Year-end tax planning tips

fortunately due to the cost/benefit f clients we never really got envolved in tax credit claims

Good example Rebecca, but the rates for 2011/12 are incorrect.  You've used the 2010/11 rates in the example.  However, if you take a simplistic view of the calculation, profits have gone up £20K, £10K of this is disregarded and therefore the tax credits on the other £10K at 41% gives £4,100 which is the amount to clawback. 

What we are advising at the moment is for clients that may not be entitled to anything in 2012/13 is to advise the Tax Credit Office by the end of this month that they would like to stay in the system for 2012/13 just in case an entitlement arises, but also advising them of an income figure for 2012/13 where the client does not get paid any Tax Credits in 2012/13.  That way any underpayments brought forward that would be repaid by them falling out of the system are at least delayed by 12/18 months.  Times are hard enough for a lot of clients at the moment so giving them that extra 12 to 18 months to prepare for paying back the tax credits  helps them to plan for this.

Also, as for being overpaid in the 2011/12 tax year, if the Accountant was aware of their clients tax credit position, they should have been advising them of this possibility 12 months ago.  Unfortunately we know that a lot of Accountants don't deal with their clients tax credit affairs or even know if they are in the system!!!!

Steve Marsland - The Tax Credits Team

I bet if HMRC cross checked in their mirror departments they would find the two figures do not match in quite a lot of cases.

Luckily they are not allowed to speak to each other for data protection reasons.

I expect if we offered to check a clients tax credit claim this would have to be done for free and we would not be popular for suggesting that they had over claimed from not understanding or reading the rules. Then we would have to report them too.

We explain we do not advise on tax credits as it is not cost effective but give the clients the income figures for their use in making their own claim. It is great when they earn enough profits to keep them in poverty, and your only problem is fighting off Mr HMRC collection so they can continue to pay their tax and fund the better off. Sorry but the whole system is a pigs ear.

Will be interesting to watch if manipulating the income figures (proposed new cash basis accounting for this claimant group) will result in increased claims using perfectly acceptable creative accounting (delaying or accelerating payments and receipts).

Again we are unlikely to be involved as there is an expert on every estate that can maximise all your benefit claims, and having four children by four different absent fathers (one with asbo disabilities) is far more effective income planning. LOL That's why all the clever people opted for this route.

You are quite wrong to suggest that it isnt cost effective to advise on tax credits.  Our standard fee for dealing with the compliance aspects of our clients tax credit claims is in most cases more than we charge for doing their tax return.  In addition to this where we talk to them about general tax planning this can have  a massive effect on their tax credits claims which in most cases far outweighs the income tax savings.  We value price this by charging them a % of the extra tax credits they get awarded whihc to date I can say we have never had a problem with.  By ignoring tax credits you are leaving fees on the table.  By offering a service to your clients not only does it it increase your GRF your clients will see you as taking a proactive approach to what is a complicated area.

I also note that you say you dont advise clients on tax credits but give them the income figures for making their claim.  Presumably from that you understand what income is included for tax credit purposes?  Be aware that not all income is included for tax credit purposes and certain deductions can be made before arriving at a household income figure such as:

• Certain BIK's are not included (van benefit in kind and in practically all cases any interest charged on overdrawn directors loan accounts)
• Deductions can be claimed for grossed up pension contributions and gift aid payments
• Exclude SMP,SPP and SAP up to certain limits
• Trading losses.  They can be used against a fellow claimants income in the year of the loss with the balance being carried forward to the follow year to offset against the individual making the losses future profits from the same trade.  This is in addition to the income tax treatment.  I havent yet come across a client that gets this right.   or to that matter an Accountant that actually understand tax creditsddsssdjbsdfj

Tax Credits are complex for most accountants to understand let alone our clients.  As accountants we are unlikely to act for the individual that survives just on benefits and I agree that those people do know how to work the system to their benefit.  But our clients are the ones that really do need help when things don't go well and we should be there to help them. 

Tax Credits are being replaced with Universal Credit from October 2013, but there will still be people get tax credits possibly even as late as 2017 until they have transferred over to Universal Credit.  I do hope that Accountants don't make the mistake they did in 2003 when tax credits were introduced by ignoring it and including a line in the LOE stating ' we do not offer any advise on Universal Credit'

Steve Marsland - The Tax Credits Team

from charging a % fee due to professional rules.

I do agree that to keep up to date with tax credit work that you are never asked to perform is a head ache and that is why it is not cost effective.

HMRC are quite happy for clients to fill in the forms however they see fit.

Interesting the directors loan interest as certain tax avoidance schemes pay salary by way of a supposedly repayable loan account, so perhaps those clients are missing a trick.

I will take your comments on board however and perhaps take another look at this.

Perhaps offering a set fee will either get us some work or absolve ourselves by a confirmed that's too much ! Much in the same way as inheritance tax advice works.

But adding on the tax credits advantages of using the OTS accounting methods may be the future to maintain accountancy fees.

I see above a suggestion that an estimated income figure is given which does not create a tax credit award. As the level of award is taken as an indicator for other types of assistance please make sure this does not cancel out the £545 family element.

 Re Black Knight,s posting …..think they do… because we had a client whose taxable partnership income for Tax Return  2010/11 was higher compared to declared on Tax Credits purposes 2010/11. Tax Credit Office increased the house hold income from partnership  as seen on Tax Return figure 2010/11. The difference was due to excess losses, ie unrelieved losses b/f from 2009/10. However for tax purposes the losses were carried back to 2008/09. We have appealed against the decision….  

Just the missing dividends they don't notice then. ( was some time ago I had that argument to be fair )

That is reassuring to hear some evidence of some control in the HMRC giveaway.

Since the website upgrade, I can't add this to my "library"/saved articles, so will shove a comment in so I can retrieve the article.  Good post thanks.

Ditto

We have had problems where we give clients a statement of there income laid out to fit with the claim form but they then phone up in an atempt to provide the data over the phone.

Sometimes the HMRC call staff refuse to take the figures for, say, salary because the client has not got the P60 in front of them. Its as if HMRC are doing an adhoc check that the client has picked information off the source documents properly.

I suspect some people on salary plus divs forget the divs when providing the data themselves. Especially when divs are worked out afterwards to clear the directors current account.