Tax Credits replaced tax allowances and most accountants have left claiming them to their clients not considering them to be part of their remit. They have preferred to give taxation advice such as whether to incorporate and other tax saving strategies.
The amount of tax payable affects the net monies available for the family to spend. So do “Tax Credits”! ”Tax” is in the title. So how can we increase the family budget by making sure the Tax Credits claimed are the maximum available?
If you are an accountant could this neglect lead to a claim against you for professional negligence?
The allowances for married couples and for children were removed. They were replaced by Children’s Tax Credit. We now have a family element which is worth £547.50p per annum or £10.52 per week for a family with children. So I return to my earlier statement that accountants should review Tax Credits with their clients as this money is not a benefit but replaces these allowances.
Changes are being made from 6th April, 2011 and so it is imperative that you plan now to ensure you do not miss out.
Remember you do not need children to claim. There are Working Tax Credits. In these times of recession and low profits people may not have claimed being unaware of the possibility. A couple with no children and low income for any reason could be in for a nice surprise. So if you fit that profile you need to do your sums to see if any cash is waiting for you to claim. The requirement is that if you are over 25 you must work at least 30 hours. If you are aged 16 to 24 you must be responsible for a child or a young person who has a disability. There is no upper age limit for Working Tax Credit. But again you will need to do the sums to include your pension entitlement.
I always advocate you must plan your business affairs to avoid paying tax before the tax year starts. The new message is that in your projections you must look at the availability of Tax Credits and plan to ensure the net inflow of money into the family budget is the maximum possible. This may mean unforeseen adjustments to maximize Tax Credit claims.
The overall objective will be to reduce chargeable income to below the entitlement limit to ensure a cash injection. Some ideas; you can use Gift Aid; careful consideration of the money withdrawn from your company, do you and your spouse/ partner need that salary? Can you replace salary/dividends with drawings off the loan account? What if there is a year of low profit or even losses; not good but with planning Tax Credits may be available to help make up the reduction in income.
To reduce income you can also use pension contributions or the purchase of plant and machinery for your business if the plant qualifies for the Annual Investment Allowance.
There should be few businesses with unclaimed overlap relief but if you have consider changing your year end to release this and so reduce income.
You always need to do the detailed calculations so why not loan money to substitute for any reduction in the income necessary to ensure full entitlement to Tax Credit.
Often incorporation is undertaken with the amount attributed to the purchase of the goodwill left on loan with the company. Drawings from that reserve rather than salary or dividends could mean that you qualify for full Tax Credits.
If the time limit is missed you can currently back date any new claim for a maximum of three months which from April 2012 is to be reduced to one month. You must always look at the disregard rules which planned carefully could mean that you are entitled to Tax Credits for the next year as well. Currently if income does not increase by more than £25,000 a claim is competent for that year as well. However act quickly as the income disregard limit is to be reduced to £10,000 in 2011/2012 and £5,000 in 2012/2013.
Please review your entitlement for using the Government’s own figures £400 million has not been claimed!!
Peter Clare
The Poacher turned Gamekeeper
