Claiming UK Child Tax Credit: What You Need to Know

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Claiming UK Child Tax Credit: What You Need to Know

Unemployed or on a low income and raising kids? You may be able to claim child tax credit to top up your income.

Raising a child is hard at the best of times. But if you’re unemployed or on a low income, it’s even more of a struggle. Luckily, you can claim Child Tax Credit to top up your income and help you keep up with the costs.

Here’s a rundown of the child tax credit system, how it works and how much you can claim in 2019. We’ll also have a look at Universal Credit. This is the new system that’s replacing child tax credit and other government benefits.

What is Child Tax Credit?

Child Tax Credit helps you cover the costs of raising a child. You can claim if you:

  • Are unemployed, employed or self-employed.
  • Live in the UK. That said, you may still be able to claim if you live outside the UK. For example, because you’re a Crown servant posted overseas or in receipt of a UK state pension.
  • Have a total household income of £16,105 a year or less. Total household income means the income of everyone who lives in your home. Income includes:
    • Salary, including any benefits
    • Profits from self-employment
    • Income from savings, investments or a pension
    • Income from state benefits, unless they’re tax-free. Taxable state benefits include Jobseeker’s Allowance, Carer’s Allowance, contribution-based Employment Support Allowance, and the state pension.

Earn more than £16,105 a year? The amount of child tax credit you can get will go down by 41p for every £1 you earn.

  • Are responsible for at least one child under 16, or under 20 if they’re still in full-time education or training. You’re responsible for a child if:
    • They live with you all the time
    • They live with you most of the time and you’re their main carer
    • You pay for their food and give them pocket money
    • They keep toys and clothes at your home
    • They live in an EEA country or Switzerland but depend on you financially

What do you get if you qualify for Child Tax Credit?

Child Tax Credit is made up of several elements. Depending on your circumstances, you may get one or more of these elements.

Here’s a look at all the child tax credit elements you could claim in the 2019-20 tax year and their maximum amount:

Child Tax Credit Elements Maximum you can claim
Family element £545
Child element £2,780 per child
Disability element (on top of child element) £3,355 per child
Severe disability element (on top of child element and disability element) £1,360 per child

How to Calculate Child Tax Credit: Example 1

Let’s say you’re self-employed and your partner is a stay-at-home parent. You have two children. Your total profit is £15,000.

This means you could claim:

  • £545 family element
  • £2,780 child element for your first child
  • £2,780 child element for your second child

So, in total, you could claim £6,105 a year, which would raise your total yearly income to £21,105.

How to calculate Child Tax Credit: Example 2

Let’s say you’re self-employed with two children. Your total profit is £15,000. However, your partner gets a job that nets them £15,000 a year. This would bring your total household income to £30,000.

You can claim:

  • £545 family element
  • £2,780 child element for your first child
  • £2,780 child element for your second child

However, because your household income is £13,895 over the £16,105 threshold, you won’t get the full £6,105. Instead, you’ll get 41p less for every £1 you earn over the threshold.

This means you’d get: £6,105 – (£13,895 x 0.41), that is £408.05.

How many children can I claim Child Tax Credit on?

Prior to 6 April 2017, you could claim the child element of Child Tax Credit for every child under 16 — or under 20, if they’re still studying — you were responsible for. But as from 6 April 2017, the government introduced a two-child limit.

If your child was born on the 6 April 2017 or later, you can claim the child element of child tax credit only if they’re your:

  • First child
  • Second child

How the two-child limit works: Example

Let’s say you have three children. All three were born before 6 April 2017. This means you can claim the child element of Child Tax Credit three times — £2,780 for every child.

Now, let’s say one of your children was born in May 2017. This means you’d be able to claim the child element only twice — £2,780 for your first two children, but not for the third one.

Are there any exceptions to the two-child limit?

Yes, there are exceptions. The two-child limit doesn’t apply if:

  • Twins or triplets are born into the family
  • You look after a child as a friend or family carer
  • You adopt a child (provided you weren’t a parent or step-parent before you adopted them)
  • One of your children has a child
  • You give birth to a child as a result of rape (this is known as the ‘rape clause’)

The two-child limit and the rape clause have caused controversy. The Child Poverty Action Group has challenged the limit in court. Unfortunately, while the court did find part of it unlawful, it upheld the policy. The case is now pending appeal before the Court of Appeal.

The Child Poverty Action Group’s solicitor Carla Clarke said:

This is a policy which is not simply about what level of benefits predominantly working families are entitled to. Rather, it is a policy which necessarily encroaches upon very personal and intimate decisions about family size and planning and treats some children as less deserving of a benefit intended to meet their basic needs purely because of their birth order. We do not agree with the judge’s findings on the various human rights arguments and will look to appeal this case further.”

For now, the two-child limit is unfortunately still in force.

