A tax credit guide for self-employed parents - Contact a Family

A tax credit guide forself-employed parents1Information for familiesA tax credit guide for self-employed parentsUKIncorporating The Lady Hoare Trust

IntroductionThe rules for getting tax credits are very complicated, perhapsmore so if you are a parent of a disabled child. And certainlyif you or your partner happen to be self-employed.This guide explains everything you need to know aboutclaiming tax credits generally and some particular issuesself-employed parents may need to be aware of. Tax creditsinteract with benefits for families on a low income, and youcan find out more about this towards the end of the guide.For individual advice, ring our freephone helpline and we willarrange for a specialist adviser to talk to you.ContentsWhat are tax credits?.......................................................................................... 3Who is included in my claim?........................................................................ 4Can I claim Working Tax Credit?.................................................................... 4Extra money in Working Tax Credit for childcare costs......................... 5Can I claim Child Tax Credit?.......................................................................... 7How are tax credits paid?................................................................................. 7Calculating my tax credit award..................................................................... 7How income affects a tax credits award.................................................... 8How do I calculate my annual income for tax credit purposes? ...... 9Accounting periods and assessing taxable profits for tax credits....10How do I work out my taxable profits? ...................................................11Trading loss.........................................................................................................11What income is ignored?...............................................................................11How much tax credit will I get?...................................................................12Using the tables to calculate your award.................................................12How do I claim tax credits?...........................................................................17At the end of the tax year..............................................................................17What if my circumstances change during the tax year?.....................18What happens if I have been overpaid tax credits?.............................20Tax credits and other help for families on low incomes....................212A tax credit guide for self-employed parents

Information in this guideThe information in this guide is based on the rules for claiming tax credits forself employed people for the tax year 2012/2013.What are tax credits?Many self-employed people are ableto claim extra financial help in the formof tax credits. There are two tax creditsoffering financial support for families –Working Tax Credit and Child Tax Credit.Working Tax Credit can be claimed byanyone who is responsible for a child andwho works (including self-employment)for a minimum number of hours a week.Certain other self-employed people whodon’t have children can also apply.Child Tax Credit can be claimed byfamilies with children regardless ofwhether you work or not.If you would like a full breakdownof your likely entitlement, or requireany further information on tax credits,please call our freephone helpline.From October 2013, tax credits willbegin to be replaced by the UniversalCredit, a new means tested benefit forworking age people. No new claims fortax credits will be accepted from 6 April2014 and existing tax credit claimantswill be moved onto the UniversalCredit between 2014 and 2017. Callour freephone helpline on0808 808 3555 for information aboutthe introduction of the Universal Credit.These credits are administered by HerMajesty’s Revenue and Customs (referredto here as the Revenue) and, dependingon your circumstances, it is possible toqualify for either or both. Although taxcredits are income based you should notassume that you have too much moneyto qualify.This publication is intended as a generalguide for families who are looking aftera child with a disability where a parentis self-employed. It includes readyreckonertables to give you an indicationof how much tax credit a family in yourcircumstances should receive.Freephone helpline: 0808 808 3555www.cafamily.org.ukA tax credit guide for self-employed parents 3

Who is included inmy claim?Couples must make a joint claim. Thisincludes couples living with a same sexpartner. You can claim for:• a child who normally lives with you,up until the September after their16 th birthday• a young person up until the age of 19where they are on a full-time course ofnon-advanced education or unwagedwork-based training. This can beextended up to the young person’s 20 thbirthday, so long as they are completinga course of education or training thatthey started, or were accepted on to,before turning 19.If a young person starts to claimcertain benefits in their own right (suchas Income Support, income-basedJobseeker’s Allowance or Employmentand Support Allowance) this will meanthat you can no longer receive tax creditsfor them.Can I claim WorkingTax Credit?In order to claim Working Tax Credit youmust be:• aged 16 years or over, and• living in the UK and not subject toimmigration control (with someexceptions), and• be responsible for at least one childand also be treated as working arequired number of hours a week.If you are a lone parent you must beworking at least 16 hours a week. Ifyou are a member of a couple withdependent children then you arenormally expected to work at least 24hours a week (these hours can eitherbe worked by one partner or sharedbetween you so long as one person isworking at least 16 hours). However,some couples, including certaincarers, can claim despite only working16-23 hours a week in total.You are exempt from the 24 hour ruleif you are a couple with a dependentchild and:• one partner works 16 hours or moreand the other partner is entitled toCarer’s Allowance. This applies not onlyif you get Carer’s Allowance, but also ifyou have an ‘underlying entitlement’ tothis benefit (that is, you have claimedCarer’s Allowance but are not actuallyreceiving payments because you getanother benefit instead), or• one partner works at least 16 hours4A tax credit guide for self-employed parents

