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Tax Credits – A Potential Nightmare?

I think we can all agree that for most Businesses, the last couple of years have been a period of uncertainty. Uncertainty, as to the level of profits the Business is expected to make, and in some cases uncertainty as to the actual future of the Business. I think we can now add to this list, the uncertainty of Tax Credits.

Tax Credits were initially introduced to supplement the income of the lower paid, and that does include self-employed people and can include Company Directors in the case of owner-managed Limited Companies.

In principle making a Tax Credits claim is not particularly complicated. You contact the Tax Credits helpline to register a claim (you have to be ‘In It To Win It’ to quote the famous Lottery phrase), give them details of your family situation, the income of yourself and spouse/ life partner, the number of weekly hours each of you work, and details of any childcare arrangements you pay out for. From this information, HMRC process your Tax Credits claim. HMRC either say sorry no claim, or they start to send you some well appreciated money! – Simple isn’t it?

No, not really. If you are not careful the Tax Credits can be as scary as Jack Nicholson in the horror film ‘The Shining’, or as frightening as some of the parts from the horror film,‘The Exorcist’. Sometimes though the scary bits in the horror films are those bits you don’t actually see! Believe you me; Tax Credits can be very similar.

What do I mean by this?  – Well, when HMRC send out to you your Tax Credits Award telling you how much you are to receive, you look at this and think “ Eh, this is great” But the two vital bits you are not seeing are :

  • What changes are required to your circumstances before these Tax Credits are affected?
  • By what amount does your current income have to increase by, before your Tax Credits amounts start to reduce?

If you do not fully understand these two parts, then yes, the Tax Credits can become the new ‘Nightmare on Elm Street’, with you in the starring role, and of course Freddy Kruger in pursuit! (let’s just take a reality check here and put the faint hearted at rest, – HMRC officials are not Freddy Kruger!).

So, what action do you need to take to avoid being a leading contender for an Oscar in the next Hollywood Blockbuster Horror Film?

  • When receiving a Tax Credits Award it is absolutely vital to check and re-check the Tax Credits Awards claim information sent out to you by HMRC, so you can see exactly how HMRC have arrived at the figures.
  • Check that the circumstances on the Award are still correct, and that the income figures on the Award are the actual income figures for the previous year and correspond with the details you have submitted.
  • Always provide HMRC Tax Credits office with prompt up to date income details as soon as possible after the end of the Tax year, and certainly well before the 31st July normal deadline for submitting these figures. To continue to receive your Tax Credits you can supply estimates or provisional figures after 31st July as long as you provide them with actual figures before the final deadline of 31st January following the end of the Tax year. But by supplying only estimates or provisional figures, you are now, in my opinion, getting into ‘The Shining or The Exorcist’ territory!
  • To illustrate this, we now get to the important part. – If any of your circumstances change, and that includes your income increasing by more than £2,500 from the previous year, you must inform HMRC straight away and advise them of these new amounts. If you delay in doing this, and your income has increased by more than £2,500, then you may be asked to repay back not just one year’s Tax Credits, but possibly two year’s claims. This is because HMRC will always provisionally fix the current year’s claims on the latest actual figures they have received from you, and if you are not prompt in supplying these figures, they can sometimes be nearly two year’s old!

Now I do agree dealing with HMRC on Tax Credits does conjure up some of the titles of some of the Rolling Stones greatest hits. – ‘(I Can’t Get No) Satisfaction’, ‘You Can’t Always Get What You Want’, and ‘Out of Time’ are the ones that immediately spring to mind. But, HMRC Tax Credits Office can only process your Award based upon the information you supply to them.

So, as long as you double check the information you have sent to them agrees to that on the Award, notify them without delay of any changes in circumstances or income, and ensure you provide them promptly with up to date income details immediately after by the end of the Tax year, you could be humming the old Abba tune ‘Money, Money, Money’ all the way to the Bank!

If anyone has any Tax Credits issues or problems then please contact me, and I will try and assist.

Rickey

Rickey Cooper FFA, FMAAT, ATT
JCL – Jones Cooper Limited

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