How do I apply for Child Tax Credit?

You can apply for Child Tax Credit only if you qualify and you’re currently getting the severe disability allowance. To claim, call HMRC on:

  • 0345 300 3900
  • 0345 300 3909 if you use a textphone
  • +44 2890 538 192 if you’re calling from outside the UK

Lines are open Monday to Friday from 8am to 8pm, Saturday from 8am to 4pm and Sunday, 9am to 5pm.

Qualify for Child Tax Credit but don’t receive the severe disability allowance? You’ll have to apply for Universal Credit. This has replaced Child Tax Credit, as well as the following benefits:

  • Working tax credit
  • Housing benefit
  • Income support
  • Income-based Jobseeker’s Allowance
  • Income-related Employment and Support Allowance

Who qualifies for Universal Credit?

You qualify for Universal Credit if you:

  • Have a low income or out of work
  • Older than 18 years but under state pension age. You may still qualify if you’re 16 or 17 as long as you:
    • Have limited ability to work or are waiting for a Work Capability Assessment
    • Are caring for someone who’s severely disabled
    • Are caring for a child
    • Care for at least one child and your partner qualifies for Universal Credit
    • Are giving birth in 11 weeks or less
    • Had a child in the last 15 weeks
    • Don’t have your parents’ support, for example. because you’re estranged and you’re not under care
  • Live in the UK
  • Have less than £16,000 saved up

What do you get if you qualify for Universal Credit?

Universal Credit consists of two parts:

  • A standard allowance
  • Add-ons or elements

Universal Credit standard allowance

The Universal Credit standard allowance depends on your age and whether you live with a partner:

AGE STANDARD ALLOWANCE
Single and under 25 £251.77 a month
Single and over 25 £317.82 a month
Couple and both under 25 £395.20 a month
Couple and one of you is over 25 £498.89

Universal Credit add-ons

Depending on your circumstances, you can also get extra money alongside the standard allowance. The add-ons are:

  • Help with your housing costs
  • Help with the cost of raising your children:
  • Up to £231.67 a month per child (you can get up to £277.08 a month for your first child if they were born before 6 April 2017)
  • Up to £126.11 a month if your child’s disabled (or up to £383.86 if your child’s severely disabled)
  • Childcare costs up to £646.35 for one child and £1,108.04 for 2 or more children
  • Up to £328.32 a month if you have limited ability to work
  • Up to £156.45 a month if you care for someone who’s severely disabled for at least 35 hours a week
  • Other financial support

Working allowance and benefit caps

As with child tax credits, your benefits go down for every £1 you earn over a certain threshold. The reduction is 63p for every £1 over the threshold — 22p more than the Child Tax Credit system.

The income threshold, called the working allowance, is also lower under Universal Credit. Under the Child Tax Credit system, the 41p per £1 earned reduction kicks in if you start earning more than £16,105. Under Universal Credit, the 61p per £1 reduction kicks in at:

  • £0 if you’re fit for work and don’t have children. This means you start getting 63p less for every £1 you earn as soon as you start work, no matter how much you earn
  • £198 a week if your Universal Credit includes Housing Benefit
  • £409 a week if you have children or have limited ability to work

There’s also a benefit cap — a limit to how much you can get. This is:

  • £257.69 a week if you’re a single adult (£296.35 a week if you live in London)
  • £384.62 a week if you’re a single parent and your children live with you (£442.31 a week if you live in London)
  • £384.62 a week if you’re a couple (£442.31 a week if you live in London)

How do you claim Universal Credit?

You can claim Universal Credit only by filling in an online application. If you get help from someone, you’ll still need to log on to the government website and fill in the online form. Your claim won’t start until you do this.

You’ll also need these documents:

  • Proof of ID, such as a passport or driving licence
  • Bank details
  • An email address
  • Your National Insurance number
  • Information about your income, savings and housing arrangements
  • If you want help with childcare costs, details of how much you pay

Like Child Tax Credit, it can take up to five weeks for your claim to get processed. So, if you qualify, you should complete your application as soon as possible.

In summary

If you’re struggling to keep up with the costs of raising children, Child Tax Credit can be a lifeline. Unfortunately, its replacement — Universal Credit — has stricter requirements, lower income thresholds, a benefit cap and a longer application process.

Despite widespread criticism, the government is still rolling out Universal Credit. So, if you qualify, it’s a good idea to get your documentation together as soon as possible and get the ball rolling.

Need help? You can call the universal credit helpline free of charge on 0800 328 5644.

Andre Spiteri

André Spiteri is an expert fintech copywriter with a passion for making personal finance simple and accessible to everyone. Formerly a financial lawyer, he now helps fintech businesses establish their authority online and make more sales through the power of words. Head over to MaverickWords.com to learn more.

MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.

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