and the other partner is incapacitated,or in hospital or in prison, or• the working partner is either a disabledworker or someone aged 60 andthey are working at least 16 hours.This latter group of couples can claimWorking Tax Credit even if they have nodependent children.You are treated as working for thenumber of hours you ‘normally performfor payment or in expectation ofpayment’. This includes both work doneand billed to the customer, and the timespent on ‘activities necessary to youremployment’. This might include:• trips to wholesalers• visits to potential clients• time spent cleaning the businesspremises or cleaning a vehicle used aspart of the business• time spent advertising, canvassing, orbook-keeping.The work you do must be ‘in expectationof payment’. This means more than amere hope that payment will be madeat a future date. There should be aprobability rather than just a possibilitythat a payment will be made. If youreasonably expect payment for workdone, but the customer does not pay,then the condition is satisfied. However,if you knew before starting the work thatpayment was unlikely to be made, youwill struggle to meet this condition.Some self-employed people workirregular hours, which vary from week toweek. In these cases the Revenue will askyou for details of all the hours you havebeen working in order to try and assesswhat your ‘normal’ weekly hours are.If you have stopped working becauseyou are taking leave due to maternity,paternity, adoption or because you areill or incapable of work, you can still betreated as working for a temporary period.Also, if you stop working altogether orreduce your hours below the requirednumber of hours, you can continue toreceive Working Tax Credit for four weeks.However, you must tell the Revenueabout this change in circumstances withinone month. Contact the helpline forfurther details.Please note some self-employed peoplewithout children (for example, selfemployedpeople with disabilities) arealso able to claim Working Tax Credit. Ifyou do not care for a child you shouldseek advice from a local citizens advicebureau (CAB) or welfare rights service.Extra money inWorking Tax Credit forchildcare costsIf you spend money on childcare whenyou work, your claim for Working TaxCredit may include help with ‘eligiblechildcare costs’. In order for your childcarecosts to be taken into account you mustbe either:• a lone parent who works at least 16hours per week, or• a couple who both work 16 hours ormore per week, orFreephone helpline: 0808 808 3555www.cafamily.org.ukA tax credit guide for self-employed parents 5

• a couple where one member of thecouple works 16 hours or more a weekand the other is entitled to Carer’sAllowance, or• a couple where one member works 16hours or more per week and the otherreceives certain disability/incapacitybenefits (or they are in hospital or prison).Before April 2012 it was not possibleto get help with childcare costs if onepartner worked 16 hours or moreand the other was entitled to Carer’sAllowance. If you are in this category andhave been paying for childcare, makesure that you tell the tax credits officeabout this, so that you can start to haveyour childcare costs taken into account.What type of childcare can be takeninto account?Only registered or approved childcarecan be taken into account. This includesregistered childminders, nurseriesand other schemes run by approvedproviders. Care in the child’s own homecan also be counted if it is provided bysomeone who is registered. Childcareprovided by a relative in the child’s homeis not counted – even if that relative isa registered childminder. Dependingon where in the UK you live, you mayalso be refused help with the costs ofregistered childcare provided by a closerelative in their home.If a child is on Disability Living Allowance(DLA) or is registered blind, childcarecosts can be included until theSeptember after their 16 th birthday.Otherwise, childcare costs can only beincluded until the September after their15 th birthday.The amount of childcare costs that canbe includedThe maximum amount of childcare thatcan be taken into account is £175 perweek for one child, and £300 per weekfor two or more children. Only 70 percent of childcare costs can be met. Thismeans that the most that can actuallybe included towards childcare costs is£122.50 per week (70 per cent of £175)for one child, and £210 per week (70 percent of £300) for two or more children.These are the maximum amountspayable and the actual amount that youwill get depends on your income andfamily circumstances.If I get extra tax credits towards mychildcare costs will this affect anyHousing Benefit or Council Tax Benefitthat I get?You should always tell the office thatpays you Housing Benefit or CouncilTax Benefit about any changes to yourtax credit payments. But in most casesthese benefits will not be reduced if youstart getting extra tax credits towardschildcare costs. This is because of aspecial earnings disregard (the amountof money that is not counted) that islinked to your childcare costs whencalculating these benefits. However,no special earnings disregard appliesif you are a couple where one partnerworks 16 hours and the other is entitledto Carer’s Allowance. Couples in thiscategory are likely to find that the extratax credits they get towards childcareleads to a reduction in Housing andCouncil Tax Benefit payments.6A tax credit guide for self-employed parents

Can I claim ChildTax Credit?In order to claim Child Tax Credit youmust be:• aged 16 years or over, and• living in the UK and not subject toimmigration control (with someexceptions), and have the right toremain in the UK, and• be responsible for at least onedependant child.Child Tax Credit can be claimedregardless of whether you are workingor not and is paid on top of any ChildBenefit you get. The amount of Child TaxCredit that you receive may be higherif you have a child on Disability LivingAllowance (DLA). This is because an extraamount, known as the ‘disability element’,is added to your tax credit calculation foreach child who is on DLA or is registeredblind.If your child gets the highest rate of theDLA care component a further ‘severedisability element’ is added. Child TaxCredit can either be paid by itself oralongside Working Tax Credit.How are tax credits paid?Working Tax Credit (except for anychildcare element) is paid to the parentwho is working. Child Tax Credit and anyWorking Tax Credit towards childcarecosts are paid to the child’s main carer.Payments are usually by direct transferinto a bank account. You can chooseweekly or four-weekly payments.Calculating my taxcredit awardThe amount of tax credit that you receivedepends on your family’s personalcircumstances and on your gross annualincome.The personal circumstances thatare taken into account are:for Working Tax Credit• whether or not you are a lone parent ora member of a couple• whether you work 30 hours or more aweek (it is usually possible to add youand your partner’s hours together)• whether you have a disability• whether you or your partner get thehigh rate DLA care component• whether you have eligible childcarecosts.Freephone helpline: 0808 808 3555www.cafamily.org.ukA tax credit guide for self-employed parents 7

