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Child and Working Tax Credits Finalised Annual Awards 2020 to 2021 Main Commentary

Updated 22 November 2022

What are tax credits?

Tax credits are a flexible system of financial support designed to deliver support as and when a family needs it, tailored to their specific circumstances.

The system, introduced in 2003, forms part of wider government policy to provide support to parents returning to work, reduce child poverty and increase financial support for families. The flexibility of the design of the system means that as families’ circumstances change, (daily) entitlement to tax credits changes. This means tax credits can respond quickly to families’ changing circumstances providing support to those that need it most.

Tax credits are based on household circumstances and can be claimed jointly by members of a couple, or by single adults. Entitlement is based on the following factors:

• age
• income
• hours worked
• number and age of children
• childcare costs
• disabilities

For further information about who can claim please refer to the benefits page on GOV.UK.

These statistics focus on the number of families benefiting from tax credits in England, Scotland, Wales, and Northern Ireland in the 2020 to 2021 tax year.

It also presents a breakdown of families by their profile position, age and gender, type of family and family size, including the families benefitting from different elements of tax credits. It also covers the number of children in benefitting families broken down by their age.

Main headlines

In 2020 to 2021, there were approximately:

• 2 million families claiming Child Tax Credit (CTC) and/or Working Tax Credit (WTC) - this is a fall of 517,000 when compared to last year

• 3.7 million children in tax credit claiming families - this is a fall of 1.1 million when compared to a year earlier

Figure 1: Timeseries of the number of families claiming tax credits since April 2007

Figure 1 shows the number of families claiming tax credits between April 2007 to April 2021. After peaking in April 2011, the number of claimants has fallen every year and in 2020 to 2021 the number of people claiming stood at 2 million.

Figure 2: Breakdown of tax credits population

Figure 2 shows a breakdown of tax credits population. 27% are out-of-work claiming CTC only, 11% are in-work claiming WTC only, 19% are in-work claiming CTC only and 43% are claiming both.

Figure 3: Families and children in each country or English region

Figure 3 shows the number of families and children in each country or English region claiming tax credits. London had the most amount of families and children claiming tax credits in 2020 to 2021 whilst the North East had the least. A full breakdown can be found in the Geographical Data Tables.

HMRC Consultation on Official Statistics

HMRC launched a wide-ranging consultation on a range of statistics on 8 February 2021: Consultation on reduction and consolidation of HMRC statistics publications. This includes changes to a number of tax credits statistics releases and more details are given in the consultation.

Changes since previous publication

Impacts of the Covid-19 pandemic

During 2020, the Covid-19 pandemic led to some changes in the tax credit system which may have had an impact on these statistics.

As part of a number of measures to support the country, the basic element of WTC was increased by £1,045 to £3,040 from 6 April 2020 until 5 April 2021. The amount a claimant or household has benefited depends on their circumstances, including their level of household income, how many children they are responsible for and if they are disabled.

However, claimants will have received an increase of up to £20 each week. The temporary increase moved many claimants from nil to positive awards at the start of April 2020.

At the start of the pandemic, there was also a higher than usual move to Universal Credit due to unemployment impacts and a reduction in working hours. These impacts have largely offset one another. Policies were also introduced relaxing the rules on the number of hours claimants need to work to be eligible for WTC.

Section 1: Time Series

Section 1 provides statistics on the history of the tax credits system, from 2012 to 2013 and 2020 to 2021. This enables comparison across time, across different tax credits populations and describes how various parts of the system have changed over time.

Figure 4: Number of families receiving different amounts of tax credits

Figure 4 shows that since 2012 to 2013, the number of families receiving tax credits has fallen in every year. The total number of families claiming tax credits in these years decreased as a result of policy changes announced in 2010 and the introduction of Universal Credit in 2013. The rollout of Universal Credit across the UK was completed on 12 December 2018 for new claims and for people having to make a new claim due to a change of circumstance. In 2020 to 2021, the total number of families claiming tax credits stood at 2 million families.

In 2020 to 2021, the number of families receiving tax credits continued to decline at a similar rate to the previous year, largely due to the roll out of Universal Credit.

From 1 January 2019, new claims for tax credits were closed except for a small number of cases.

The number of in-work families claiming both Working Tax Credit (WTC) and Child Tax Credit (CTC), which are awards with a higher average entitlement, was relatively stable between 2012 to 2013 and 2015 to 2016. Subsequent years show a fall in the number of families claiming WTC and CTC and in 2020 to 2021, it stood at 868,000.

Ahead of April 2012, the family element of CTC, (£545), was protected until household income reached the second income threshold. After April 2012, the removal of the second income threshold meant families previously claiming the family element of CTC were tapered at a rate of 41% for every £1 of income over the first threshold immediately after all other credits had been withdrawn. The previous categories of the CTC family element were removed and replaced by a single ‘CTC only’ category. In 2020 to 2021, this stood at 390,000 families.

The trend in the numbers of in-work families without children, those claiming WTC only, has gradually fallen since 2013 to 2014. In 2020 to 2021, in-work families claiming WTC only stands at 217,000, a similar level to 2019 to 2020.

The numbers of out-of-work families claiming CTC only has shown a slow but steady decrease since 2012 to 2013, from 1.48 million to 543,000 in 2020 to 2021, having remained relatively steady before that.

Figure 5: Annual entitlement by type of tax credits received

Figure 5 shows that between 2012 to 2013 and 2015 to 2016, annual entitlement to tax credits remained fairly stable. In 2015 to 2016, annual entitlement stood at £28.37 billion, and has now fallen to just over £15 billion in 2020 to 2021.

