Many accountants prefer not to deal with Tax Credit claims, as they don’t want to get involved in that highly complex system of state benefits. However, I must stress, all accountants should at least tell their clients about their rights to claim Working Tax Credit or the Child Tax Credit.
A claim for tax credits is based on a couple’s net income averaged over the whole of the current tax year. Where an individual is made redundant in say August 2009, the couple may be entitled to tax credit payments for the whole of 2009/10 from 6 April 2009 onwards. However, these tax credit payments can only be back-dated to 6 April 2009 if the couple had made a protective claim for tax credits by 5 July 2009.
HMRC are actively encouraging people to submit protective claims if there is any uncertainty about the family’s future income – which must apply to a huge number of people in the current economic climate. This isn’t just a question of redundancy, it would also be relevant in the case of wholesale business failure or of losses wiping out or reducing taxable income. And don’t forget that the Annual Investment Allowance may also reduce taxable income.
Its not only couples with children who can claim tax credits, single people can qualify for the working tax credit if they work at least 30 hours per week, and their annual income is less than £13,250. Unfortunately this doesn’t apply to young workers, as the individual must be aged at least 26. Although disabled workers can qualify for tax credits from the age of 16 if they work 16 hours or more.
The working hours can be made up from more than one job, so the hours devoted to part-time job and a self-employment can both be included. The income limit is the lower of the person’s income for the current year and that for the previous year.
Care must be taken with a single-person claim, as single people tend to pair-up and start living together without thinking about the tax credit consequences.
Accountants need to warn their clients/claimants need to be aware, that making a tax credits claim as a single person, when they are in fact part of a couple, makes the single claim invalid. Any amounts claimed under an invalid claim will have to be repaid, and HMRC may prosecute those that are clearly trying to cheat the system by denying they are part of a couple. That rule may be varied if the person concerned is an MP of course! Single people who are claiming tax credits must tell the tax credit office as soon as they start living with a partner.
Details on protective claims for tax credits can be found here.
Details on prosecutions for invalid single person tax credit claims can be found here.
Article by guest blogger: Mark Lee from The Tax Advice Network.
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