for Child Tax Credit• the number of dependent children youhave• the number of children who get anyrate of DLA or are registered blind• the number of children who get thehigh rate DLA care component.How income affects a taxcredits awardYour entitlement to tax credits will alsodepend on your annual income. If youare a member of a couple then yourpartner’s income is also counted. Adependent child’s income is never takeninto account. Your tax credit award isusually assessed on your income fromthe previous tax year. This means thatif your annual income increases it willnormally have no effect on your tax creditaward until the beginning of the new taxyear. The only exception to this is if yourincome for 2012/2013 is likely to exceedyour income in 2011/2012 by morethan £10,000. In such circumstances thecurrent year’s estimated income minus£10,000 is used.Because of this £10,000 disregard,your profits can rise without necessarilyaffecting your current tax credit award.However, you need to remember thatthe following year’s tax credit award willbe affected and could fall. You should tryand budget accordingly. From April 2013the rules will change so that only thefirst £5,000 of an increase in income isdisregarded.What if I expect my current year’sincome to be lower than last year?If your annual income goes down fromthe previous year but the reduction is£2,500 or less, your award will still bebased on your previous year’s income. Ifyour income drops by more than £2,500then your award will be based on yourcurrent year’s income plus £2,500 (thatis, on a figure that is £2,500 higher thanyour actual income this year).Even if you think that your income is toohigh to get tax credits it is still worthwhilemaking a claim. This will protect yourright to backdating of tax credits if youhave an unexpected reduction in incomelater in the year. Tax credit claims canonly usually be backdated for onemonth, so making a protective claim atthe beginning of the year will make surethat you do not lose out if your incomeunexpectedly drops later.8A tax credit guide for self-employed parents

How do I calculate myannual income for taxcredit purposes?As a general rule income that is taxable istaken into account. If you have a spouse/partner remember to include their income.Step oneAdd together:• pension income• investment income (for example, taxableincome from savings and shares)• property income (rental from a propertywhere this is not conducted as partof a business. If you do rent propertyas part of a business then this istreated as trading income from selfemploymentinstead)• income from abroad• notional income (income you aretreated as having by the Revenue. Forinstance this may apply where you havedeprived yourself of income in order toclaim more tax credit, or where you• have reduced or waived earnings andthe person receiving the service couldhave afforded to pay the full rate).If the total is £300 or less, ignore it. If it ismore, deduct the first £300.Step twoAdd together:• any gross earnings (that is, if you oryour spouse/partner have any earningsas an employee)• taxable social security income (somebenefits such as Carer’s Allowance aretaxable)• miscellaneous taxable income.Step threeAdd together the amounts from stepsone and two.Step fourWork out your taxable profits from selfemployment.Freephone helpline: 0808 808 3555www.cafamily.org.ukA tax credit guide for self-employed parents 9

Accounting periods andassessing taxable profitsfor tax creditsTax credits are awarded for the tax yearApril to April but some businesses haveaccounting periods which are not in linewith the tax year. In calculating earningsfrom self-employment, ‘previous year’sincome’ actually means ‘taxable profits inthe accounting period that ends beforethe beginning of this tax year’. ‘Currentyear’s income’ means the taxable profitsin the accounting period which endsduring this tax year.If your accounting period ends between31 March and 5 April, then it willcorrespond to the tax year. However, ifyour accounting period ends earlier inthe tax year then working out the correctannual income will be more complex.For example, if your accounting periodends on 31 July, then, for a tax creditaward covering April 2012/April 2013,your previous year’s income will bebased on the accounting period August2010/July 2011 (the accounting periodending in the year before April 2012).Current year’s income will be based onthe accounting period August 2011/July2012 (the accounting period that endswithin the year April 2012/April 2013).If you have an accounting period thatends early in the tax year, problemscan emerge if your income fromself-employment suddenly dropsunexpectedly. In such circumstances it ispossible to experience reduced incomefrom your business alongside low taxcredit entitlement and high tax bills.ExampleMs Khan runs her own business andhas an accounting period that ends onthe 31 July. She claims tax credits and,for the year April 2012/April 2013, heraward is based on her previous year’sincome – which means the accountingperiod August 2010/July 2011. Inlate 2012, Ms Khan’s business losesa major contract and her profits fallsubstantially.If Ms Khan asks for her award to bebased on an estimate of her currentyear’s income instead, this will nothelp. This is because her currentyear’s income is actually based on theaccounting period August 2011 - July2012. Since the drop in Ms Khan’sincome occurred after July 2012,it cannot be taken into account inassessing her tax credit award forApril 2012/April 2013.It is possible to switch your accountingyear end to between 31 March and5 April. However, you should speakto your accountant about this in moredetail since making such a switch cantake a number of years. Also, theremay be other reasons why a specificaccounting period is particularlysuitable to your business. If you donot have an accountant you can seekadvice from your local tax office.10A tax credit guide for self-employed parents

