Carnmores. I am advised that the benefactor has made gifts to other people although they have been made through his commercial organisation. The benefactors previous company also supported my client prior to him retiring from racing and at that time my client never had to do anything in return. Certainly at the time my client was racing I would have said it would have been treated as a hobby and not a trade and given he had to do nothing in return for the payment the examples that HMRC give at BIM50606 example 2 would seem to indicate that those payments would not have been subject to tax. The gift my client has now received was to support him and others coaching elite athletes. My client was allowed to attend the winter olympics in a coaching capacity by the sports governing body but only on the basis that he covered his entire costs, to which a tranche of this money was used. There is a surplus left and it is the tax treatment of this surplus that we are trying to work out whether it is taxable or not?
Incidentally, my client decides who gets what monies out of the gift and how much he keeps for himself as the benefactor has not stipulated how the money is split and has confirmed that he sees it as a gift, albeit to be used for a specific purposes in coaching elite athletes in a particular sport. Still troubled!!!
The benefactor is not my client. My client was the sportsman initially and is now the coach.
In the second part I am interested to know what the thoughts are with regard to the money retained by my client from this gift for the coaching services he provides to the elite athletes and also the tax position in relation to the money he distributes to the others from the original gift? In effect he is just passing on that gifted money, although the benefactor has stated that it should be used amongst a pool of named people, but hasn't stipulated who gets what. His confirmation email to my client stipulates that he sees this money as a gift.
All this talk of running payrolls, weekly, monthly or annually is all very well, but what will need to be considered is whether the individual is entitled to make a claim for Universal Credits. Universal Credit is the successor to Tax Credits amongst other things and we will start to see claims for Universal Credit from October 2013 with existing tax credit claimants being transferred into the new system between 2014 and 2017. The current proposal is that HMRC once in receipt of someone's pay details will then forward it to the DWP who will calculate on a monthly basis an individuals entitlement to Universal Credit. With this in mind if you are running payrolls for clients at either regular or irregular intervals, you will need to find out if Universal Credit is being claimed by them as the timing of those payments and the amount will have an effect on someone's entitlement.
I can agree with the previous post that we have seen letters like this before. There are a number of very important changes being made to the tax credits system over the the next two years before we see the introduction of Universal Credit. That isn't to say that Tax Credits will go completely in October 2013. There will be a transitional period between October 2013 and 2017 were claimants will start to be moved from Tax Credits to Universal Credit. What has been agreed is that there will be no NEW tax credit claims from April 2014.
As part of the Tax Credits Team (www.taxcreditsteam.co.uk) we are advising our member firms to advise the TCO that their clients should remain in the system from 6 April 2012. We don't have crystal balls and can't predict what our clients actual income is going to be in 2012/13 and certainly not by 31 March which is the deadline mentioned in the recent letter from the TCO.
Additionally, if clients are removed from the system this may well trigger a demend for any overpayments of tax creidts from earlier years which up until that time were only being collected via a small restriction in their award. By keeping the clients in the system, even if they end up getting nothing for 2012/13, it will delay the demand for repayment for at least another 12 months. Enough time to tell the clients that they will have to plan for this in 12 months time.
Because we can't predict our clients 2012/13 income with certainty, if the clients were to leave the system and at some later point in the 2012/13 tax year it becomes apparent that a claim can be made, the best your client can do is submit a claim and have it carried back for 1 month (currently 3 months for an claims submitted prior to 5 April 2012). Better to keep then in the system just in case. We do this in our practice and are still able to charge our clients or basic tax credits compliance fee.
Finally, by keeping your clients in the system for 2012/13 it does enable you to consider the planning possibilities to maximise your clients tax credits claim for that year which in turn may well increase their entitlement for the 2013/14 tax year.
There is still enough time for practices to benefit from offering a tax credits service but even if that is not of interest to some practices, it is so important that they have an understanding of the tax credits system and how the basic income/corporate tax planning advice they give out to clients impacts on their clients tax credit entitlement. The changes for 2012/13 and 2013/14 will have a major impact on clients household income, particularly at the lower end with clients earning around £25K a year and under. If accountants start giving tax advice without considering the tax credits position there will be a lot of unhappy clients as they may see a huge drop in their entitlement to tax credits which a lot of these people are relying on to meet their day to day living costs.
Don't forget to consider the clients tax credits position. Losses for tax credits are treated differently to Income tax. In the year of the loss they can be set against a partner/spouses income to reduce overall household income and as a result could actually increase a tax credits claim at an effective tax rate of 41%!
