Changes to Tax Credits and Tax-Free Childcare: What you need to know

5 min Read Published: 05 Oct 2021

Changes to tax credits and tax-free childcare: What HMRC needs to knowThe eligibility criteria for Working Tax Credits and Tax-Free Childcare is set to change on 25 November 2021 as the UK government starts to disband its pandemic support schemes. In this article, we list the changes to both benefits and some alternatives for those no longer eligible.

What are the changes to Working Tax Credit?

During the Covid-19 pandemic, those receiving Working Tax Credit (WTC) did not have to inform HMRC about any temporary changes to their working hours, such as if their working hours had reduced or they had been put on furlough by their employer. In acknowledgement of the uncertainty many people faced in regard to their jobs, HMRC treated these individuals as if they were working their normal, contracted hours.

However, this is due to change on 25 November 2021, when anyone receiving WTC must inform HMRC if their working hours have not returned to those recorded in their original claim. Those affected will have until 25 December 2021 to update HMRC on any permanent changes to their circumstances. Failing to do so may result in having to return any overpayments and/or pay a £300 penalty for providing HMRC with false information.

Those whose working hours have returned to normal by 25 November 2021 do not need to inform HMRC.

What are the changes to Tax-Free Childcare?

Before the pandemic, the Tax-Free Childcare (TFC) scheme was available for those earning an average of £142 per week, enabling eligible individuals to claim up to £2,000 each year per child to help cover childcare costs. The threshold was relaxed during the COVID-19 pandemic so that those whose income slipped below £142 per week - such as due to being furloughed or having their working hours reduced - could still claim the benefit.

Recipients of TFC must reconfirm their eligibility every 3 months, but the government is reinstating the original income threshold on 25 November 2021, meaning that those seeking to renew their benefit must be able to prove that they are earning at least £142 per week in order to be eligible. Those who cannot do so may still be eligible if their partner is earning above the threshold, or could be entitled to contribution-based Employment and Support Allowance.

In addition, parents or guardians whose income has fallen below £142 per week may still be able to claim back some of their childcare costs through Universal Credit (although this too is returning to pre-pandemic levels).

What other financial support can you get?

As the changes to WTC and TFC approach, some may find that they are no longer eligible, but are still in need of financial support. The following benefits may be helpful for eligible individuals:

Universal Credit

Universal Credit could pay up to £509.91 per month for couples in which at least one person is aged over 25. This could provide a lifeline for families whose income has been severely and permanently affected by the pandemic.

Council Tax Reduction

Those struggling to pay their Council Tax could be eligible for a Council Tax Reduction - which could cut their bill by up to 100% - if they are on low income or receiving certain benefits. This is open to those in their own home, renting, employed or unemployed.

Support for Mortgage Interest

Support for Mortgage Interest can help homeowners struggling to pay their mortgage by giving them a government loan towards interest payments, which is repaid once the property is sold. There is, however, strict eligibility criteria for this benefit.

Benefit calculator

Working out which benefits you are eligible for can be confusing and time-consuming. Head over to our article “Find out what benefits you are entitled to if any – in 6 mins” for a quick and easy solution.