Add this figure to the figure in step three.If you have a loss, subtract it from thefigure in step three.Finally deduct any:• bank conversion charges/commissionon any income you have received inother currencies• gross gift aid, payroll giving or give-asyou-earndonations in the current year• gross pension contributions.How do I work out mytaxable profits?This is the amount of profit for the taxyear once allowable expenses havebeen deducted from annual turnover.If you are a partner in a business, thenit is your taxable profit from your shareof the business that is counted. Yourtaxable profit is shown on your tax returnfor the relevant year. If you have notyet submitted a tax return, the notesaccompanying the tax credit claim formdownloadable at www.hmrc.gov.uk/forms/tc600-notes.pdf explain how towork out your taxable profit.Please note that your taxable profitis unlikely to be the same as youraccounting profit. This is because not allexpenses are allowed by the Revenue astax deductable, even where they are validfor accounting purposes.More detailed advice on calculatingtaxable profits is available from theRevenue’s Self-Assessment Helpline on0845 9000 444.Trading lossIf your business has made a loss, thenyour income for the tax year is nil,unless you have other income taken intoaccount for that year. If you do have otherassessable income, deduct the tradingloss from that other income. If you donot have enough other income to offsetthe whole amount of any loss, any lossleft over can be carried forward anddeducted from profits of the same tradein future years.Working out your taxable income forthe previous and current years shouldbe relatively straightforward so long asyour accounting period ends between31 March and 5 April. However, if youraccounting period ends on a differentdate, you need to make sure that youbase your annual income on the correctaccounting period (see page 10).What income is ignored?Some income is completely ignored fortax credits purposes. This includes:• maintenance payments• most forms of student income• adoption/fostering payments (but notany reward element)• Disability Living Allowance• Attendance Allowance• Child Benefit• Guardian’s Allowance• Income SupportFreephone helpline: 0808 808 3555www.cafamily.org.ukA tax credit guide for self-employed parents 11

• Income-based Jobseeker’s Allowance• Income-related Employment andSupport Allowance• Bereavement Payment• Maternity Allowance• the first £100 per week of any StatutoryMaternity, Statutory Paternity orStatutory Adoption Pay• Severe Disablement Allowance• transitional long-term Incapacity Benefit(that is, in payment since before 13April 1995)• Industrial Injuries Benefit• rental income from a property underthe rent-a-room scheme (this allowsyou to rent furnished accommodationin your home and to earn up to£4,250 per annum tax free).This list is not exhaustive – some otherforms of income are also ignored.What if I have a lot of capitalor savings?There is no capital limit preventing aclaim for tax credits. Instead, any taxableincome you receive from your capitalis counted, for example interest onyour savings (unless this is in a tax freesavings account such as an ISA).How much tax credit willI get?The Revenue uses your family’scircumstances to work out a ‘maximumtax credits entitlement’. If you getIncome Support, income-basedJobseeker’s Allowance, income-relatedEmployment and Support Allowanceor Pension Credit you are automaticallyentitled to the maximum amount oftax credit.Otherwise you need to compare yourannual taxable income to a set threshold.This is £15,860 if you are only eligiblefor Child Tax Credit and £6,420 if you arealso eligible for Working Tax Credit.If your income is at or below thethreshold you will receive the maximumtax credits award for your circumstances.If your annual taxable income is higherthan the relevant threshold the awardwill be reduced – for every £1 of incomeyou have above the threshold, yourmaximum tax credits entitlement isreduced by 41p.Even if your income means that youdon’t qualify for tax credits, it is still worthmaking a claim. Although you will get adecision saying that you have a nil award,this will protect your right to backdating oftax credits in the event that your incomeunexpectedly drops later in the year.Although tax credits are income-based,you should not assume that you have toomuch money to qualify. For example ifyou have a large family or high childcarecosts you can still qualify for tax creditseven if your income is over £50,000. Useour ready-reckoner tables to get an idea ofhow much tax credits you might receive.Using the tables tocalculate your awardThe following pages include a numberof ready-reckoner tables to help youestimate the amount of tax credit youmight be entitled to. Although tax creditsare usually calculated as an annualaward, the tables show the weeklyequivalents.12A tax credit guide for self-employed parents

