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Background and Definitions - Child and Working Tax Credits statistics: Provisional awards - December 2022

Published 2 February 2023

What are tax credits?

Tax credits are a system of financial support for families based on 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 design of the system means that as families’ circumstances change, so does (daily) entitlement to tax credits.

Tax credits are based on household circumstances and can be claimed jointly by couples 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.

Tax credits are made up of Child Tax Credit (CTC) and Working Tax Credit (WTC) , explained below.

Child Tax Credit (CTC)

Provides income-related support for children and qualifying young people aged 16-19 who are in full time, non-advanced education or approved training into a single tax credit, payable to the main carer. Families can claim CTC whether or not the adults are in work.

CTC is made up of the following elements:

• family element: which is the basic element for families responsible for one or more children or qualifying young people. From 6 April 2017, this element is only payable to families with at least one child born before this date.
• child element: which is paid for each child or qualifying young person the claimant is responsible for. From 6 April 2017, this element is no longer payable in respect of third or subsequent children who were born after this date. Certain exceptions to this rule apply and are set out at GOV.UK.
• disability element: for each child or qualifying young person the claimant is responsible for if Disability Living Allowance (DLA) or Personal Independence Payment (PIP) is payable for the child, or if the child is certified as blind or severely sight impaired.
• severe disability element: for each child or qualifying young person the claimant is responsible for if DLA (Highest Rate Care Component) or PIP (Enhanced Daily Living Component) is payable for the child.

Working Tax Credit (WTC)

Provides in-work support for people on low incomes, with or without children. It is available for in-work support to people who are aged at least 16 and either:

• are single, work 16 or more hours a week and are responsible for a child or young person
• are in a couple and are responsible for a child or young person where their combined weekly working hours are at least 24, with one claimant working at least 16 hours
• work 16 or more hours a week and are receiving or have recently received a qualifying sickness or disability related benefit and have a disability that puts them at a disadvantage of getting a job
• work 16 or more hours a week and are aged 60 or over

Otherwise, it is available for people who are aged 25 and over who work 30 hours a week or more.

WTC is made up of the following elements:

• basic element: which is paid to any working person who meets the basic eligibility conditions.
• lone parent element: for lone parents
• second adult element: for couples
• 30 hour element: for individuals who work at least 30 hours a week, couples where one person works at least 30 hours a week or couples who have a child and work a total of 30 hours or more a week between them where one of them works at least 16 hours a week.
• disability element: for people who work at least 16 hours a week and who have a disability that puts them at a disadvantage in getting a job and who are receiving or have recently received a qualifying sickness or disability related benefit.
• severe disability element: for people who are in receipt of DLA (Highest Rate Care Component), PIP (Enhanced Daily Living Component) or Attendance Allowance at the highest rate.
• childcare element: for a single parent who works at least 16 hours a week, or couples who either (i) both work at least 16 hours a week or (ii) one of them work at least 16 hours a week but the other is out of work for being in hospital or in prison and who spends money on a registered or approved childcare provider.

The childcare element of WTC can support up to 70% of childcare costs up to certain maximum limits.

Further information on childcare cost support can be found on GOV.UK

Tapering

Tapering is the amount of the award that will be reduced when the household income exceeds a given threshold.

For example, the income threshold for claimants receiving WTC only and for combined WTC and CTC claimants is £6,770. After this threshold, the taper rate will be 41%. Tapering reduces WTC first and then CTC for claimants who receive both. The section below explains how the taper process works in practice.

Child and Working Tax Credit Entitlement

The amount of support an eligible family can receive (known as their entitlement) varies depending on their income and their eligibility for specific tax credit elements.

First, a family’s maximum possible entitlement is worked out by adding up all the different elements of CTC and WTC that they are eligible for (described above).

A household’s actual entitlement is then determined by tapering this maximum amount according to different thresholds.

As demonstrated within the diagram below, families eligible for the WTC receive the full entitlement until their annual household income reaches £6,770, after which the amount of tax credits they receive is reduced by 41 pence for each £1 they earn beyond this threshold.

