Main features of the system

The amount of tax credit you receive is affected by your income

Claims are initially based on the taxable household income for the previous tax year (on the assumption that income will be similar the next year). But the income figure can be revised if it falls or if it rises more than a set level.

Claims must be renewed by 31 July each year

Once you have made a claim to tax credits, you will need to renew the claim each year.

You will be sent a ‘renewals pack’ soon after the 5 April each year. It must be completed and returned to the Tax Credit Office, or you must phone the Tax Credit Office with the details, by 31 July each year at the latest. It is best to renew your claim as soon as possible. You will be asked to confirm your household income for the tax year just finished and to confirm your circumstances – your work and dependent children.

(Some people on higher income, and some people on benefits, will have their claim renewed automatically. That is, they do not need to contact HMRC to renew the claim so long as their circumstances have remained within the limits given on their own renewal form).

For more details, see http://www.hmrc.gov.uk/taxcredits/keep-up-to-date/renew-claim/index.htm

You must tell the Tax Credit Office about changes in your circumstances

This includes changes in your childcare costs (if you claim the childcare element of tax credits to help pay these); changes in the number of children or young people in your household or, if they are over 16, changes in their education or training status; becoming part of a couple or becoming single; changes in your working hours if these take you across the 16, 24 or 30 hours per week threshold.

HMRC sometimes makes enquiries to check that you have correctly reported changes in circumstances; such as when a member of a couple moves in or moves out. So you could be asked to provide evidence of the date that such changes happened.

For a complete list see of changes to need to tell the Tax Credit Office about, see

http://www.hmrc.gov.uk/taxcredits/keep-up-to-date/changes-affect/how-when-report.htm.

Changes in income

If your income falls during the year, it may be possible for your tax credit award to be increased. This can be done by provisionally basing your entitlement to tax credits on an estimate of your current year income. It is better to estimate on the high side to avoid the possibility of being overpaid. You should update your estimate by phoning the tax credit office if your circumstances change.

If your income increases, this may affect your tax credit claim. Increases in household income in the current year will only be ignored if they are under £10,000. On 6 April 2013, this limit falls to £5,000. (Prior to 6 April 2011, the limit was £25,000). This means that it is important to keep HMRC updated with changes in income.

Example: John and Julie have 2 children. Their household income to 5 April 2012 (tax year 2011/12) was £15,000. In the year to 5 April 2013, they anticipate that there income will be £30,000 (tax year 2012/13).

As soon as they are aware that their income is likely to increase by £10,000 over the previous year, they should contact the Tax Credit Office. Otherwise they will be overpaid.

From 6 April 2012, current year falls in income of £2,500 will be disregarded.

See http://www.hmrc.gov.uk/taxcredits/keep-up-to-date/changes-affect/income-changes.htm for more information of how income affects your claim.

It is possible to be overpaid tax credits, or for HMRC to have underpaid them

The amount of tax credit you are entitled to is worked out for a whole tax year. You will be sent a letter (your Tax Credit Award letter) showing how much you are due, how it will be paid and the information that was used to work out your award. This information includes the number of children you are responsible for; any childcare costs you have; the hours you (and your partner) work; your household income for the current tax year and for the previous tax year.

If any of these details are wrongly recorded by the Tax Credit Office, or if there have been changes during the year that the Tax Credit Office don’t know about or haven’t recorded accurately, then you could be paid too much or too little tax credit. When this happens, the Tax Credit Office will try and adjust your tax credits during the year. But sometimes the adjustment will only take place once you have renewed your claim. If you have been paid too little, then you will be paid the balance of what you are due as a lump sum. If you have been paid too much, the Tax Credit Office will ask for to back. If this happens, there are circumstances in which the Tax Credit Office may agree not to collect all the amount owing.

If you have a problem like this with tax credits, please see the tax credit problems section.