All amounts are rounded down to thenearest pound.If neither you nor your partner work forthe necessary number of hours to beeligible for Working Tax Credit, useTable 1. There are separate columnsdepending on the number of childrenyou have and how many of them aredisabled. A child is classed as disabledif they are registered blind or if they arein receipt of DLA at any rate. Use theappropriate column to get an idea ofhow much tax credits a family in yourcircumstances might receive (remember,the weekly amount is given in the tables).If either you or your partner work thenecessary number of hours (see earliersection ‘Can I claim Working Tax Credit’),the table you should turn to depends onthe number of children in your family andhow many of them are disabled.A child is classed as disabled if they areregistered blind or they are in receiptof DLA.• if you have one child and that child isdisabled use Table 2• if you have two children and one ofthem is disabled use Table 3• if you have two children and both ofthem are disabled use Table 4• if you have three children and one ofthem is disabled use Table 5• if you have three children and two ofthem are disabled use Table 6.Using the tables if you have eligiblechildcare costsThe amount of tax credits you receivemay be higher if you are paying foreligible childcare. Tables 2-6 have extracolumns showing the tax credits awardparents might receive where they arepaying the maximum amounts towardseligible childcare. See the earlier sectionon ‘Extra money in Working Tax Creditfor childcare costs’ for details on whenchildcare is counted. Help with childcarecosts is not possible if you are onlyeligible for Child Tax Credit.Table notes*Table 1 note:If you have a child in receipt of thehigh rate of DLA care component,you may qualify for higher payments.**Table 2,3,4,5 and 6 notes:These tables assume that families withincomes of £10,000 and above areworking for 30 hours a week or more.Higher payments may be made tofamilies with a disabled worker or witha family member on the high rate ofDLA care component.Freephone helpline: 0808 808 3555www.cafamily.org.ukA tax credit guide for self-employed parents 13

Table 1: eligible for child tax credit only*AnnualtaxableincomeFamilywith onechild whois disabled(£) weeklyFamilywith twochildren, oneis disabled(£) weeklyFamily withtwo children,both aredisabled(£) weeklyFamilywith threechildren, oneis disabled(£) weeklyFamilywith threechildren, twoare disabled(£) weekly£15,860 118 170 226 221 278and under£20,000 86 137 194 189 245£25,000 46 98 155 149 206£30,000 7 59 115 110 167£35,000 nil 19 76 71 127£40,000 nil nil 36 31 88£45,000 nil nil nil nil 49£50,000 nil nil nil nil 9£55,000 nil nil nil nil nilTable 2: Working family with one child, that child being disabled**Annualtaxable income£6,420 orunderNo eligible childcare costs(£) weeklyIncludes maximum childcarecosts (£) weekly193 315£10,000 180 302£15,000 140 262£20,000 101 223£25,000 62 184£30,000 22 144£35,000 nil 105£40,000 nil 66£45,000 nil 26£50,000 nil nil£55,000 nil Freephone helpline: nil 0808 808 3555www.cafamily.org.uk14A tax credit guide for self-employed parentsA tax credit guide for self-employed parents 14

Table 3: working family with two children, one of whom is disabled**Annualtaxable incomeNo eligiblechildcare costs(£) weeklyIncludes maximumchildcare for onechild (£) weeklyIncludes maximumchildcare for twoor more children(£) weekly£6,420 or245 367 455under£10,000 232 354 442£15,000 192 314 402£20,000 153 275 363£25,000 113 235 323£30,000 74 196 284£35,000 34 156 244£40,000 nil 118 205£45,000 nil 78 166£50,000 nil 39 126£55,000 nil nil 87Table 4: working family with two children, both of whom are disabled**Annualtaxable incomeNo eligiblechildcare costs(£) weeklyIncludes maximumchildcare for onechild (£) weeklyIncludes maximumchildcare for twoor more children(£) weekly£6,420 or301 423 511under£10,000 288 410 498£15,000 249 371 459£20,000 209 331 419£25,000 170 292 380£30,000 131 253 341£35,000 91 213 301£40,000 52 174 262£45,000 12 134 222£50,000 nil 95 183£55,000 nil 56 14315A tax credit guide for self-employed parentsA tax credit guide for self-employed parents 15

Table 5: working family with three children, one of whom is disabled**Annualtaxable incomeNo eligiblechildcare costs(£) weeklyIncludes maximumchildcare for onechild (£) weeklyIncludes maximumchildcare for twoor more children(£) weekly£6,420 or296 418 506under£10,000 283 405 494£15,000 244 366 454£20,000 204 326 414£25,000 165 287 375£30,000 126 248 336£35,000 86 208 296£40,000 47 169 257£45,000 7 129 217£50,000 nil 90 178£55,000 nil 51 138Table 6: working family with three children, two of whom are disabled**Annualtaxable incomeNo eligiblechildcare costs(£) weeklyIncludes maximumchildcare for onechild (£) weeklyIncludes maximumchildcare for two ormore children(£) weekly£6,420 or353 475 563under£10,000 340 462 550£15,000 301 423 511£20,000 261 383 471£25,000 222 344 432£30,000 182 304 392£35,000 143 265 353£40,000 103 225 313£45,000 64 186 274£50,000 25 Freephone 147 helpline: 0808235808 3555£55,000 nil www.cafamily.org.uk106 19516A tax credit guide for self-employed parentsA tax credit guide for self-employed parents 16

