More than six million families and 600,000 workers on a low income collect tax credits, the system relaunched by Gordon Brown in 2003 to alleviate poverty. Here is a guide to the scheme.

What are tax credits?

Tax credits are payments from the Government that are designed to supplement the salary of families and people on low incomes. It is paid directly into a bank account, either weekly or monthly.

Do you qualify?

The beginner's guide to income tax

• The beginner's guide to self-assessment

• Capital gains tax explained

• Tax tips for the self employed

BACKGROUND

• How to reduce your inheritance tax bill

• The beginner's guide to self-assessment

• Council tax explained

• Tax credits explained

• Capital gains tax explained

If you look after one child or more at home, then you could qualify. In fact, nine out of ten families are eligible for the child tax credit. Likewise, if you are over 25, working more than 30 hours a week and earn less than £12,800, you will also probably qualify for the working tax credit.

To find out whether you qualify for tax credits, use the questionnaire on the HM Revenue & Customers website.

The amount of extra money you can receive from the Government in tax credits depends on a number of factors. These include your income, the number of hours you work, how many children you look after and whether any of your children have a disability. If you are over 50 and beginning work after being on benefits, you can also claim in some circumstances.

Jobs that pay cash in hand, or where payment is in a form other than cash, still qualify as work under the scheme.

If you think that you qualify, you can work out how much you can claim with the tax credits calculator, here.

If you live outside the UK, there are special circumstances in which you may be able to claim tax credits.

How much will you receive?

The calculations are incredibly complicated and there are a number of different elements that will effect how much you collect from the Government.

The maximum amount in the basic element of the working tax credit for the tax year 2009-10 is £1,890, but the higher your income the less you will receive.

The maximum amount in the basic family element of child tax credit is £545, plus £2,035 for each chilld. However, you qualify for more if you have disabled or severely disabled children.

How do the credits work?

HM Revenue & Customs will pay tax credits into any bank of building society account, Post Office® or National Savings & Investments account - as long as it accepts Direct Payment - either weekly or every four weeks.

If you live with a partner or are married, you should claim jointly. However, only one parent or partner can claim for child tax credits, so you will need to decide who would like to make the claim.

The amount that you receive is based on your circumstances at the beginning of the financial year on April 5, 2008. During March, April and May each year the Revenue will ask claimants to update their details, such as their salary. However, if you are receiving tax credits you should keep the Revenue updated throughout the year of any changes that affect the qualifying criteria, such as working hours or salary.

How do you apply?

Contact the tax credit helpline for an application pack. The application form for your first claim of either the working or child tax credit is Form TC600. The helpline number is 0845 3003900 (textphone 0845 3003909) and calls cost the same as a local telephone call. The application pack is also available from HM Revenue & Customs centres, benefit offices and Jobcentre Plus offices.

If you have been turned down for tax credits but believe that you are entitled to help, you can appeal against the decision.

History of tax credits

The original tax credit system was introduced in 1998 to encourage the unemployed back to work, with a particular focus on single mothers. In April 2003 the system was reformed with the establishment of two forms of tax credit, the working tax credit and the child tax credit.

Since the scheme was relaunched, tax credits have become synonymous with overpayment problems. The Government has announced repeatedly that millions of families would have to pay back the Treasury after receiving too much money in tax credits. It has been attacked for putting low-income families under huge financial and emotional strain.

Failings in the system continue. In May 2008 it was estimated that the Treasury had overpaid billions of pounds in tax credits over the previous four years.

Meanwhile, low-income workers and families who deserve tax credits are expected to leave billions of pounds of the credits unclaimed in the 2009-10 tax year.

Further questions

You can call the Tax Credit Helpline on 0845 3003900 or textphone 0845 3003909 between 8am and 8 pm seven days a week.

Five news stories

Middle class to lose tax credit benefits, says David Cameron

Tax credits time bomb threatens to explode

Revenue criticised for tax credit errors

Cash for parents in tax credits fiasco

Doubts over tax credits for vulnerable families

Tax credits 'hit poor families'

Five features

Are you missing out on your tax credits?

Hidden budget blow to high earners

How much families really have to fork out in taxes

It’s official: the tax credits system in chaos

Claimants easily make mistakes in complex system

Five websites

Citizen's Advice

HM Revenue & Customs

Direct.gov.uk

Surestart

Disability Alliance

Five videos

Help With Tax Credit Overpayment

HM Revenue and Customs Cock Up

HM REVENUE & TAX

Can a family of three live on £60,000 a year?

Tax credit write-off warning