Out-of-work families claiming the full amount of CTC and in-work families claiming both WTC and CTC, make up the largest proportion of total entitlement. From 2008 to 2009 and 2020 to 2021, families claiming both WTC and CTC accounted for between 55% and 58% of the total entitlement, while the entitlement of out-of-work families fluctuated between 26% to 31% and stood at 26% in 2020 to 2021.

Section 2: Summary

Section 2 summarises the main characteristics of tax credits population in 2020 to 2021, while Section 3 gives a more detailed breakdown.

Figure 6: Composition of families receiving different types of tax credits

Figure 6 shows that the majority of single people with children receive either the full award of CTC (when out-of-work) or WTC and CTC (when in-work). In 2020 to 2021, there were 89,000 in-work single parent families claiming CTC only. The pattern for couples is less clear with the largest groups being in-work receiving WTC & CTC and those in-work receiving CTC only. A majority (64%) of families with no children (claiming WTC only) are single recipients.

Figure 7: Recipient families: proportion of families receiving each type of award

Figure 7 shows that 27% of families claiming tax credits are out-of-work and claiming CTC only. 43% of families are in-work and claim both WTC and CTC. 19% are in-work and claim CTC only while 11% of families are in-work and claim WTC only.

Figure 8: Number of children in families receiving tax credits

Figure 8 shows that the majority of families with children receiving tax credits, are made up of either one or two children, with single parent families more likely to have one child than couples do. Couples are more likely to have larger family sizes. Out of approximately 122,000 families with four or more children, 69% are couples.

Figure 9: Average annual entitlement, by entitlement band

Figure 9 shows families’ annual entitlement, with the largest proportion of families, 22%, receiving an annual award between £7,000 to £9,999.

Section 3: Detailed figures

Section 3 focuses on detailed breakdowns of the tax credits population. It reports the numbers of families entitled to specific elements within tax credits and gives more detailed information on levels of income.

Figure 10: Eligible childcare costs allowed (per week)

Figure 10 shows the average weekly support with childcare costs for single parent families and couples. The costs are broadly split across the cost bands for each of the categories, reflecting the range of hours of childcare claimed. The largest category for lone parents is £20 to £39.99, and £180 and over for couples.

Figure 11: Average number of in-work benefitting families in each band of income

Figure 11 shows the average number of families benefitting from tax credits in each band of income up to £50,000. Broadly speaking, the higher the income used to taper the award, the fewer the numbers of families in receipt. This reflects the targeted approach to financial support, that is inbuilt into the tax credits system.

A National Statistics publication

National Statistics are produced to high professional standards as set out in the Code of Practice for Official Statistics. They undergo regular quality assurance reviews to ensure that they meet customer needs. They are produced free from any political interference.

The United Kingdom Statistics Authority has designated these statistics as National Statistics, in accordance with the Statistics and Registration Service Act 2007 and signifying compliance with the Code of Practice for Official Statistics.

Designation can be broadly interpreted to mean that the statistics:

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• are well explained and readily accessible

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Appendix A: Technical Note

Using finalised awards data

The figures for 2020 to 2021 in the tables are mostly derived from a scan of the tax credits computer system taken in early April 2021. For each award, the scan contained a record for each sub-period of the year for which the family’s circumstances (adult partners, hours worked, number of children, childcare costs, disabilities) remained unchanged. For each such sub-period, the scan revealed the various elements for which the family qualified for the period, and the daily monetary value of the childcare element. It also revealed the values of the 2019 to 2020 and 2020 to 2021 incomes for each award.

For each award, and for each sub-period, the daily rate of entitlement was then modelled by summing the various element values to which the family was entitled and tapering the total away using the income data. In accordance with the tax credits system, the income used to taper the award was the 2020 to 2021 income. If that was lower than £2,500 above the 2019 to 2020 income, then 2019 to 2020 income will be lowered by £2,500. If the 2020 to 2021 income was less than the 2019 to 2020 income by more than £2,500, then the 2019 to 2020 will be enhanced by £2,500.

The modelled daily entitlement was then used to establish where on the plateau - taper profile the family fell for that period. A small number (under 1 per cent) of tax credits awards were not included in the scan.

For each case covered by the scan, and for each sub-period, it was possible to compare the modelled entitlement with that held on the computer system. For all but about 0.1 per cent of cases the discrepancy was at most 2p per day.

Interpreting annual entitlement

The calculation of the annual entitlement for an award also yields a value of the entitlement for each day of the year. This can vary within the year as the family’s circumstances vary. In addition, awards can end during the year (for example, as couples separate, or as families cease to satisfy the qualifying conditions listed above), and other awards start during the year. The tables show annual average numbers of benefiting families with particular characteristics that is, the average taken over all days in the year.

Their aggregate annual entitlement (in £ million) is the sum, taken over all days in the year, of the daily entitlements of families with these characteristics on the day. Their average annualised entitlement (in £) is 365 times the average, taken over all days in the year, of the aggregate daily entitlement of these families.

Current entitlement

There is a single claim form covering both Child and Working Tax Credits, and entitlement is calculated jointly. Awards run to the end of the tax year, and are based on the element values and thresholds which can be found here: Child and Working Tax Credits Finalised Annual Awards 2020 to 2021 Appendices.

An annual award is calculated by summing the various elements to which the family is entitled. Unless the family is receiving Income Support, income-based Jobseeker’s Allowance or Pension Credit, this sum is reduced if the family’s annual income exceeds the relevant first income threshold. The reduction is 41 per cent of the excess over the threshold.