How do I claimtax credits?Child Tax Credit and Working Tax Creditare administered by the Revenue andboth are claimed on application formTC600. This is available from your localRevenue office or by calling the TaxCredits Helpline:Tel: 0345 300 3900Textphone: 0345 300 3909Backdating tax creditsSince April 2012 claims can only bebackdated up to one month (previouslyit was 93 days). Generally, the Revenueautomatically consider backdating.However, there have been cases wherethis has not happened. To ensure thatbackdating is considered in your case,you should either attach a writtenbackdating request to your claim pack orcall the Tax Credits Office to request it.Getting a decision on your claimOnce the Revenue has processed yourclaim they should send you an awardnotice. This will outline not only theamount of tax credits that you are beingpaid but also the family circumstanceson which your award was based (forexample, your annual taxable income, thetotal number of dependent children youhave, and the number of children classedas disabled).It is important that you check thisinformation to make sure that it isaccurate. If it is not, then it could lead toeither an underpayment or overpaymentof tax credits.At the end of the tax yearOnce awarded, tax credits normally lastuntil the end of the tax year. The Revenuethen carry out an annual review. Theyissue you with a review pack outlining thepersonal details used to calculate yourexisting award, which you must check foraccuracy. You will be asked to complete adeclaration form, confirming or amendingyour details and also confirming yourannual taxable income for the year that’sjust ended. If you made more than oneclaim for tax credits in the previous year(for example, because you separatedfrom your partner and made a newclaim as a lone parent), you will receivea separate review pack for each claim –you should complete each pack, even ifthey ask for the same information. Thismust be done by a date specified on theform – usually the 31 of July.Once the Tax Credits Office receives yourcompleted declaration form they will usethis information to help calculate yourtax credits award for the new tax year.They will also use these details to checkwhether you have received the correctamount of tax credits in the year just past.If you have been underpaid tax creditsyou should receive a lump sum for anyarrears. If you have been overpaid taxcredits, the Revenue may seek to recoverthe excess paid – usually by reducingyour award for the new tax year (see thesection on ‘What happens if I have beenoverpaid tax credits’).You must respond to the Tax CreditsOffice by the 31 July (unless the formis sent to you after 1 July in which caseyou get 30 days to reply). If you cannot17A tax credit guide for self-employed parentsA tax credit guide for self-employed parents 17

supply definite details of your taxableincome for the year by that date, forexample because your accounts have notbeen finalised, then you must provide anestimated figure instead. This estimatedfigure will then be used to calculatea provisional award for the new taxyear. It is important that you provide asaccurate an estimate as you can, as if youunderestimate your income you are likelyto end up with an overpayment.You will then need to confirm your actualtaxable income by the end of January (inother words, the same deadline for filingyour tax self-assessment).What happens if I am late in returningmy tax credit declaration?If you fail to return your tax creditdeclaration by 31 July, your tax creditpayments will stop. You will then be givenan extra 30 days to return the declaration.So long as you do so your claim willbe restored. However, if you miss thisdeadline the Revenue will also seek torecover any payments you have receivedsince the beginning of that new tax year.If you return your declaration after thedeadline, the Tax Credits Office mayagree to backdate your award in full.However, they will only do this if you canshow good cause for not returning thepapers in time and you respond beforethe end of January.If you miss the January deadline oryou cannot establish good cause youwill need to make a fresh claim for taxcredits. This will only be backdated for amaximum of one month. Consequently,any provisional payments that youreceived between the start of the tax yearand your new claim starting will have tobe repaid.In addition to losing out on tax credits,failing to renew your claim in time canalso attract a penalty. The Revenue cancharge a penalty of up to £300 for failureto submit an annual declaration, plus upto £60 per day if the failure continuesafter the initial penalty is imposed.These are not automatic penalties, andwill not be charged if the person hada reasonable excuse for the delay andrenewed as soon as possible.There are also much higher penaltiesfor fraudulently or negligently making anincorrect statement in response to an endof year notice.What if my circumstanceschange during thetax year?Although a tax credit award will normallyrun until the end of the tax year, it canbe adjusted during the year if there is arelevant change of circumstances. Certainchanges must be reported to the TaxCredits Office within one month or youwill face a £300 penalty. These are:• a change in the number of adultsclaiming (for example, going from acouple to a lone parent or vice versa)• a reduction in average childcare costsby £10 or more for at least four weeksin a row• if you or your partner go abroad formore than eight weeks (12 weeks ifyou go abroad due to a family illnessor bereavement)18A tax credit guide for self-employed parents

• if you stop working the minimumnumber of hours required for WorkingTax Credit (this is either 16 or 24hours a week depending on yourcircumstances)• if your working hours drop from 30hours or above to below 30 hours• if you stop being responsible for adependent child or young person, forexample if they are no longer normallyliving with you• if a young person in your family ceasesto qualify for support via tax credits. Forinstance, this might happen becausea young person leaves full-time nonadvancededucation or because theystart claiming Employment and SupportAllowance or Income Support in theirown right• if a dependent child or young person dies.• if you are a person from abroad andhave lost your ‘right to reside’ in the UK.Other changes in your circumstances donot have to be reported until the endof the year. However, it may be in yourinterests to report some changes sooner.There is a one month backdating rulewhich means that you may lose moneyif you delay in telling the Revenue about achange that would increase your tax creditaward (for example having a new baby).to an increase in your award then youmay miss out on money if you don’t tellthem within three months.If you would like to avoid overpaymentsor underpayments you should informthe Tax Credits Office of any relevantchanges in circumstances as theyhappen.Starting to get Disability LivingAllowance (DLA) for the first time oran increase in DLAAlthough there is a general rule limitingbackdating to one month there aresome exceptions. If your child isawarded DLA, or has an existing DLAaward increased to the high rate forpersonal care, this can lead to extraChild Tax Credit payments.So long as you notify the Tax CreditsOffice within one month of gettingthe DLA decision, any extra tax creditswill be backdated in line with the DLAaward. You should take similar stepsif you or your partner have healthproblems and get DLA in your own right.The earlier section ‘Calculating my taxcredit award’ gives a brief overview of thekinds of changes in circumstances thataffect your award.Avoiding overpayments andunderpaymentsIf a change in circumstances reducesyour tax credits award, that reductionis always backdated in full and you willhave been overpaid. If a change will leadFreephone helpline: 0808 808 3555www.cafamily.org.ukA tax credit guide for self-employed parents 19

