Working Tax Credits
Tax credits are payments from the government. If you work, but are on a low income (like many work at home mums and dads), you may qualify for Working Tax Credit. You can generally claim Working Tax Credits if you meet the following criteria:
- You are employed or self-employed
- You do ‘qualifying remunerative work‘ for 16 hours or more a week
- You are or will be working for more than 4 weeks from the date of your claim
On top of this, there are certain age requirements. You must be:
- aged 16 or over and a part of a couple where one of you works at least 16 hours a week and the total number of hours for which you both work is at least 24 hours a week
- aged 16 or over and a part of a couple where one of you works at least 16 hours a week and the other partner is incapacitated, in prison, in hospital or entitled to carer’s allowance
Alternatively, if you are not in a partnership/married, you must be:
- aged 16 or over and responsible for one or more children, OR
- aged 16 or over and disabled, OR
- aged 25 or over and usually work 30 hours or more a week, OR
- aged 60 or over and usually work 16 hours or more a week
Assuming you’re reading this because you’re a work at home mum — that is, registered as self-employed, with at least one child — and you work 16 hours a week or more, then it’s almost certain that you qualify if your income is low enough.
Important note: the number of hours worked is averaged out across the year. This is mostly irrelevant if you’re in a full time position working the same amount of hours every week, but as a work at home parent you may work more hours in term time than during the holidays. Add up your hours for each week and divide by 52 to work out your average hours worked: this is the number to declare.
So what is ‘qualifying remunerative work’?
Qualifying remunerative work is described as the number of hours you work and expect to receive payment for. Payment can be cash or “in kind” (e.g. a swap of skills, work in exchange for accommodation, etc). Qualifying remunerative work includes both jobs done for (and billed to) a customer, and the time spent in ‘activities necessary to the employment’. HMRC lists some examples:
- trips to wholesalers and retailers
- visits to potential clients
- time spent on advertising or canvassing
- cleaning the business premises
- cleaning a vehicle used as part of the business, for example a taxi or a driving school car
- research work, for example where the person is an established author
Unfortunately, I don’t think we can count housework as remunerative! However, these things might also qualify as remunerative work for your business:
- maintaining a social media presence with the intention of attracting clients
- preparing for and running a stall at a craft fair or market
- attending networking meetings
It’s important that you keep a basic log of hours worked, in case the Working Tax Credit compliance office contact you for proof of what you’re doing.
How much am I entitled to?
How much you will receive from the government depends on how much you’re earning as a family, how many hours worked, how many children you have and whether any of you are disabled.
To work out your entitlement for Work and Child Tax Credits this tax year:
- Multiply £2690 by the number of children you have
- Add £545 (this is the family element of CTC which is for everyone)
- Add £1920 (this is the basic element of WTC which is for everyone that is eligible)
- Add £1950 (couple or single claimant element, so also everyone eligible for WTC)
- If you work over 30 hours add £790 (this is 30 hours combined as a couple, so if one person works 20 hours and the other 10 hours then you would get this)
(If you or your children are disabled there more elements to add to your entitlement, but the requirements are fairly detailed. For more information, have a look at pages 12-14 of the Child and Working Tax Credits information PDF from HMRC.)
The total amount calculated above reduces by 41% per pound of income over £6420. So, (your income – £6420) x 0.41 = the amount to be removed from the total you worked out above.
If you have 3 children and a household income of £32k a year, one parent working 16 hours and another working 14 hours:
£2690 x 3
+£545 (family element)
+£1920 (basic WTC element)
+£1950 (couple or lone parent element)
+£790 (for working over 30 hours)
Income of £32000 – £6420 = £25580
£25580 x 0.41 = £10487.80
The award is the total possible entitlement (£13275) – 41% of income – £6420 (£10487.8)
£13275 – £10487 = £2787.20
So with 3 children and a household income of £32k the total award you would get would be £2787.20 a year which is £53.60 a week.
What about maternity leave?
You can claim Working Tax Credits whilst on maternity leave providing that you were in employment or were self-employed for the required number of hours (as detailed above) immediately before your maternity leave. You can only claim WTC for up to 39 weeks maternity leave (26 weeks ordinary maternity leave plus 13 weeks additional maternity leave) and must notify HMRC within one month if you do not restart work at that point. You may still be entitled to the tax credits if your partner’s hours qualify you as a couple.
Important note: up to the first £100 per week of statutory maternity/adoption pay, or the whole of your maternity allowance if you receive that instead, can be discounted when calculating your total income for the year. (This only counts towards maternity pay; if you only receive £80 SMP you must not discount a further £20 from your overall household income.)
It goes without saying that tax credits are a lifesaver for many low income families. However, the government is free to change the thresholds and rules at any point which could leave you struggling if you rely on this benefit and it’s removed. Further, the award amounts vary year on year. Always try to budget for worst case scenario.
HMRC Tax Credits Helpline: 0345 300 3900
(open 8am-8pm Mon-Fri, 8am-4pm Sat)