These losses can also have a bearing on future income for tax credits as where they cannot be relieved in the year of the loss they get carried forward to offset against the first available profits of the same trade.
The tax credits annual declaration form states in the self employed box "if you made a loss enter zero" What it doesn't tell you on the form is to reduce a spouse or partners income by the amount of the loss. That advice is shown on a working sheet which in my experience claimants never look for, let alone understand it if they do happen to locate it.
Also, the lower income will impact on the following years tax credit award which if the claimant has simply reported their self employment income as nil in 2010/11 will result in them losing out in tax credits in the following year.
Some very good points raised by Clint regarding backdating claims to 3 months before the form is sent in. When we talk to new clients, one of the first things we mention is tax credits and whether they are in the system or not. In most cases those people we talk to are eligible to make a claim even if it only entitles them to the family element of £545. The reasons we get for people not claiming vary from "I can't be bothered" to "I didn't think I qualify for them". When we explain that we can deal with their tax credits for them, for a fee of course, they are more than happy for us to put them into system, becuase we make it clear they will laways receive more than they pay us. Where we can we will always look to backdate an award notice by 3 months and do this by sending in a covering letter with the application form requesting that it be backdated. I must say that in most cases when the award notices are issued they have been backdated and those that aren't, a simple phone call to the TCO has resolved that issue and yet another 'rain forest' of documents is sent to the clients.
With regard to the filing of protective claims for the self employed, it is certainly an area that we have considered for clients and we do address the issue with all our clients and ask them if they would like us to submit a claim on their behalf. The problem is that accountants in general do not deal with their clients tax credit affairs and have never done so since they were introduced. I find it strange that accountants (I am one in practice as well!) are quite happy to prepare their clients tax returns a work out tax liabilities etc, but when it come to tax credits claims, which after all is simply another tax return with similar figures that are entered on the SA Return, they shy away from them completely. As accountants we all do tax returns because most of our clients need one and there is a statutory requirement to complete one. This is no different to tax credit claims and I think you will find that most of your clients are either in the system and really do need help with them or if not in the system, they should almost certainly be in the system.
Clint raises some good points about dealing with the TCO and I can say that over the years there are cases where it is like 'banging your head against a brick wall' when trying to resolve the particular issue with the TCO. Thankfully, I have to say there are only a few of them, but nevertheless still very frustrating.
With regard to the tax credits system, I agree with Clint that it is extremely complex and for a lay person to understand what figures to include in the application form and also the annual declaration is I believe almost impossible. There is simply to much information for the lay person to digest and understand. As accountants we can help our clients by understanding how tax credits work and also earn extra fees from it, which from my own practices perspective, on tax credit compliance fees alone are better than the tax return fees.
We have developed a unique tax credits software and systems package that is due to be released to the accountancy profession at the end of October 2009. The current version of the software is being used by a number of accountants that are members of AVN, as is my firm of accountants, but at this time it can only be used by firms linked to AVN. This new software is all encompassing and has been created so that accountants can offer a tax credits service to their clients without having to 'reinvent the wheel'. We also train accountants on tax credits and also show them how to make money from offering this service in terms of compliance work, but also from planning scernarios that we have used over the last six and half years to maximise our clients tax credits entitlements.
The software and systems we are offering are unique and I can assure you that there is nothing remotely similar in the marketplace at the moment that come close to what we have, but then I would say that!!!. We know that IRIS have a tax credits product, which was PTP's version before they sold out to IRIS, but this is not comprehensive enough if you want to deal with your clients tax credits affairs. There are numerous faults with it (sorry Tim Good!) which make it unusable as an accurate piece of software for working out clients awards. The 2020 group also have some software which I have to say is marginally better than IRIS's version, but again is not robust enough and does not deal with all eventualities.
In addition to the software we have a whole bank system templates, marketing material, tracking module and also a support line. All of this is currently available to AVN members but the software they have, which does the job as it is, is being vastly improved so that any accountant wishing to get into tax credits can do so from the end of October.
