Tax credits are payments from the UK government designed to help working families, low-income individuals, and people with children manage their living costs. If you live in the UK and earn a modest income, you may be eligible for tax credits that can make a real difference to your monthly budget.
This guide explains what tax credits are, who can claim them, how they work, and what changes you should be aware of in 2025.
Table of Contents
What Are Tax Credits?
Tax credits are government benefits that reduce the amount of tax you pay or provide financial support if your income is below a certain level. They are managed by HM Revenue and Customs (HMRC).
There are two main types of tax credits in the UK:
- Working Tax Credit – for people who work but earn a low income
- Child Tax Credit – for people responsible for children
Although Universal Credit has replaced most new tax credit claims, some people still receive tax credits if they have not yet moved to Universal Credit.
Who Can Get Tax Credits?
You may be eligible for tax credits if you live in the UK and meet certain conditions.
Working Tax Credit may apply if you:
- Work a certain number of hours per week
- Earn below a specific income threshold
- Are over 25, or over 16 with a disability or responsibility for a child
Child Tax Credit may apply if you:
- Have at least one child living with you
- Are responsible for their care and expenses
- Meet the income requirements set by HMRC
Example – A single parent in London earning £20,000 a year with one child could qualify for Child Tax Credit depending on their situation and expenses.
Learn how to do self assessment
How Tax Credits Work in the UK?
Tax credits are paid directly into your bank account, usually every four weeks. The amount you receive depends on your income, household situation, and number of children.
If your circumstances change – for example, if you get a new job, move in with a partner, or your income increases – you must tell HMRC immediately. Failing to report changes can result in overpayment, and you may have to pay the money back later.
Difference Between Tax Credits and Universal Credit
Universal Credit now combines several benefits into one monthly payment. Many people who used to claim tax credits have already been moved to Universal Credit.
| Feature | Tax Credits | Universal Credit |
|---|---|---|
| Type of Payment | Separate payments for work and child support | One combined payment |
| Administration | HMRC | Department for Work and Pensions (DWP) |
| Frequency | Every four weeks | Monthly |
| Who Can Apply | Existing claimants only | New applicants |
If you are still receiving tax credits, HMRC will contact you when it is time to move to Universal Credit. You cannot claim both at the same time.
Learn how to calculate your Corporation Taxes
How to Apply for Tax Credits
Most new applications for tax credits are closed, but if you already receive them, you can still renew or update your claim.
To apply or renew, you can:
- Log into your HMRC online account
- Check if you are eligible based on income and work hours
- Submit the required details about your income and family
- Keep proof of all your documents and changes throughout the year
Renewal forms are usually sent between April and July, and you must respond by the deadline stated by HMRC to continue receiving payments.
How Much You Can Receive?
The amount you receive depends on your household income, work hours, and family size. Below is an example of how tax credits might vary in 2025.
| Situation | Possible Annual Amount (2025) |
|---|---|
| Single person working 30 hours weekly | Up to £2,300 |
| Couple with one child | Up to £5,500 |
| Family with two children | Up to £7,000 |
| Disabled worker | Up to £3,800 |
These figures are only examples and can change based on your specific income and personal details.
Reporting Changes in Circumstances
Keeping HMRC informed is essential to avoid issues. You should update your tax credit claim if:
- Your income changes
- You move house
- Your work hours increase or decrease
- Your relationship status changes
- Your childcare costs change
Quickly reporting these changes helps prevent overpayment and ensures your benefits stay accurate.
Learn how to fill Form P11d
Why Tax Credits Still Matter?
Even as Universal Credit replaces older systems, tax credits remain an important source of support for many families in the UK. They help balance the rising cost of living and provide a safety net for people on lower incomes.
Understanding your eligibility and keeping your information updated ensures you receive the right amount. For many, tax credits are a vital step toward financial stability.
Common Mistakes to Avoid
Many claimants lose money or face repayment demands because of small errors. Common mistakes include:
- Forgetting to renew claims on time
- Not informing HMRC of income changes
- Providing incorrect childcare information
- Ignoring overpayment notices
To stay safe, always keep records, check HMRC letters, and use online calculator before submitting updates.
Final Thoughts
Tax credits remain a key form of support for many working families in the UK. They help ease the pressure of daily living costs and reward people who work while earning less.
If you are unsure about your eligibility or need help with your renewal, you can speak to a tax adviser or contact HMRC directly. Staying informed ensures you never miss out on the help you deserve.
If you are not sure whether you still qualify for tax credits or need help transitioning to Universal Credit, reach out to a professional tax adviser for personal guidance.
FAQs
Can I still apply for tax credits in 2025?
Most new applications are closed. You may need to apply for Universal Credit instead unless you are already receiving tax credits.
Can I receive both Working Tax Credit and Child Tax Credit?
Yes, you can get both if you qualify for each based on your income and family situation.
Do tax credits count as taxable income?
No, tax credits are not taxable. They are separate from your salary and do not increase your income tax.
How can I check my tax credit payments?
You can log into your HMRC online account to view your payments and report changes.
What happens if I move to Universal Credit?
Your tax credit claim will end, and all your benefits will be paid as one combined monthly Universal Credit payment.
Can I appeal if my tax credit is reduced?
Yes, you can ask HMRC to review their decision by providing additional evidence or clarification.
