You could claim Working Tax Credit if:
- you’re aged 16 or over
- you work a certain number of hours a week
- you get paid for the work you do (or expect to)
- your income is below a certain level
Here is a summary of how much you could claim:
|You’re a couple applying together
||Up to £1,990 a year
|You’re a single parent
||Up to £1,990 a year
|You work at least 30 hours week
||Up to £800 a year
|You have a disability
||Up to £2,935 a year
|You have a severe disability
||Up to £1,255 a year (on top of the disability payment)
|You pay for approved childcare
||Up to £122.50 (1 child) or £210 (2 or more children) a week
Reasons why you might be able to claim or find it difficult to claim:
- 5 million claims are made each year, have you checked you eligibility with the https://www.gov.uk/tax-credits-calculator
- Often small business owners have low incomes, particularly when the business is in the start up phase meaning they may be able to claim
- If you live in another EEA country but you are still liable to pay (and actually pay) UK National Insurance contributions (for instance you live in Republic of Ireland but work in Northern Ireland) you may still be able to claim
- If you (or your partner) go abroad for up to eight weeks at a time, HMRC will treat you as if you are still in the UK, providing you intend your visit abroad to be temporary. Temporary means you expect it to last less than 52 weeks.
- Couples find it complicated – Members of a couple must make a joint claim with their partner. Although this may appear a fairly straightforward and sensible requirement, it is one of the more complicated and problematic parts of the tax credits system. Ask your accountant for help.
- Crown Servants are exempt from the absence rules
- One area of particular difficulty in determining whether to make a single or joint claim is where one partner is in the UK and the other is not. The interaction with various EU law rules makes this a difficult area.
The Government wants to help working families and currently if you are an employee your employer can help with childcare and could for example buy childcare vouchers of up to £55 per week, the vouchers would be a tax free benefit to the employee. However, if you’re self employed you aren’t an employee so the rules don’t apply.
So recently there has been a consultation on what should be be done in the future.
The key proposals are:
- New Scheme to go live in Autumn 2015
- Working Families will open Voucher Accounts (self employed or employed)
- As parents pay in the government tops up the account with 20p for every 80p paid in
- Top up capped at £1,200
- To be eligible all parent must work and not receive tax credits or be an additional rate tax payer
The chart below shows how it should work:
In 2012 Unbiased.co.uk reported that £12.6 billion was unclaimed by UK tax payers, here is a list with some ideas:
- Income Related Tax Credits – Check and find out what you are entitled to – UK Benefits https://www.gov.uk/benefits-adviser
- Tax Relief on Pension Contributions – There are estimated to be over 4 million people not paying into a pension, auto enrolment should help to change that, this blogs explains the tax advantages https://stevejbicknell.com/2012/05/02/why-invest-in-a-pension-because-of-tax-relief/
- Tax Relief on Charity Donations – Are you using Gift Aid? are you a higher rate tax payer entitled to additional relief?
- Saving on Inheritance Tax – Many people don’t have a Will let alone any IHT planning!
- Making Use of ISA’s – Why get taxed on the interest on your savings if you could have an ISA? Its easy to get an ISA and you can still have access to your ISA savings if you need it, the current ISA allowance is £11,520 or £5,760 for cash ISA’s
- Child Benefit – Use the benefits adviser to check if you can claim – UK Benefits https://www.gov.uk/benefits-adviser
- Avoiding tax penalties and late filing – This just requires you to be organised, make sure you know the filing dates http://www.hmrc.gov.uk/sa/deadlines-penalties.htm and get the information needed in plenty of time
- Savings on Capital Gains – The current allowance for 2013/14 is £10,900 (previously £10,600) for an individual many people seem to forget they have this allowance
- Making Use of Employee Share Schemes – The government love employees to have shares and this year introduced a new share ownership option https://stevejbicknell.com/2013/08/03/employee-shareholders-will-your-employees-want-shares/
- Income Tax and Personal Allowances – Consider who should own assets (and get income from those investments) – you or your spouse – so that you can minimise your tax liability
You are entitled to plan your tax affairs in a way that makes sure you do not pay more tax than you have to. There are many legitimate ways in which you can save tax, or example by saving in a tax-free ISA (Individual Savings Account), making donations to charity through Gift Aid, claiming capital allowances on assets used in your business or paying into a pension scheme.
Here are 10 ways to pay less tax:
- Choose the right business structure for your business – most businesses start out as sole traders but once they start making profits convert to limited companies, this is because sole traders pay income tax starting at 20% and national insurance class 2, £2.70 per week and class 4, 9% on profits between £7,755 and £41,450, whereas, in a company a you could pay the tax and NI free salary of £7,748 and then pay dividends from profits after corporation tax of 20%
- Employ your family – Children can legally work from the age of 13 which means they can perform activities which are relevant and justifiable in your business. Each member of your family has a tax free allowance of £9,440 (2013/14).
- Avoid earning more than £100,000 – Once you earn over £100,000 you start to lose your personal allowance, when earnings are above £118,880 all of your allowance of £9,440 will have been lost
- Pay into your Pension – Currently you can pay £50,000 per year into to your pension
- Pay Dividends – Generally directors will take a low directors fee and the rest of their income in Dividends
- Claim Expenses – You may well have an office at home and use your car for business
- Use Company Assets – Sometime the Benefit in Kind Tax works in your favour, so you could get the business to buy the assets for you to use for example a commercial vehicle or computer equipment
- Buy Assets – You should be able to buy assets with a loan or on credit but you will get the tax relief as soon as you take ownership
- Check for Building Assets – do have integral building assets
- R&D – Could you claim R&D tax credits
You need to renew if you receive an Annual Declaration form (TC603D or TC603D2) with an Annual Review notice (TC603R).
You don’t need to renew if you only receive an Annual Review notice (TC603R), as your claim will be renewed automatically. However you still need to tell the Tax Credit Office straightaway if:
- you have had any changes in circumstances
- your income is different to what’s shown in the Annual Review notice
- there are mistakes or details missing from the notice
If you’ve been sent an Annual Declaration (TC603D or TC603D2) and don’t renew, the following will happen:
- your payments will stop
- you will have to pay back any overpayment from the previous tax year
- you will also have to pay back any payments you’ve received from the start of the new tax year
- you’ll get a statement from the Tax Credit Office about your tax credits payments
- you will usually have to make a new tax credits claim if you don’t provide the information within 30 days
The HMRC calculator will help you understand whether you are entitled to tax credits and how much you could claim http://taxcredits.hmrc.gov.uk/Qualify/DIQHousehold.aspx
I know that many small business owners claim tax credits because in the early years of the business their income is low.
So don’t forget to renew by 31st July.