The deadline for renewing tax credits - working tax credit (WTC) and child tax credit (CTC) - is 31 July 2014. The renewal process does two things:
- It finalises the award for 2013/14 based on final information about income and circumstances for that year; and
- it renews the claim for 2014/15
Claimants can renew by returning a form or over the phone to the Tax Credits Helpline. In some instances, you may also be able to renew online.
Regardless of how you renew, all tax credit claimants should get a renewal pack which are sent out between April and June. If you haven't received your renewal pack by 28 June, contact the Tax Credits Helpline.
What should I receive?
Your pack may include either:
- An Annual Declaration form (TC603D or TC603D2) plus an Annual Review notice (TC603R) - both sent out in one A4 size white envelope; or
- Just an Annual Review notice (TC603R) - sent out in an A5 size brown envelope.
If you receive both an Annual Declaration form and an Annual Review notice, you must reply by the 31 July 2014.
What counts as income?
- 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 does not count as income?
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
Renewals for the self-employed
Calculation of profits
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.
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 return not completed yet?
Tax returns for 2013/14 do not need to be filed with HMRC until 31 October 2014 for paper returns or 31 January 2015 for returns filed online. However, if you are self employed and in receipt of tax credits you must provide HM Revenue & Customs (HMRC) with some figures usually no later than 31 July 2014.
To avoid overpayments and underpayments of tax credits during the year, 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.
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 it should be "the number of hours he normally performs for payment or in expectation of payment". for example, this should include bookkeeping, trips to wholesalers, visits to potential clients, time spent on networking and marketing the business and cleaning the business premises.
Employers have had to abide by new reporting rules for 2013/14, which required them to submit real-time information to HMRC about the wages they have been paying you. As a result, this year your Review Notice should show your total gross pay for the year.
You should carefully check your Review Notice and, in particular, compare the figures shown in your P45 or P60 for 2013/14. If you disagree with the figures or there are discrepancies, HMRC is encouraging 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 (as opposed to your employer).
If you only have employment or pension income, you may find that your pack only includes a Review Notice. If this is the case, (unless you find an error) you may not need to reply to HMRC and instead, your claim will be automatically renewed.
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, it will treat all of the payments made to you in the year as an overpayment and seek to recover them.
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 support you in your role as an employer and complying with Real Time Information rules. 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
By Jo Nockels
Last updated June 2014
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.