Changes in incomeIf you have a change in income, you canchoose to tell the Revenue straightawayor leave it until the end of the tax year.If your annual income increases, it willhave no affect on your current year’saward, unless it goes up by more than£10,000. However, the increasedincome will be counted for tax credits inthe following tax year. Because of this,it is a good idea to tell the Revenue assoon as your income increases.If you choose to wait until the end of theyear before telling them, you run the riskof being overpaid ‘provisional payments’when you are waiting for the renewalof your claim. This is because yourprovisional payments for the early partof the new tax year will be based on anartificially low income.If your annual income in the current yeardrops by £2,500 or less this will not betaken into account until the start of thefollowing tax year. If your income dropsby more than £2,500 the Tax CreditsOffice will re-calculate your tax creditsstraightaway, but they will ignore the first£2,500 of the drop in your income (thatis, treat you as having an income that is£2,500 more than you actually receive).Ultimately, if you wish to avoidoverpayments or underpayments of taxcredits, it is in your interests to reportsignificant increases or drops in incomeas they happen.What happens if I havebeen overpaid tax credits?If you have been overpaid tax credits, theRevenue will normally try to recover theoverpayment by reducing your tax creditpayments.The Revenue should not recover anoverpayment that is a result of officialerror so long as you have met all ofyour responsibilities as a claimant. Yourresponsibilities include providing accurateand up-to-date information, notifyingthem of any changes of circumstances,checking both the information in youraward notice and the payments madeinto your bank account to make sure theyare correct, reporting any errors withinone month and contacting the Revenue ifyou do not understand your award notice.If an overpayment was caused by anofficial error and you met all of yourresponsibilities, none of it should berecovered. If it was caused by officialerror but you also failed to meet anyof your responsibilities, the Revenuemay still agree to write off part of theoverpayment.If there is an error in your award noticethe Revenue expect you to tell themwithin 30 days. If you take longer than 30days to tell them, they are likely to try andrecover any overpayment that had builtup in the period before you notified them– even if that overpayment was originallycaused by their mistake. However, theRevenue’s guidance also says that in‘exceptional circumstances’ they mayagree not to recover an overpayment. Forexample, if your caring responsibilities20A tax credit guide for self-employed parents

meant you couldn’t tell them within30 days of an error in your decisionnotice, you should argue that these areexceptional circumstances and ask themnot to recover any overpayment.The Revenue also have the discretionnot to recover an overpayment if you canshow that this will cause you hardship.Seek further advice from our helpline ifyou are told by the Revenue that youhave been overpaid or that you are likelyto be overpaid. If you dispute that anoverpayment has happened, or disputethe amount of the overpayment, you canappeal (see below).If you accept that you have beenoverpaid, you cannot appeal againstthe Revenue’s decision to claim backthe overpaid money. Instead, you must‘challenge’ their right to recover themoney by completing Form TC846. Thisis available from the Tax Credit Helplineor at www.hmrc.gov.uk/forms/tc846.pdfIf they subsequently insist on recoveryyou can challenge this further throughthe Revenue’s complaints procedure.If you are disputing the recovery of anoverpayment on the basis of officialerror, the Revenue should suspendfurther deductions until they havemade a decision on your case. Formore information about tax creditoverpayments phone our helpline.How can I appeal a tax credit decision?The Revenue can revise a decision(look at it again) if there is a changeof circumstances, if they have made amistake, or if they think that your awardis wrong.If you disagree with a Revenue decisionyou can appeal.The time limit for appealing is 30days from the date of the decision. Anappeal must be in writing and mustgive the reasons you are appealing.Appeals can be made on form TC623,found at the end of leaflet WTC/APavailable from the Revenue.Unless you are reporting a changeof circumstances it is usually betterto request an appeal rather than arevision. The reason for this is thatthe appeal deadline of 30 days is notextended if you ask for a revision andthis is turned down.Late appeals are sometimes possibleup to one year and 30 days after adecision. However, a late appeal is onlygranted in limited circumstances, soyou should always try and ensure youmeet the normal appeal deadline.Tax credits and otherhelp for families onlow incomesFor detailed advice on how a tax creditclaim will affect any benefits you getnow, please call our freephone helpline.Income Support and income-basedJobseeker’s AllowanceChild Tax Credit replaces any paymentsfor children made as part of yourFreephone helpline: 0808 808 3555www.cafamily.org.ukA tax credit guide for self-employed parents 21

