What are child tax credits, who can qualify and how much does it pay?

You might have heard of the term, but what are child tax credits and how do they work? This article explains everything you need to know.

It can cost over £160,000 to raise a child to age 18 according to the Child Poverty Action Group, and if you’re on a low income, you’ll know that every penny counts. But did you know that you may qualify for extra help in the form of child tax credits? 

Alice Haine, personal finance analyst at Bestinvest, the DIY investment platform and coaching service, says: “Child tax credit is a means tested benefit, made up of different payments referred to by the government as ‘elements’ with how much you receive dependent on your personal circumstances such as how much you earn, the number of children you have and whether any of your children have any disabilities”. 

If you're looking for more help with the cost of raising children, it can also be helpful to know how to claim 30 hours free childcare, whether you can claim child benefit and the average cost of childcare in the UK, so you can effectively budget.  

What are child tax credits? 

Child tax credits are a government benefit targeted at low income households with children to help boost their standard of living. You can claim child tax credit regardless of whether you’re working or not, and whether you’re in a couple or single.

There’s no fixed rate for child tax credit. The amount you get is based on your own personal circumstances  – which includes your household income along with the number of children you’re responsible for.  

Providing you’re eligible, you can receive child tax credit payments until 31 August after your child turns 16 -  although you can claim beyond this date and until a child is 20, providing they’re in full time education.

However, the big thing to be aware of is that the tax credits system is changing, and you can now only make a new claim for child tax credit if you already get working tax credit.

If you don’t get working tax credit, then you can no longer make a new claim  for child tax credit and will instead need to apply for universal credit.   This is a monthly payment that replaces six means-tested benefits and tax credits. The Department for Work and Pensions, (DWP), is planning to move anyone claiming tax credits on to universal credit by the end of 2024. 

Is everyone eligible for child tax credits? 

Not everyone is eligible to claim tax credits, as payments are in place to help households who are bringing up children on a lower income. But you can only claim child tax credits if you already receive working tax credit. If you don’t get working tax credit, then you need to apply for universal credit instead (provided you meet the eligibility criteria). 

If you are eligible to claim child tax credit, and your annual household income comes to £17,005 or less, you may be due the maximum amount of child tax credit. If you have one child, this could be worth up to £3,480 a year or up to £6,415 with two children.

Once your income exceeds £17,005, while you may still qualify for child tax credit, payments are reduced by 41p for every £1 earned over this limit.

You will need to renew your child tax credit claim every year as payments won’t automatically be ongoing. You will usually get a renewal pack in the post between May and June and should return your completed claim form by the end of July.

How are child tax credits paid? 

You can choose to have child tax credits paid on a weekly basis or every four weeks when you first apply and in both cases, payments are usually made straight to your bank account.

If you are separated or divorced, in most cases, it’s usually the person who the children live with for most of the time who would claim.  However parents are able to decide this between themselves, providing they let HMRC know and obviously don’t both make a claim.

On top of any child tax credit payments you may be due - you will also qualify for an extra one-off, tax-free payment of £650 as part of the government’s cost of living package that was announced by Chancellor Rishi Sunak in May. This is paid to those claiming one of several means-tested benefits or tax credits and will be paid in two instalments. The first – a sum of £326  – will be paid from 14 July with a second payment in the autumn.

How much child tax credit can I get? 

When it comes to how much child tax credit you can get, there’s no single fixed amount as payments are made up from different ‘elements’. How much you get depends on your income, the number of children you’re responsible for, along with whether any of your children have a disability. 

Child tax credit rates for the 2022-23 tax year

Source: https://www.gov.uk/child-tax-credit/new-claim 

Personal finance analyst Alice Haine says, “The amount you receive depends on when your children were born and when you start to claim the benefit.  As an example, if you started the claim before April 6, 2017, you would receive the basic amount of up to £545 known as the ‘family element’, in addition to the ‘child element’ of up to £2,935 per child.

“However, if your claim started on or after April 6, 2017, then you can apply for child tax credit for up to two children, though exceptions for more children can apply, but you will only get the family element if at least one of your offspring was born before that date”.

You may also be due extra payments if you have a child with a disability – which can be up to £3,545 in addition to the ‘child’ element, and a further additional £1,430 for a severely disabled child.

Will I be better off switching to universal credit from child tax credits? 

Weighing up whether you will be better off switching to universal credit earlier than you need to can be a complex decision as there’s no one-size-fits-all approach. 

Anyone who currently claims tax credits will eventually be moved across to the universal credit system by the end of 2024. However you can choose to switch earlier if you think you could be better off this way. 

There’s an overview table on MoneySavingExpert as a guide to those who might be better off switching to universal credit, compared with those who might be worse off.  If after looking at this, you think you may be better off switching to universal credit, there are several online benefits calculators you can use for further checks.

If you decide to move from claiming child tax credit to universal credit, you can’t switch back, so it’s also worth speaking to Citizens Advice for more help. 

What should I do if my circumstances change? 

Any change in your family or work circumstances, like moving in with a new partner, getting divorced, having another child, or a change in childcare costs – can all affect your entitlement to child tax credits so you should always report any changes to HM Revenue & Customs.

With some household changes  – say you split up with your partner – it means any existing tax credits claim would end. This would normally mean you need to make a new claim. However, as tax credits are being replaced by universal credit, HMRC says in this instance you would no longer be able to make a new claim for child tax credit, but would instead have to claim universal credit.   

With other changes in circumstances, like having a second child, if you already claim child tax credit, ongoing payments can be updated. 

If you are overpaid, as a result of not telling HMRC about any changes in your circumstances, you’ll need to repay the money. You can face a £300 fine if you fail to tell HMRC of any change within a month. If it can be shown you’ve misled HMRC, you may be liable for a £3,000 fine. 

What’s the difference between child benefit and child tax credit? 

Child benefit and child tax Credit are two different payments - both are available for those with children and you can claim the two of them at the same time.

Child benefit is not means tested - and is paid to those responsible for children,  with a weekly payment to cover each and every child in your household.  

You get £21.80 per week for your first child and £14.45 for each and every one of your other children.  Payment is made every four weeks – usually directly to your bank account.  

While you can claim child benefit for each and every child you have – with child tax credit there is a two child limit for children born after 6 April 2017, which means you can’t claim the ‘child’ element of child tax credit for subsequent children if you have a larger family.   

However if your children, or children you are responsible for, were born before 6 April 2017, you can claim the ‘child’ element of child tax credit for each and every child.