Guidance

Universal Credit and tax credits

Updated 27 June 2023

1. How tax credits are affected

Tax credits are being replaced by Universal Credit for most people

If you’re already getting tax credits, you do not need to do anything unless your circumstances change or you get a ‘Migration Notice’ letter telling you to claim Universal Credit.

You should report any change in your circumstances that could affect your tax credits claim as soon as possible by calling the Tax Credit Helpline on 0345 300 3900 or writing to the Tax Credit Office.

If you lose your job and you claim Universal Credit, your tax credits will stop. You cannot receive Universal Credit and tax credits at the same time.

If you’re able to work, you may also claim new style Jobseeker’s Allowance or ‘New Style’ Employment and Support Allowance if you’re ill and unable to work. You can claim either of these benefits, with, or instead of, Universal Credit, depending on your National Insurance record.

If you are claiming tax credits and start living with a partner who is receiving Universal Credit your tax credits payments will stop. You and your partner will be treated as joint claimants of Universal Credit instead.

This will help you manage your money together and unlike tax credits you can receive Universal Credit payments even if you’re only working a few hours a week. Universal Credit will also help towards the costs of childcare if you are both in work.

Your partner must tell the Department for Work and Pensions (DWP) that you are now living together. It’s important that they do this straight away so you can both be sure you’re getting all the help you’re entitled to.

HMRC will stop your tax credits and contact you to finalise your current award. You will not be transferred automatically from tax credits to Universal Credit.

DWP will tell you and your partner what you need to do to make sure your joint Universal Credit claim goes smoothly.

2. Universal Credit payments

In most cases you will receive a single monthly Universal Credit payment that covers both you and your partner. Your Universal Credit will be paid into a suitable account of your choice, which could be a joint account or a single account in either your name or your partner’s name.

There may be a gap between payments when you move onto Universal Credit. Universal Credit will be paid monthly in arrears, whereas tax credits can be paid in a range of different ways.

If you move in with a partner, you will receive your new joint household payment under Universal Credit on the same day that your partner would have received their individual Universal Credit payment.

Support and financial advice are available if you are worried about managing a gap between your tax credits ending and receiving your first Universal Credit payment.

MoneyHelper joins up money and pensions guidance to make it quicker and easier to find the right help, MoneyHelper brings together the support and services of 3 government-backed financial guidance providers:

• the Money Advice Service

• the Pensions Advisory Service

• Pension Wise

You can also get advice over the phone on 0800 138 7777 (calls are free from mobiles and landlines).

You can ask for a Universal Credit new claim advance for the first payment of Universal Credit, to help you manage the transition to monthly payments. If you get an advance, your future monthly payments will be reduced to make up for this.

3. What happens to tax credits debt?

If you move from tax credits to Universal Credit, your tax credits debt will be transferred to DWP. Your Universal Credit payments may be reduced to recover this debt, depending on your circumstances.

HMRC will send you a letter called ‘Your tax credits overpayment’ (TC1131) if your tax credits debt is being transferred to DWP for recovery. You may get more than one letter, if any additional tax credits debt is finalised and you must repay each of these debts.

If you have an existing HMRC repayment plan, this will be stopped and direct debit arrangements will be cancelled. However, you must cancel any existing Standing Orders you may have.

Any tax credits debts being managed by a debt collection agency when you claim Universal Credit, will be recalled.

Once your tax credits debt has been transferred to DWP, they will make arrangements for you to repay this debt.