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Coronavirus: Tax Credits - Wages dropped
Tax Credits - Wages Dropped
Hours Dropped?

Entitlement to Working Tax Credit (WTC) normally depends on the claimant normally working a certain number of hours.

Where someone's hours have dropped then whether they stay on Tax Credits or not will usually depend on whether they are still working the required hours to be entitled and how long the drop in hours is expected to last.

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

Where the drop is going to be more than 4 weeks the claimant needs to report this to HMRC and WTC will end after that 4 week period - due to the 4 week run-on.

HMRC did put in place some temporary measures so that people who were temporarily working reduced (or no) hours due to coronavirus, or who were being furloughed, were treated as though they were still working their normal hours, so WTC could continue - so long as they were still employed or self-employed. See this page for more information. 

Note that if the claimant is off work sick, WTC can normally continue for up to 28 weeks. Claimants are still classed as working their normal hours if:
  • They are getting Statutory Sick Pay from their employer
  • They are getting New Style ESA
  • They are getting National Insurance credits because they have a limited capability for work
  • They are self-employed but, had they been an employee, they would be entitled to SSP or NS-ESA.

 

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. 

It could be worth checking in case Universal Could be a better option - claimants should speak to a Benefits Adviser. Note that if someone claims UC they will not be able to get back onto Tax Credits, so they should check if it is the better option for them first!

 

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

I am a single parent with two children. I work for a travel agency, but my hours have recently been cut.
What will happen to my Tax Credits?

If you are still working 16 hours per week or more, you are still working the required number of hours that a single parent needs to be eligible for Working Tax Credit. So your Tax Credits can continue, although they won’t increase, unless your annual pay is dropping by more than £2500.

If you are now normally working less than 16 hours (and you will be for the next 4 weeks or more) your Working Tax Credit will end, although Child Tax Credit can continue.

Whatever your new working hours are, if you are struggling financially, it is worth checking if you could be better off on Universal Credit - especially if you have rent to pay and are not currently getting any Housing Benefit. Speak to a Benefits Adviser.

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