Income Tax and coronavirus (COVID-19) support scheme: working households receiving tax credits
Published 3 March 2021
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Who is likely to be affected
Recipients of Tax Credits who receive payments from Covid-19 support scheme: working households receiving tax credits.
General description of the measure
This measure introduces an Income Tax exemption for payments from Covid-19 support scheme: working households receiving tax credits.
Policy objective
These changes give certainty to Tax Credits claimants, that payments made under Covid-19 support scheme: working households receiving tax credits will not give rise to charges to Income Tax.
Background to the measure
In March 2020, the Chancellor announced a temporary uplift of £20 per week to the Universal Credit (UC) standard allowance and Working Tax Credits basic element for the 2020 to 2021 financial year. These payments provided extra support to low-income workers during the coronavirus pandemic, where they may have had unexpected falls in incomes.
A one-off payment - Covid-19 support scheme: working households receiving tax credits of £500 is being made to Tax Credits recipients to cover a six-month period from April to September 2021 to continue this government support.
Detailed proposal
Operative date
The measure will have effect from 6 April 2021.
Current law
Payments from the Covid-19 support scheme: working households receiving tax credits are being introduced under section 76 of the Coronavirus Act 2020, HMRC functions. Payments made under Section 76 of the Coronavirus Act 2020 are subject to Income Tax as coronavirus support payments under Section 106(2)(c) of Finance Act 2020.
Proposed revisions
Legislation will be introduced in Finance Bill 2021 to exempt from Income Tax Covid-19 support scheme: working households receiving tax credits payments made to tax credit recipients.
Summary of impacts
Exchequer impact (£m)
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
|---|---|---|---|---|---|
| - | -765 | -20 | NIL | NIL | NIL |
These figures are set out in Table 2.1 of Budget 2021 as a package of measures called ‘£500 payment to eligible Working Tax Credit recipients’, and have been certified by the Office for Budget Responsibility.
They represent the combined Exchequer impact of Exemption from Income Tax of WTC coronavirus support payments and DEL cost of the WTC one-off payment.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure will affect approximately 780,000 individuals, of whom a quarter are expected to be self-assessment taxpayers. This measure will ensure they do not pay tax on Covid-19 support scheme: working households receiving tax credits payments. Customer experience is expected to remain broadly the same as this measure does not alter how individuals interact with HMRC. This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
Of the individuals affected, approximately two-thirds are women and one-third are men.
Impact on business including civil society organisations
This measure is expected to have no impact on businesses or civil society organisations as it only affects Tax Credits recipients of Covid-19 support scheme: working households receiving tax credits payments.
Operational impact (£million) (HMRC or other)
There are no operational impacts to HMRC of implementing this change.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through communications with affected taxpayer groups.
Further advice
If you have any questions about this change, email: incometax.structure@hmrc.gov.uk.