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WTC and CTC - What is income?

My client is an owner manager of a close company. He has a favourable loan account balance with the company (money invested last year) and will choose to draw no salary next year - his regular income to be replaced by the loan repayment.

Does this mean that his income for tax credit purposes is nil and therefore a claim for WTC and CTC is acceptable?

I accept that there are potentially moral issues, but it seems to be a legitimate case for a claim. Afterall, true earned income is nil - the only income is a debt repayment.

All observations and comments welcomed!
Simon

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13th Nov 2003 12:31

But....
I agree with Tim Good on this one but would suggest that taking a salary of £385 per month would entitle him to NIC credits. This should be considered in light of his personal circumstances.

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17th Feb 2003 20:40

Deliberate reduction of income?
Reg 15 of The Tax Credits (Definition and Calculation of Income) Regulations 2002 is headed "Claimants depriving themselves of income in order to secure entitlement" and reads as follows:

"If a claimant has deprived himself of income for the purpose of securing entitlement to, or increasing the amount of, a tax credit, he is treated as having that income."

Your guess is as good as mine as to how that will be applied in practice.

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By Albasas
12th Feb 2003 09:50

Legitimate Claim
Yes all appears to be in order unless the loan account is challenged and in breach of IR rules in some way. CTC & WFTC are NOT means tested but are of course cross referenced to your NI No. at IR where all close company data is easily called up for routine enquiry.

Interestingly, Appeals about CTC & WFTC refusals by IR are to become part of The General Commissioners Hearings in the future.

It remains to be seen whether IR use the tax credits system as another arm of Income Tax Enquiry. What do you think?

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12th Feb 2003 12:54

Enquiries
I understand form an excellent talk by Peter Gravestock at last week's TaxAid conference that the main focus of self-assesment enquiries in the future will be tax credits, and that Revenue personnel conversant with the complicated regulations will be those assigned to such enquiries.

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12th Feb 2003 17:31

Not so fast!
Having referred to TC600 Notes, as I have done a couple of times recently, the explanatory notes for "savings" within the category "other income" refers to "interest from any bank or building society accounts..." it also goes on to say "if you received and company dividends add the tax credit to the dividend". It makes no mention of any other deposit taker but does say "ignore tax free savings". If the interest is paid correctly with the deduction of 20% tax then my view is that it should be included. I am sure they will tweak the guidance once they have realised the mistake.

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