Income Support or income-basedJobseeker’s Allowance.In addition any Working Tax Credit thatyou receive is treated as income anddeducted from your Income Supportentitlement. In some cases claiming taxcredits can lead to an Income Supportaward stopping – contact the helplineif you want to know how a claim for taxcredits will impact on your current benefits.Housing Benefit and CouncilTax BenefitOngoing payments of tax credits arecounted as income when calculatingrent and Council Tax rebates (unless youare over pension credit qualifying age, inwhich case Child Tax Credit payments areignored). However, payments for arrearsof tax credits are often not counted.Contact our helpline for further advice.Health benefitsYou can get full help with health costs ifyour annual taxable income is less than afixed threshold and you get:• Working Tax Credit and Child Tax Credit, or• Working Tax Credit with a disabilityelement, or• Child Tax Credit and you are not eligiblefor Working Tax Credit.The annual threshold is currently£15,276.Vouchers for free milk, fruitand vegetablesIf you are pregnant or have a child underfour, receive Child Tax Credit (but notWorking Tax Credit) and have an annualtaxable income of less than £16,190,you should qualify for vouchers whichyou can then use towards milk andfresh or frozen fruit and vegetables. Youmay also be able to access free vitaminsupplements. This help is provided bythe Healthy Start Scheme and moreinformation is available from the HealthyStart Helpline, Tel: 0845 607 6823 or viatheir website, www.healthystart.nhs.ukFree school mealsYou will be able to get free school mealsif your annual taxable income is less than£16,190 (15,860 in Scotland), you areentitled to Child Tax Credit and neitheryou nor your partner are working 16hours or more per week. This appliesacross the whole UK.In Scotland, you can also get free schoolmeals if you get Working Tax Creditalongside Child Tax Credit, but only ifyour annual taxable income is less than£6420.In Northern Ireland you can also getfree school meals if you get Working TaxCredit alongside Child Tax Credit andhave an income of less than £16,190.But this only applies to children born onor after 2 July 2000 who attend a nursery,primary or special school full-time, orwhere a child has a statement of specialeducational needs that says they need aspecial diet.Sure Start Maternity Grant andFuneral GrantsYou may be able to claim these if youmeet certain qualifying conditions and get:• Working Tax Credit with the disability orsevere disability element• Child Tax Credit at a rate higher than thebasic ‘family element’.You must also meet other criteria, pleaseseek further advice.22A tax credit guide for self-employed parents

Contacts for furtherinformation andadviceIf you would like further adviceregarding tax credits or other socialsecurity benefits please call theContact a Family freephone helplineon 0808 808 3555(Mon-Fri 9.30am-5pm) oremail helpline@cafamily.org.ukThis guide is one of a rangeproduced by Contact a Family whichincludes Benefits, tax credits andother financial help and Moneywhen your child reaches 16 yearsof age. For copies, and to find outabout other parent guides, callthe Contact a Family freephonehelpline.You can contact Her Majesty’sRevenue and Customs Tax CreditsHelpline on 0345 300 3900Textphone: 0345 300 3909If you would prefer to speak tosomeone face-to-face then youshould try contacting your localCitizen’s Advice Bureau or a welfarerights project.Written by Derek SinclairThis information applies to taxcredits, claims and rules for the taxyear April 2012-March 2013 and isup to date as of October 2012.Social networkingContact a Family is on Facebookand Twitter. Join us at:Facebookwww.facebook.com/contactafamilyTwitterwww.twitter.com/contactafamilyPodcastsYou can download podcasts fromour website at:www.cafamily.org.ukVideosYou can watch videos on ourYouTube channel at:www.youtube.com/cafamilyFreephone helpline: 0808 808 3555www.cafamily.org.uk

Getting in contactwith usFree helpline for parents and families0808 808 3555Open Mon–Fri, 9.30am–5pmAccess to over 170 languageswww.cafamily.org.ukwww.makingcontact.orgContact a Family Head Office:209-211 City Road, London EC1V 1JNTel 020 7608 8700Fax 020 7608 8701Email info@cafamily.org.ukWeb www.cafamily.org.ukOther informationbooklets availableThis guide is one of a seriesproduced for parents and groupsconcerned with the care of disabledchildren:• A guide to claiming Disability LivingAllowance for children (UK)• Aids, equipment and adaptations (UK)• The tax credits guide (UK)• Holidays, play and leisure(UK)• Disabled children’s services• Getting direct payments for yourdisabled child• Understanding your child’s behaviour• Fathers• Siblings• Benefits, tax credits and other financialhelp.A full list of Contact a Family publicationsis available on request or can bedownloaded from our websitewww.cafamily.org.ukRegistered Office: 209-211 City Road,London EC1V 1JNRegistered Charity Number: 284912Charity registered in Scotland No. SC039169Company limited by guaranteeRegistered in England and Wales No. 1633333VAT Registration No. GB 749 3846 82® Contact a Family is a registered trade markAlthough great care has been taken in thecompilation and preparation of this guide toensure accuracy, Contact a Family cannot take anyresponsibility for any errors or omissions.24 © A tax Contact credit guide a for Family, self-employed October parents 2012Order code: i2