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Change of circumstance

As well as renewing your tax credit award annually you may also need to tell HM Revenue & Customs about changes during the year.

This page explains how changes of circumstance affect the amount of tax credit you get.

There are three kinds of changes that affect your tax credit entitlement:

a) changes that must be reported to HM Revenue and Customs as soon as possible;
b) other changes of circumstances;
c) changes in your income.

Changes that must be reported

It is essential that you tell HM Revenue and Customs as soon as possible about the changes below - if you do not tell them within one month you might have to pay a fine.

  • You claim tax credits as a single person and then marry or start to live with someone as if you were married.
  • You claim tax credits as a couple but then stop living together.
  • You are receiving the childcare element of Working Tax Credit and your average weekly childcare costs go down by more than £10 a week, or fall to zero, for at least four weeks in a row (see information on childcare costs).
  • You go abroad for more than 8 weeks (12 weeks if you go abroad due to illness or bereavement).
  • You stop working at least 16 hours a week.
  • Your working hours drop from 30 hours a week or more to below 30 hours.
  • You stop being responsible for a child or qualifying young person, for example they stop living with you.
  • A young person in your family stops being eligible to be included in your tax credits claim. For example they leave full time non-advanced education or start claiming Employment and Support Allowance in their own right.
  • A dependant child dies.
  • For Child Tax Credit only, you lose the right to reside in the UK.

Where a tax credit claim has been made by a couple who were not together in the previous tax year, the household income will be the sum of the income of each adult in that tax year.

Other changes

Other changes don’t have to be reported until the end of the year. However it could be in your interests to report some changes sooner. There is a one month backdating rule that means you may lose money if you delay telling HMRC about a change that could increase your award.

Starting to get Disability Living Allowance (DLA) for the first time or getting an increase in DLA

There are some exceptions to the one month limit on backdating. If your child is awarded DLA or has an existing award increased to the high rate for personal care, this may lead to extra tax credits. So long as you notify the Tax Credits office within one month of getting the DLA decision, any extra payments should be backdated in line with the DLA award. You should take similar steps if you or your partner have health problems and get DLA or Personal Independence Payment in your own right.

Changes in income

Tax credits awards are usually based on previous year’s income. However if your current year income falls by more than £2,500 your award is instead based on your income in the current tax year, plus £2,500. You can report an estimate of your lower income straight-away, which may lead to an increase in your tax credit payments. Alternatively you can wait until HMRC carry out their end of year review, in which case you will receive any arrears owed as a lump sum.

If your annual income rises by more than £2,500 then your award is based on current year's income minus £2,500. In the same way as with a reduction in income, you can either ask for the award to be reassessed during the year or wait for the end of year reconciliation by HM Revenue and Customs. However if you wait until the end of the tax year you may have an overpayment which is likely to be recovered.

In effect the system sets and pays you a provisional tax credit during the year and then the amount they should have paid you and the amount you were actually paid are reconciled at the end of the year.

Ultimately, if you wish to avoid overpayments and underpayments of tax credits, it is in your interest to report significant changes in circumstances or income as they happen.

If you are already subject to an adjustment from previous years more information is available on tax credit overpayments. You can get more information on how changes in income affect tax credits by going to how tax credits work.