Many workers are seeing a drop in their wages - either because their employer has 'furloughed' them - click here, or 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 or sick, (or shielding, if this is brought back in)
- 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.
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.
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.
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. This is because they will be treated as working their normal hours until the Job Retention Scheme and Self-Employment Income Support Scheme end, 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.