Posted on 21/03/14 ยท Posted in Uncategorized

How is income calculated for Tax Credit purposes?

Income for Tax Credit purposes equates very broadly to adjusted net income for income tax purposes.

What?

Adjusted net income is:

  • Your total income; less-
  • Losses and reliefs (such as any donations you’ve made under the Gift Aid scheme and Pension contributions).

Specifically, your income does not include any profits earned by your Limited Company that you haven’t withdrawn – but it does include Dividends.

So….are there any income deprivation rules for Tax Credits?

Yes.

You are deemed to have the following amounts of income, even though you haven’t received them:

  1. Income that you’ve deliberately deprived yourself of in order to secure or increase your entitlement to Tax Credits.
  2. Income that would be available to you on making a claim for it.
  3. Income that would be due to you if you had been paid at a market rate remuneration (and the payer could have afforded to do so) for services provided.

Where company owner-managers deliberately retain income in their companies in order to gain a greater entitlement to Tax Credits, it’s likely that one of these provisions will apply. Historically, however, these have not been well enforced by the government.

Aren’t Tax Credits changing though?

Yes.

From April 2013 a new system called Universal Credit is being phased in to replace a number of benefits, including Tax Credits. It’s expected to have fully replaced Tax Credits by 2018.

 

Food for thought? If you would like any further information or guidance on your own situation – please feel free to pick up the phone.

Paul

 

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