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UK Government Tax Incentives for Families

31 March 2023

If you find the cost of living increasingly challenging, it might be worth learning more about how the government can help to ease your situation. With the recent astronomical price hikes, there is no better time to learn more about UK government tax incentives for families, whether you are eligible, and whether they would work to ease your situation.

Unfortunately, working out what you can apply for and which incentives counteract others can be a little confusing. This article will help to break down each one to help you discover if you can apply. The system is also in a changeover period, with some incentives coming to an end and amalgamating into Universal Credit, so it’s worth checking the up-to-date information should you wish to apply.

What is a tax incentive?

Tax incentives are a form of support provided by the government. It is primarily for individuals and families who work but are on a low income. It’ll help you make ends meet and make the money you earn go a little further.

Working Tax Credit

The working tax credit may be available if you’re working, but your income is low, and you need extra support to make ends meet. To qualify, you must work full-time hours, either employed or self-employed, although this does differ depending on your age. How much you receive is calculated on specific criteria, such as your relationship status, whether you have children, and whether you have a disability. It is based entirely on your situation at the time, and if anything changes, you must notify HMRC.

Child Tax Credit

Child tax credits help families with low incomes to bring up their children and can be used to help with childcare costs. You can receive child tax credits if you already receive working tax credits, but any new applications may receive Universal Credits instead. If HMRC confirmed your application after April 2017, you would only receive help for two children unless, under exceptional circumstances, you take on responsibility for another child. As with the working tax credit, if your situation changes, such as splitting for your partner, you’ll need to close your account and reapply.

How much you receive depends on your situation, when you applied, whether you have one or two children and if they have a disability. Child tax credit will not reduce the amount you receive for income support, job-seekers allowance, or a pensions grant.

Tax-free childcare

Tax-free childcare is explicitly designed to help families with the cost of childcare; reducing your bill by 20%. The eligibility is slightly different from the tax credit system, and you and your partner must work at least 16 hours or earn above £120 a week but no more than £100,000 a year. Tax-free childcare is a separate entity, and you cannot use it in conjunction with any other tax incentive schemes, so if you decide to use tax-free childcare, your child tax credits will stop.

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