The deadline for renewing tax credits – working tax credit (WTC) and child tax credit (CTC) – is 31st July 2019. The renewal process does two things:
- It finalises the award for 2018/19 based on final information about income and circumstances for that year; and
- It renews the claim for 2019/20.
Regardless of how you renew, all tax credit claimants should get a renewal pack which is sent out between April and June. If you haven't received your renewal pack by 27th June, you should contact the Tax Credits Helpline.
What is in the Tax Credits renewal pack?
Your pack may include either:
- A TC603R Award Review Letter; or
- A TC603RR Annual review plus
- TC603D Annual Declaration (reply required) or
- TC603D2 (if HMRC need information for more than one year)
The pack will also include guidance notes, which you should read, even if you plan to renew online.
If you receive a TC603R Award Review letter, you must check that all the details shown are correct and that any changes to your circumstances have been reflected. If all the details are right, you do not need to anything; HMRC will renew your tax credits automatically.
If you claim universal credit, then the process is different.
What counts as income for tax credits purposes?
- Pay – your earnings before tax and National Insurance:
- check your P60 or payslips if you’re employed, or
- your Self Assessment tax return if you’re self-employed
- Benefits from your employer (check your P11D or P9D)
- Certain state benefits (see below)
- Money from a pension – including your State Pension
- Interest on savings
- Your partner’s income – if you make a joint claim
What is excluded as income for tax credits purposes?
Some benefits are tax-free and therefore do not need to be included, such as:
- Child Benefit
- Housing Benefit
- Attendance Allowance
- Disability Living Allowance
- Personal Independence Payment
- The foreign equivalents of UK tax-free benefits
Tax credit renewals for the self-employed
How to calculate self employment income for your tax credit renewal
Tax credits generally follow the tax system when it comes to calculating income from self-employment. You take your taxable profit and deduct various allowed items such as gift aid donations and pension contributions. The remaining figure is to be entered into the self-employment income box on the form. If the figure is a loss, 0 should be entered on the form.
Self employed losses for tax credit renewals
A trading loss in a year must be set off against other income for that year. Furthermore, for joint claims a trading loss must be set off, for tax credits, not only against the trader's current year income but also against the income of their partner.
Any loss still remaining may be carried forward and set off against profits of the same trade in future years for tax credits – much like the treatment for Self Assessment Tax Return purposes, provided the business is carried out on a commercial basis and with a view to realising profits.
But there is no carry-back of losses for tax credits.
Tax returns and the tax credit renewal process
Tax returns for 2018/19 do not need to be filed with HM Revenue and Customs (HMRC) until 31st October 2019 for paper returns or 31st January 2020 for returns filed online. However, if you are self-employed and in receipt of tax credits, you must provide HMRC with some figures usually no later than 31st July 2019.
If you have not yet completed your tax return, you may need to give HMRC a good estimate of your income for the current year of your claim. If your estimate is too high, you will be underpaid tax credits. If it is too low, you risk being overpaid. In view of the difficulties some people have repaying overpayments, it is probably better to estimate slightly on the high side for your income figure.
If you do provide HMRC with estimated figures, you should indicate this on your renewal and should provide them with actual figures by 31st January 2020.
Self employed hours for tax credits
One of the areas that is particularly tricky for the self-employed to complete, is the number of hours they work. HMRC’s manuals state that it should be ‘the number of hours he normally performs for payment or in expectation of payment’. This should include for example bookkeeping, trips to wholesalers, visits to potential clients, time spent on networking and marketing the business and cleaning the business premises.
Self-employed WTC claimants must show that they are trading on a commercial basis and their business is done with a view to achieving profits. The self-employment should also be structured, regular and ongoing. For example, if their business activity is a hobby it is not likely to be considered commercial or have an expectation of realising a profit.
As part of their checks, HMRC will look at your self employment income against the trading hours you enter. They will compare this "hourly rate" against the national living wage. If it looks low, HMRC may ask for additional information.
These checks are about ensuring HMRC only pay tax credits to those who are entitled. WTC will continue to support those who are carrying on a genuine business activity. These rules are not applied to Child Tax Credit.
Tax credit renewals for employees
You should carefully check your renewal pack and compare the figures shown in your P45 or P60 for 2018/19. If you disagree with the figures or there are discrepancies, HMRC encourages you to first double-check the figures with your employer. If there is an error with HMRC’s figures, you should contact the Tax Credits Helpline as soon as possible.
What if I don’t want to renew?
It's important to reply; even if you don't want to renew your claim. This is because the renewal process is also a check that you have received the right amount of tax credits for the previous year.
If you do not reply when HMRC is expecting you to, HMRC may stop your payments and treat all the payments made to you in the year as an overpayment and seek to recover them.
How do I renew my tax credits?
Some claims may automatically be renewed- you'll need to check your pack. If your award doesn't automatically renew, you can renew your tax credits by:
If you opt for the paper form it’s worth knowing that it’s read by a machine, so it’s important that you:
- Use black ink
- Write inside the boxes, using one box for each letter or number
- Leave any boxes that don’t apply to you blank – don’t write ‘not applicable’ or strike through them
- Put a line through your entry if you make a mistake, and write the correct information underneath the box
- Read all the questions carefully
Whichever option you go for, HMRC will tell you how much you’ll receive within eight weeks of receiving your renewal.
We can help
If you would like to concentrate on running the business, we can assist with all sorts of aspects relating to tax credits. We could also help you complete your tax return nice and early; in readiness for your tax credit renewal.
Contact us today to find out more about our services for employers or taxpayers and how they can benefit you on 0800 0523 555 or use our simple online contact form.
By Samantha Skyring FCCA
Last updated June 2019
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.