"Public funds" is defined in paragraph 6 of the Immigration Rules (HC395) as
Be aware that the Public Funds definition is liable to be varied from time to time, as benefits are abolished and new benefits introduced.
Also be aware that paras. 6A to 6C of the Immigration Rules can vary the Public Funds definition, in specific circumstances. Accordingly this subject is highly complex. This is illustrated by this Public Funds booklet, and in particular by the chart on page 6.
Additionally, there is this guidance note... "...For the purposes of these Rules, a person is not to be regard as having (or potentially having) recourse to public funds merely because he is (or will be) reliant in whole or in part on public funds provided to his sponsor, unless, as a result of his presence in the United Kingdom, the sponsor is (or would be) entitled to increased or additional public funds..."
This is taken to mean that the UK sponsor can be in receipt of public funds, but must show that the applicant will not cause the sponsor to receive additional public funds.
There are counterparts to the above list in Scotland and Northern Ireland. To repeat: it is the visa holder whose visa is contingent upon not receiving these benefits, not the UK-based sponsor.
It is also important to note what is NOT INCLUDED in the definition of "public funds":
Those seeking more detailed information are directed to the Immigration Directorates Instructions, Chapter 8, Section 1, Annex F.
Tax credits were introduced in 2003, and the immigration rules were subsequently modified in 2005. The rule change in 2005 affects couples where one partner is not subject to immigration control (i.e., a British citizen or permanent resident); and the areas the rule addresses are  working tax credits and  child tax credits. Under the rule, a couple may claim these tax credits without jeopardizing the immigration status of the person subject to immigration control.
Simply put, a married (unmarried, civil partnership) couple can claim child tax credits and/or working tax credits as long as one partner is a British citizen or otherwise exempt from immigration control. Other categories of claimants may also qualify, but these are outside the scope of this FAQ.
The government are considering exceptions to the rules which allow for limited access to housing during the time that an application is pending. This topic is emotive and has been the subject of advocacy actions undertaken by the Southall Black Sisters. Please visit their site for up-to-date information.
Widowed/Widower spouses seeking leave to remain are NOT subject to the public funds requirement.
Reviewed 6 May 2012