Interaction between tax credits and tax planning

Produced by a Tolley Personal Tax expert

Personal Tax

Guidance

This guidance note looks at how tax decisions can impact tax credit outcomes. Note that tax credits cease on 5 April 2025. New claims for tax credits are no longer possible and no more payments will be made after 5 April 2025. Any existing claimants will be migrated to the universal credit system. See the Universal credit guidance note. There is information about migration notice letters on GOV.UK.

Considerations for the adviser in respect of tax credits

When tax credits were introduced in April 2003, the tax profession took the view that the tax credits system was something either to be embraced fully or avoided.

The decision was taken by over 98% of advisers to exclude tax credits from the services supplied to clients. Most advisers have a default clause in their engagement letters along the lines of ‘we do not offer any advice on tax credits’.

With tax credits now being migrated to the universal credit system, it is important to note that tax credits have been administered by HMRC whereas the universal

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