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Trading Losses for individuals who previously did not received tax credits

Posted by Anonymous on Mon, 22/06/2009 - 12:12

Married person was not registered and did not make a claim for WTC or CTC in 2008/09 as couple's income previously too high. In 2008/09 wife made a trading loss which meant that they could have claimed normal family element.

Too late now to claim for 08/09, however my understanding is that as this loss has not been "utilised" for tax credit purposes, it is c/fwd in full and offset against income of individual and their spouse for 2009/10. Is the full loss c/fwd or is an offset against other income done, even though tax credits not claimed.

e.g. 2008/09 Husband - income £55000; wife - trading loss £25000 and other income £10000.
2009/10 Husband - Income £55000; wife - trading profit £5000 and other income £10000

Is loss carried forward from 2008/09 the full £25K as tax credits not claimed in 2008/09 or £Nil as all offset vs other family income?

Also, to fill in the claim pack, what income should be declared for 2008/09?

Any help appreciated!

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Bad news, I'm sorry to say

The manner in which income is calculated for a year for tax credit purposes is independent of whether or not there is a claim in force for that year. It is also not subject to choice. This mandates sidewise relief of losses (including between spouses) before any balance is carried forward. So, regret to say that all of the 2008-09 trading losses are utilised in 2008-09 for tax credit purposes, regardless of how they were relieved for income tax purposes.

So I think that you need to disclose husband's income as £30K for 2008-09 (£55K less wife's losses), and other income £10K.

This will get them the basic family element of CTC for 2009-10, which should not suffer any abatement based on the figures provided as £25K of the total 2009-10 income will be disregarded. 2010-11 will be another matter, but maybe some pension contributions or AIA claim may take care of that.

You may want to download the form TC825 and accompanying notes.

With kind regards

Clint Westwood

Posted by nogammonsinanun... on Mon, 22/06/2009 - 13:06

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Thanks but to be clear

Joint Income for 2008/09 is therefore £40K (55 -25 +10) and in 09/10 is £70 (55 + 5 +10). As income increased by more than £25K, then wouldn't the family element of CTC be abated in 2009/10. I know it's Monday but I am clearly missing something.

Thanks for you post.

Posted by Pweb2203 on Mon, 22/06/2009 - 14:31

11 reads

Thanks but to be clear

Thanks for you post.

Posted by Pweb2203 on Mon, 22/06/2009 - 14:31

11 reads

Re. Income disregard

Where the income in year 2 exceeds the income in year 1 then an amount is deducted from the income in year 2 for the purposes of calculating the award in that year. The amount to be deducted is the lesser of the "income disregard" and the the excess of income in year 2 over year 1. The "income disregard" in this case is £25K. The income for year 2 (2009-10) exceeds that in year 1 (2008-09) by an amount exceeding £25K, so £25K is deducted from the 2009-10 total income in order to determine the income for that year as the basis of the award for 2009-10. The full amount of the 2009-10 income (without any deduction for the income disregard) forms the basis of a provisional award for 2010-11.

I have assumed that the "other income" in all cases is net of the £300 exempt amount, but we are only talking round sums anyway.

So the income for 2008-09 is as you say £40K
The income for 2009-10 is 45K , being 55+5+10-max(0,min((55+5+10)-40,25))
The income forming the basis of the provisional award for 2010-11 is 70K, being 55+5+10

Hope that helps

With kind regards

Clint Westwood.

Posted by nogammonsinanun... on Mon, 22/06/2009 - 14:40