For to long tax credits have been ignored by accountants. We have testimonials and emails from firms that after listening to us talk to them about tax credits and why they shouldn't ignore them and also how we make money from it (which clients are happy to pay!) they cannot believe they did not look at tax credits earlier. We have a testimonial from one firm that talked to 30 clients over the course of a month and made £10,000 in fees and know of another firm that took our marketing flyer and handed it out to individuals outside a supermarket and made £5,000 over a weekend. There is another firm that has commented upon how happy one of his new clients were when they were told they would be getting over £3K in tax credits and asked the question why the previous accountant didn't talk to them about tax credits. If as a firm you deal with tax credits for clients you will win business from it. I can say that with certainty because we have been doing it for six and half years and when we see new clients and talk to them about their tax credits, which incidentally if they are in the system most of them will be getting it wrong!, no other accountant has even mentioned tax credits to them.
From the initial post, it would appear this invidual is looking at tax credits for their clients which is great and therefore if anyone wants to know more about the software and systems what we have on offer please email me at [email protected] or [email protected] and I will send you details of exactly what the software and systems consist of that will be available from the end of October. We already have a number of accountants waiting for it!!!
Tax Credit Calculators I would be very wary of using the 2020 tax tips and tools calculator and also PTP tax credits software (available via IRIS now) if you are going to rely on there calculations that will give you an answer that will agree with the award notice that is issued by the tax credits office. We have looked at both products as we believe these are the only two systems that are actively 'promoted' in the market place and without being to unkind to either product, they are not solutions that you would want to use regularly if you are going to deal with your client's tax credits affairs. There are a multutude of problems with these calculators and they do not cater for a lot of situations that your clients may find themselves in. To be fair to each of the products, I do not believe they have been designed to be used as a complete solution to dealing with clients tax credits. Instead, I believe they can only be used for the most basic of case to give a rough estimate of the likely amounts clients will receive.
The reason I am so critical of these products is that we have developed a tax credits system that accountants can use if they wish to manage their client's tax credit affairs. We have developed the system over the last 6 years as we as a practice have always dealt with our clients tax credits. We believe it is the complete solution as not only does it include award calculation software, but also a whole series of add on's such as standard letters, letter of engagement, marketing material, tracking documents etc and also a support line. We also train accountants on tax credits as well. Unfortunately, the systems are only available at this time to accountants that belong to the AVN network (www.avn.co.uk), but will soon be available to the wider accountancy profession.
If anyone would like any further information, please email me at [email protected].
My answers
Carnmores. I am advised that the benefactor has made gifts to other people although they have been made through his commercial organisation. The benefactors previous company also supported my client prior to him retiring from racing and at that time my client never had to do anything in return. Certainly at the time my client was racing I would have said it would have been treated as a hobby and not a trade and given he had to do nothing in return for the payment the examples that HMRC give at BIM50606 example 2 would seem to indicate that those payments would not have been subject to tax. The gift my client has now received was to support him and others coaching elite athletes. My client was allowed to attend the winter olympics in a coaching capacity by the sports governing body but only on the basis that he covered his entire costs, to which a tranche of this money was used. There is a surplus left and it is the tax treatment of this surplus that we are trying to work out whether it is taxable or not?
Incidentally, my client decides who gets what monies out of the gift and how much he keeps for himself as the benefactor has not stipulated how the money is split and has confirmed that he sees it as a gift, albeit to be used for a specific purposes in coaching elite athletes in a particular sport. Still troubled!!!
Reply to Tax Dragon
The benefactor is not my client. My client was the sportsman initially and is now the coach.
In the second part I am interested to know what the thoughts are with regard to the money retained by my client from this gift for the coaching services he provides to the elite athletes and also the tax position in relation to the money he distributes to the others from the original gift? In effect he is just passing on that gifted money, although the benefactor has stated that it should be used amongst a pool of named people, but hasn't stipulated who gets what. His confirmation email to my client stipulates that he sees this money as a gift.
Don't forget the Universal Credit position
All this talk of running payrolls, weekly, monthly or annually is all very well, but what will need to be considered is whether the individual is entitled to make a claim for Universal Credits. Universal Credit is the successor to Tax Credits amongst other things and we will start to see claims for Universal Credit from October 2013 with existing tax credit claimants being transferred into the new system between 2014 and 2017. The current proposal is that HMRC once in receipt of someone's pay details will then forward it to the DWP who will calculate on a monthly basis an individuals entitlement to Universal Credit. With this in mind if you are running payrolls for clients at either regular or irregular intervals, you will need to find out if Universal Credit is being claimed by them as the timing of those payments and the amount will have an effect on someone's entitlement.
Business as usual with tax credits
I can agree with the previous post that we have seen letters like this before. There are a number of very important changes being made to the tax credits system over the the next two years before we see the introduction of Universal Credit. That isn't to say that Tax Credits will go completely in October 2013. There will be a transitional period between October 2013 and 2017 were claimants will start to be moved from Tax Credits to Universal Credit. What has been agreed is that there will be no NEW tax credit claims from April 2014.
