Working Tax Credit - How IT Works

How It Works

The basic operation of the tax credit is broken down into the following steps:

1. An individual makes an application for WTC to HM Revenue and Customs (HMRC).
2. HMRC calculates a provisional amount of tax credit to be awarded. It is based on the previous tax year's income and current circumstances. The tax credit is then paid in monthly or weekly instalments to the claimant via bank account until the end of the tax year, 5 April. It is possible to ask HMRC to base their calculations on the estimated current year's income, but this does carry some risks.
3. After the end of the tax year, HMRC send claimants forms (TC603R and TC603D commonly called renewal or declaration forms) asking them to confirm their actual income for the year just ended. For those who do not have actual income figures available, they must provide an estimate to HMRC by 31 July and confirm this by the following 31 January. The deadline for the return of the renewal forms to HMRC for 2010–2011 is 31 July 2010.
4. A final calculation of the WTC is made using the confirmed income. This final amount might be greater, equal to or lower than the provisional amount received the previous year.
5. If someone received more than the final WTC calculation, this is an over payment and must be repaid to HMRC. Similarly, if someone received less than the final WTC calculation, this is an underpayment in which case HMRC will make a lump sum payment back to that person.