working tax credit

A sizeable chunk of the global populace does not have the means and capabilities to reasonably maintain their needs. Around the world, many earners do not earn sufficiently to support their families. Numerous Government authorities, intending to lower the burden of such low-income groups, launch different support payment schemes. The UK government also has its own set of initiatives to help the struggling citizens of the country. There are millions of citizens in the UK who do not earn a reasonable income. Families with ailing or disabled persons are most prone to such issues.

Hence, the UK government came up with the Working Tax Credit scheme in 2003. The benefits of this scheme are available to the low-income working-class population of the UK. The Working Tax Credit (WTC) and the Child Tax Credit (CTC) form part of some crucial support plans for the Brits. Despite the declaration of the new Universal Credit plan in 2010, the Working Tax Credit still has many claimants. The process of conversion of Working Tax Credit users to the Universal Credit Scheme is still in progress.

Introduction to Working Tax Credit (WTC)

The Working Tax Credit is a payment program of the UK government to provide financial support to the low-income working population. Many might believe that the scheme is related to tax credits payable by the government to a taxpayer. However, the nature of the amount is quite different from this perception.

The Working Tax Credit scheme is means-tested assistance from the government for the welfare of the needy. It means that the people who showcase that their earnings or capital are lower than required thresholds as per regulations. As per the Working Tax Credit scheme, the HMRC pays a pre-determined sum to people who earn less than a given limit and work for a specified number of weekly work hours.

As per the National Statistics Publication of 2018, more than 3.2 million families in the United Kingdom benefit from the Working Tax Credit and Child Tax Credit schemes.

Eligibility Conditions listed for availing of the benefit of Working Tax Credit

A person can avail of the Working Tax Credit if:

  • He earns income lower than given limits, and
  • He works for the specified number of hours in a week.

The amount of payment available under the scheme also depends on the situation of the applicant.

  • Minimum Working Hours

Depending upon the age and personal conditions, a person must work the below specified hours in a week.

Age/ SituationMinimum Working Hours in a Week
Age 25 to 59Minimum 30 Hours
Age over 60Minimum 16 Hours
Single parent with one or more childrenMinimum 16 Hours
Couple with one or more childrenMinimum of 24 Hours between the two partners (One of the partners must work a minimum of 16 hours)
Disabled PersonMinimum 16 Hours

Couples with one or more children may claim the credit even when they work for less than 24 hours in a week. It is applicable where any one of the partners works for at least 16 hours and has an age of 60 years or more or has any disability.

It is important to note that with the introduction of the Universal Credit Scheme, no new claims can be made for availing of the Working Tax Credit after 2018. However, there are exceptions to this rule for people with disabilities who are entitled to get the Severe Disability Premium.

A working person can remain qualified for getting Working Tax Credit, even during leave periods such as sick leaves, maternity breaks, or the period between job changes. The HMRC has specified the maximum duration for which one can receive the Working Tax Credit during the leave period based on personal circumstances.

Definition of Work as per regulations

A person who works as per the conditions stated by the HMRC can claim the Working Tax Credit. The definition of work covers a person working as an employee or worker for someone else or a person who runs his venture as a self-employed. You must undertake to work and get paid for a minimum of 4 weeks.

  • Conditions for availing the Working Tax Credit for a self-employed individual

  1. The person must undertake a self-employment initiative with the motive to earn profits
  2. He must work regularly and maintain appropriate business records
  3. Comply with all relevant regulations for carrying out his business

The overall income limits for the Working Tax Credit vary from person to person, based on their situation. The HMRC has not stated a fixed income for the people who can claim the credit.

Calculation of the amount of Working Tax Credit Payable

The Working Tax Credit payable to an eligible person depends on the income and number of working hours of that person. The amount of credit called basic element is derived by deducting the total withdrawal amount from the elements. The amount of the two components varies depending on whether a person has children or whether he is disabled.

Summary of Working Tax Credit Thresholds for different segments of the people

There exist various limits to the amount of credit available, which will reduce with the increase in earnings.

For the year 2020-21, the maximum amount of working tax credit for different elements is stated below:

Basic amount- £2,995 per annum (includes additional £1,000 as relief against Coronavirus impact)

Single Parent- £2,045 per annum

Couples- £2,045 per annum

Approved Childcare – £175 per week for a single child, £300 per week for two or more children

Disabled person- £3,220 per annum

Works for a minimum of 30 hours in a week- £825 per annum

The Impact of the arrival of the Universal Credit Model on the Working Tax Credit

The Universal Credit scheme is a comprehensive plan to replace different benefit payments, including the Working Tax Credit. After 2018, all new applicants looking for means-tested benefits need to apply under the Universal Credit plan. The implementation of the scheme is taking place in a phased manner across the United Kingdom. It will soon replace all the benefit payments from the UK government, such as the Child Tax Credit and the Working Tax Credit. However, the people already covered under the Working Tax Credit Scheme will not be integrated into the Universal Credit Scheme until 2022.

Relief Measures available for members getting Working Tax Credit in the prevailing COVID-19 scenario

Due to the outbreak of the Coronavirus pandemic, the normalcy of people’s lives worldwide is adversely affected. In the UK, many workplaces were bound to stay closed. Hence, workers could not work for their usual working hours. Looking at the prevailing scenario, the UK government has already announced relaxation in the criterion for the number of working hours. People who could not undertake work for the required working hours will remain eligible for availing the working tax credit. People who are furloughed or working lower than usual hours will continue to receive the benefit payment as long as they are employed.

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