here), or because their employer doesn't require them to do as many hours.

How someone’s Tax Credits are affected  by a drop in wages during the Coronavirus pandemic will depend on several factors, eg:
  • if the claimant is self-isolating, shielding or sick, or 
  • if they have been furloughed 
  • whether they are still employed/self-employed or their job has ended
  • how long this will last
  • if they are claiming other benefits.

Some people will be better off if they can remain on Tax Credits, whereas others might be better off if they claim UC instead. 

But once someone claims UC, there is no going back to Tax Credits, so it is best to seek advice from a specialist benefits adviser before doing anything.

 

Hours Dropped?

Entitlement to Working Tax Credit normally depends on the claimant normally working a certain number of hours – see here.

Where someone's wages have dropped, this may mean that their hours have dropped too.

Normally......

Where the drop in hours is going to be less than 4 weeks, then WTC can continue.

Where the drop in hours is going to be more than 4 weeks then WTC will end after that 4 week period - due to the 4 week run-on.

However.....

HMRC has announced that people temporarily working reduced (or no) hours due to Coronavirus, or who are being furloughed, will not see a change in their Tax Credit payments - so long as they are still employed or self-employed - as they will be treated as working their normal hours until the Job Retention Scheme and Self-Employment Income Support Scheme close, even if they are not using either scheme. They do not need to contact HMRC about this change.

This is a temporary measure to ease the pressure on the number of new UC claims and to make things easier for everybody.


What about Child Tax Credit?


Child Tax Credit is not dependent upon hours worked. So someone whose income has dropped can stay on Child Tax Credit.

 

Will Tax Credits increase if earnings drop?

If the claimant remains entitled to Working Tax Credit then their award can only be increased if the claimant’s annual income reduces by £2,500 or more, so unless there are other changes in income, the Tax Credits would not normally increase to take account of the drop in earnings. 

What about paying the rent?

Anyone who already gets some Housing Benefit should let the HB Office know about the drop in income, as their HB should increase due to the drop in earnings.

Tax Credit claimants who are not already on Housing Benefit will not be able to make a new claim for HB. Instead, if someone is struggling to pay their rent, they might think about Universal Credit. But note that once on UC, Tax Credits will end. Some people are worse off financially on UC. So, they should speak to a benefits adviser to get a better off calculation. 

If the period their wages are dropping for is just a couple of weeks, it might not be worth swapping to UC. But if the period is longer – they will need to work out what is the best option for their particular circumstances. It is best to seek specialist benefits advice.

Frequently Asked Questions
Will they re-assess my Tax Credits to take account of my lower wages?

At the moment you can stay on your Working Tax Credit where your hours drop below those required to claim WTC for a temporary period due to the Coronavirus. 

If your wages are only dropping for a few of weeks, your Tax Credits are unlikely to be affected and you can continue to receive your Tax Credits as normal.

This is because HMRC will only reassess your entitlement to Tax Credits if your annual income reduces by £2,500 or more. So you need to work out how much your wages are reducing by, and for how long, to work out whether your annual income will reduce enough for your Tax Credits to be reassessed.
If you think your earnings for 2020/21 will be more than £2500 lower than in 2019/2020, then let HMRC know about your situation.  

You should also check to see whether claiming Universal Credit would be a better option for you – especially if you pay rent. Contact a Benefits Adviser.


My hours have now dropped below those required to claim Working Tax Credit – so will my Tax Credits stop?

At the moment you can stay on your Working Tax Credit where your hours drop below those required to claim WTC for a temporary period due to the Coronavirus. 
So where this is a temporary drop you don't need to inform HMRC and your Tax Credit payments will continue as normal. However if you know for certain this is a permanent measure, ie your contract of employment has changed,  then you must let HMRC know and your Working Tax Credit will stop after 4 weeks unless you find more hours.
Child Tax Credit is unaffected by the number of hours you work.

It it is worth checking whether or not you’d be better off on Universal Credit.  Additionally, (if you have school age children) you could be eligible for free school meals if you are getting UC and your wages are low enough. 

Seek advice from a Benefits Adviser.

 

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