If a household is eligible for CTC only, they will receive the full entitlement until their annual household income reaches £17,005 (2022 to 2023). After this point, the amount of tax credits they receive is again reduced by 41 pence for each additional £1 of income beyond this threshold (note that this is not shown on the diagram below).

Because of the range of possible eligibilities and interactions between the elements, both the maximum award and the shape of the above award profile will be different for every family with different circumstances.

Tax credits are based on the taxable income of adults within the family. The income used to calculate the award is based on the families’ income from the previous tax year, or on their most recently reported circumstances in-year. Up to £2,500 of any change in annual income between the previous or current year is disregarded in the calculation.

A family’s tax credits award is provisional until finalised at the end of the year, when it is checked against their final income for the year. This publication relates to a snapshot of tax credit support based on provisional incomes and other circumstances as reported at the date when the statistics were extracted.

About this publication

What the publication tells us

The provisional awards are currently published in winter and summer. These statistics are as close to real-time as possible and represent the picture as at the beginning of April and December.

Each release consists of 2 sets of tables: the main tables and the additional geographical tables. The statistics in this release include analysis at the following geographical levels:

• Country and English Region
• Local Authority (LA)
• Westminster Parliamentary Constituency
• Scottish Parliamentary Constituency

The main publication includes a Country and Region summary, with the geographical publication going to a lower level. This series has been produced bi-annually since the introduction of tax credits in April 2003.

Provisional awards vs finalised awards

It is important to recognise that the finalised awards statistics are not a revision of the provisional statistics.

The provisional numbers relate to the caseload position at a snapshot point in time, based on the latest family circumstances HMRC have been informed of by each family prior to that particular time.

The finalised awards relate to the complete retrospective picture for the year, based on a finalised view of family incomes and circumstances. The caseload population will be different between the 2 publications as a result of HMRC knowing the complete finalised picture of the award.

At the start of the year, the tax credit award will be a provisional award reflecting the reported circumstances as at 6 April (the start of the tax year). Over the course of the year, a family’s circumstances may or may not change.

The provisional award is updated each time HMRC are informed of a change in the family’s circumstances and a new provisional award is calculated.

It is only at finalisation (usually four to nine months after the end of the tax year) that the family’s circumstances for the whole year are known and a finalised award can be calculated. As a result, the finalised award statistics are not available until around 12 months after the end of the entitlement year in question.

Given this lag in availability of data, there is some value in looking at a snapshot of families’ circumstances at any given time to give some indication of the level of support one might expect to see subsequently at finalisation.

To illustrate the difference, let us look at a family that has one change of circumstance throughout the year, moving from in-work to out-of-work in January of any one year.

The snapshot data looking at the provisional award in April will model entitlement for the whole year on the basis that the family is in-work for the whole year (since we do not know about the move out-of-work at that time).

It is not until finalisation, and thereby in the finalised award data publication, that the family’s entitlement will be modelled on the basis of 9 months in-work and 3 months out-of-work.

Therefore, the figures for provisional awards are more up to date, but are subject to retrospective change. The sizes of these changes can be seen by comparing the data for selected dates in finalised awards with data published earlier on provisional awards at the same time snapshot dates.

The provisional award data classify families according to the levels of their entitlement at the reference date, modelled from data on their circumstances and their latest annual incomes reported by that date. The actual amount being received at that date can be lower, due to recovery of earlier overpayments.

Which publication should I use?

Generally, if you are interested in the final end of year position, use the finalised awards data publication.

If you are more concerned with getting the latest up-to-date information that may not align exactly with finalised data further down the line, use the provisional awards data.

Using the finalised award data will also mean the figures will align with other published data on tax credits, such as information in HMRC’s Departmental Accounts. The latest finalised award publication can be found on the personal tax credits statistics page of GOV.UK.

What information do the tables contain?

CTC and WTC are claimed by individuals, or jointly by couples, whether or not they have children (described as ‘families’ in this publication). These tables cover families who had claimed, and were eligible for, CTC or WTC at 1 December 2022 (the ‘reference date’) and who were recipients at that date.

