Tax credits

Tax credits

Didn't find your answer?

Any idea where I can find a summary of what is income, for tax credits purposes?

In particular does anyone know if mileage allowances of 40ppm paid by an employer are income for tax credit purposes?
Nicola

Replies (2)

Please login or register to join the discussion.

avatar
By AnonymousUser
23rd May 2006 06:31

This is a potentially complex area ...
... but the basic rule is that if it is taxable income for income tax purposes then it counts as income for tax credit purposes and not otherwise. Thus, in your particular example, a reimbursement of 40 ppm for business miles undertaken in your private car would (given that it is income tax exempt) be excluded for tax credit purposes.

The same applies to deductions. Ie if you make pension contributions then the gross equivalent may be deducted from income.

It gets more complicated if you have transactions and elections that affect different tax years, such as farmers or artists averaging income across years, elections to relate back pension contibutions (under old rules), gift aid, losses etc. Generally you need to restate the income ignoring such effects. But there is more to it, especially regarding losses.

One thing that I always thought iniquitous is that in computing abatement of tax credits there is no equivalent of top slicing relief when you incur a chargeable event gain on sale or surrender of a life policy. In income tax, the relief is available in recognition that the gain represents an accumulation over many years. In tax credits terms it is assumed that since you are suddenly cash-rich you can afford to forego the tax credits, but no allowance is given for the fact that in order to achieve that state you have disposed of a substantial asset, and it rather runs contrary to the principle otherwise applied, that you only examine income in the year (the gain being income for many years)

As regards reading material, look at page 21 or so of leaflet WTC2 at
http://www.hmrc.gov.uk/leaflets/wtc2.pdf

Thanks (0)
Avatar
By I'msorryIhaven'taclue
23rd May 2006 09:28

D1 Trading Loss b/f
So how might losses affect the following sole trader CTC claimant?

D1 trading loss 2004/05 (A/c's 12 months to 31/3/05) £30,000 loss

D1 trading profit 2005/06 (A/c's 12 months to 31/3/06) £32,000 profit

For income tax calcs, Utilising S385 loss the 2005/06 income is reduced to £2,000

But for CTC and WTC purposes is the 2005/06 income £32,000 or £2,000?

Footnote: If £32,000 what's to prevent a resubmit of one long period's accounts of 24 months to produce an aggregate £2,000 profit?

Thanks (0)