As part of the Tax Credits Team (www.taxcreditsteam.co.uk) we are advising our member firms to advise the TCO that their clients should remain in the system from 6 April 2012. We don't have crystal balls and can't predict what our clients actual income is going to be in 2012/13 and certainly not by 31 March which is the deadline mentioned in the recent letter from the TCO.
Additionally, if clients are removed from the system this may well trigger a demend for any overpayments of tax creidts from earlier years which up until that time were only being collected via a small restriction in their award. By keeping the clients in the system, even if they end up getting nothing for 2012/13, it will delay the demand for repayment for at least another 12 months. Enough time to tell the clients that they will have to plan for this in 12 months time.
Because we can't predict our clients 2012/13 income with certainty, if the clients were to leave the system and at some later point in the 2012/13 tax year it becomes apparent that a claim can be made, the best your client can do is submit a claim and have it carried back for 1 month (currently 3 months for an claims submitted prior to 5 April 2012). Better to keep then in the system just in case. We do this in our practice and are still able to charge our clients or basic tax credits compliance fee.
Finally, by keeping your clients in the system for 2012/13 it does enable you to consider the planning possibilities to maximise your clients tax credits claim for that year which in turn may well increase their entitlement for the 2013/14 tax year.
There is still enough time for practices to benefit from offering a tax credits service but even if that is not of interest to some practices, it is so important that they have an understanding of the tax credits system and how the basic income/corporate tax planning advice they give out to clients impacts on their clients tax credit entitlement. The changes for 2012/13 and 2013/14 will have a major impact on clients household income, particularly at the lower end with clients earning around £25K a year and under. If accountants start giving tax advice without considering the tax credits position there will be a lot of unhappy clients as they may see a huge drop in their entitlement to tax credits which a lot of these people are relying on to meet their day to day living costs.
Steve Marsland - The Tax Credits Team
Don't forget the tax credits position
Don't forget to consider the clients tax credits position. Losses for tax credits are treated differently to Income tax. In the year of the loss they can be set against a partner/spouses income to reduce overall household income and as a result could actually increase a tax credits claim at an effective tax rate of 41%!
These losses can also have a bearing on future income for tax credits as where they cannot be relieved in the year of the loss they get carried forward to offset against the first available profits of the same trade.
The tax credits annual declaration form states in the self employed box "if you made a loss enter zero" What it doesn't tell you on the form is to reduce a spouse or partners income by the amount of the loss. That advice is shown on a working sheet which in my experience claimants never look for, let alone understand it if they do happen to locate it.
Also, the lower income will impact on the following years tax credit award which if the claimant has simply reported their self employment income as nil in 2010/11 will result in them losing out in tax credits in the following year.
Backdating Tax Credit Claims
Some very good points raised by Clint regarding backdating claims to 3 months before the form is sent in. When we talk to new clients, one of the first things we mention is tax credits and whether they are in the system or not. In most cases those people we talk to are eligible to make a claim even if it only entitles them to the family element of £545. The reasons we get for people not claiming vary from "I can't be bothered" to "I didn't think I qualify for them". When we explain that we can deal with their tax credits for them, for a fee of course, they are more than happy for us to put them into system, becuase we make it clear they will laways receive more than they pay us. Where we can we will always look to backdate an award notice by 3 months and do this by sending in a covering letter with the application form requesting that it be backdated. I must say that in most cases when the award notices are issued they have been backdated and those that aren't, a simple phone call to the TCO has resolved that issue and yet another 'rain forest' of documents is sent to the clients.
With regard to the filing of protective claims for the self employed, it is certainly an area that we have considered for clients and we do address the issue with all our clients and ask them if they would like us to submit a claim on their behalf. The problem is that accountants in general do not deal with their clients tax credit affairs and have never done so since they were introduced. I find it strange that accountants (I am one in practice as well!) are quite happy to prepare their clients tax returns a work out tax liabilities etc, but when it come to tax credits claims, which after all is simply another tax return with similar figures that are entered on the SA Return, they shy away from them completely. As accountants we all do tax returns because most of our clients need one and there is a statutory requirement to complete one. This is no different to tax credit claims and I think you will find that most of your clients are either in the system and really do need help with them or if not in the system, they should almost certainly be in the system.