From April 2007, the tables exclude families whose modelled entitlements are tapered to zero due to their income levels. These families were originally included because they may retrospectively have positive entitlements at finalisation.

However, this is no longer likely for the majority of such families. Their numbers have been swelled by families whose youngest children have left full time education, who continue to satisfy the qualifying conditions for WTC, but whose incomes are sufficient to taper the WTC entitlements to zero.

Relevant policy changes

In the 2015 Summer Budget, the Government announced that the child element of Child Tax Credit (CTC) would be limited to 2 children for those born on or after 6 April 2017 unless certain exceptions apply. Prior to 6 April 2017, the child element of CTC was paid for each child or qualifying young person that the claimant (or his or her partner) was responsible for.

The change means that any family with 2 or more existing children do not receive any child element for children born on or after that date, subject to exceptions. The child element of CTC continues to be paid for all children born before 6 April 2017.

In addition, any family having their first child born on or after 6 April 2017 do not receive the family element of CTC. The family element was previously paid to all families. From 6 April 2017, it is only paid where the claimant is responsible for at least one child or qualifying young person born before 6 April 2017.

For further information, please visit the CTC exceptions to the 2 child limit page on GOV.UK.

Statistics related to this policy can be found on the Official Statistics page on GOV.UK.

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 temporarily 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, many 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 (UC) due to unemployment impacts and a reduction in working hours. These impacts have largely offset one another. Policies were also introduced relaxing rules on the number of hours claimants need to work to be eligible for WTC.

HMRC’s standard procedure is to automatically renew tax credits claims unless they are claims which HMRC deem to be high risk. If they are high risk, a reply is required from the claimant to renew their tax credit claim. These are known as ‘Reply Required’ (RRQ). In 2020 to 2021, due to pressures of the pandemic, RRQs were paused. This is likely to have resulted in fewer tax credits terminations than there would have been otherwise.

Policy changes during the 2021 to 2022 tax year

On 5 April 2021 the temporary £20 per week uplift referred to in the previous paragraph was removed. As a result, the maximum annual basic element of WTC was decreased from £3,040 to £2,005.

WTC claimants with a current award were instead given a one-off £500 lump sum to mirror for the 6-month extension of the £20 per week uplift that was applied to UC. These one-off payments were paid outside of the tax credit system and are therefore not reflected in the statistics presented in this publication.

The removal of the temporary £20 per week uplift resulted in many claimants moving from a positive award to a nil award from 6 April 2021. This coupled with the continued movement of claimants from tax credits to UC, has resulted in fewer claimants of both WTC and CTC, during the 2021 to 2022 tax year.

In 2021 to 2022, RRQs were resumed. Therefore, as a proportion of total tax credits claimants, fewer tax credit claims would have been automatically renewed which could result in more tax credit terminations in 2021 to 2022.

Universal Credit

UC is a payment to help with living costs for those on a low income or out of work. UC was introduced in April 2013 in certain areas of North West England. Since October 2013, it has progressively been rolled out to other areas.

Claimants receive a single monthly household payment, paid into a bank account in the same way as a monthly salary and support for housing costs, children and childcare costs are integrated into UC.

CTC will be replaced as UC rolls out. Since December 2018 there have been no new tax credit claims (with the exception of a small number of families claiming the family premium).

Further information about UC, including making a claim, is available online on the UC page on GOV.UK.

Statistics related to UC are available online and can be found on the UC statistics page on GOV.UK.

User Engagement

Bespoke analysis of tax credits data is possible although there may be a charge depending on the level of complexity and the resources required to produce.

If you would like to discuss your requirements, to comment on the current publications, or for further information about the tax credits statistics please use the contact information at the end of this publication, or from the Statistics at HMRC page.

We are committed to improving the official statistics we publish. We want to encourage and promote user engagement, so we can improve our statistical outputs.

We would welcome any views you have by email to the below address. We will undertake to review user comments on a quarterly basis and use this information to influence the development of our official statistics. We will summarise and publish user comments at regular intervals.

Contact details

Benefits and credits statistics

Media contact: HMRC Press Office

Statistical contact: J Martin