Clint raises some good points about dealing with the TCO and I can say that over the years there are cases where it is like 'banging your head against a brick wall' when trying to resolve the particular issue with the TCO. Thankfully, I have to say there are only a few of them, but nevertheless still very frustrating.
With regard to the tax credits system, I agree with Clint that it is extremely complex and for a lay person to understand what figures to include in the application form and also the annual declaration is I believe almost impossible. There is simply to much information for the lay person to digest and understand. As accountants we can help our clients by understanding how tax credits work and also earn extra fees from it, which from my own practices perspective, on tax credit compliance fees alone are better than the tax return fees.
Steve Marsland
Tax Credits Software and training
We have developed a unique tax credits software and systems package that is due to be released to the accountancy profession at the end of October 2009. The current version of the software is being used by a number of accountants that are members of AVN, as is my firm of accountants, but at this time it can only be used by firms linked to AVN. This new software is all encompassing and has been created so that accountants can offer a tax credits service to their clients without having to 'reinvent the wheel'. We also train accountants on tax credits and also show them how to make money from offering this service in terms of compliance work, but also from planning scernarios that we have used over the last six and half years to maximise our clients tax credits entitlements.
The software and systems we are offering are unique and I can assure you that there is nothing remotely similar in the marketplace at the moment that come close to what we have, but then I would say that!!!. We know that IRIS have a tax credits product, which was PTP's version before they sold out to IRIS, but this is not comprehensive enough if you want to deal with your clients tax credits affairs. There are numerous faults with it (sorry Tim Good!) which make it unusable as an accurate piece of software for working out clients awards. The 2020 group also have some software which I have to say is marginally better than IRIS's version, but again is not robust enough and does not deal with all eventualities.
In addition to the software we have a whole bank system templates, marketing material, tracking module and also a support line. All of this is currently available to AVN members but the software they have, which does the job as it is, is being vastly improved so that any accountant wishing to get into tax credits can do so from the end of October.
For to long tax credits have been ignored by accountants. We have testimonials and emails from firms that after listening to us talk to them about tax credits and why they shouldn't ignore them and also how we make money from it (which clients are happy to pay!) they cannot believe they did not look at tax credits earlier. We have a testimonial from one firm that talked to 30 clients over the course of a month and made £10,000 in fees and know of another firm that took our marketing flyer and handed it out to individuals outside a supermarket and made £5,000 over a weekend. There is another firm that has commented upon how happy one of his new clients were when they were told they would be getting over £3K in tax credits and asked the question why the previous accountant didn't talk to them about tax credits. If as a firm you deal with tax credits for clients you will win business from it. I can say that with certainty because we have been doing it for six and half years and when we see new clients and talk to them about their tax credits, which incidentally if they are in the system most of them will be getting it wrong!, no other accountant has even mentioned tax credits to them.
From the initial post, it would appear this invidual is looking at tax credits for their clients which is great and therefore if anyone wants to know more about the software and systems what we have on offer please email me at [email protected] or [email protected] and I will send you details of exactly what the software and systems consist of that will be available from the end of October. We already have a number of accountants waiting for it!!!
Steve Marsland
Tax Credit Calculators
I would be very wary of using the 2020 tax tips and tools calculator and also PTP tax credits software (available via IRIS now) if you are going to rely on there calculations that will give you an answer that will agree with the award notice that is issued by the tax credits office. We have looked at both products as we believe these are the only two systems that are actively 'promoted' in the market place and without being to unkind to either product, they are not solutions that you would want to use regularly if you are going to deal with your client's tax credits affairs. There are a multutude of problems with these calculators and they do not cater for a lot of situations that your clients may find themselves in. To be fair to each of the products, I do not believe they have been designed to be used as a complete solution to dealing with clients tax credits. Instead, I believe they can only be used for the most basic of case to give a rough estimate of the likely amounts clients will receive.
The reason I am so critical of these products is that we have developed a tax credits system that accountants can use if they wish to manage their client's tax credit affairs. We have developed the system over the last 6 years as we as a practice have always dealt with our clients tax credits. We believe it is the complete solution as not only does it include award calculation software, but also a whole series of add on's such as standard letters, letter of engagement, marketing material, tracking documents etc and also a support line. We also train accountants on tax credits as well. Unfortunately, the systems are only available at this time to accountants that belong to the AVN network (www.avn.co.uk), but will soon be available to the wider accountancy profession.
If anyone would like any further information, please email me at [email protected].
Steve Marsland